Many corporate pension plan sponsors face a significant increase in pension contributions and expense in 2012, adversely affecting competitiveness, investment and job growth and possibly creating a further drag on corporate earnings and cash flow. That troubling outlook is the backdrop for the major concerns of 192 senior-level financial executives surveyed by Mercer and CFO Research Services.

More than half of the finance executives surveyed (59%) said that their company’s defined benefit pension plan poses at least a moderate risk to their companies’ near-term financial performance. According to more than half the survey respondents, the impact of DB plans on company health is a focus of attention of equity analysts and investors and nearly two-thirds of survey respondents said it was a focus of credit analysts and rating agencies.

Over the past five years, market volatility and low interest rates have had the greatest impact, coming on the heels of the higher funding requirements of the Pension Protection Act of 2006, the introduction of mark-to-market balance sheet requirements and expanded disclosure under U.S. and international pension accounting standards.

“Plan sponsors have made some efforts to manage their pension risk exposure by making a variety of plan design and investment changes. However, their efforts may not be enough relative to their benefit obligations,” says Jonathan Barry, defined benefit risk leader for Mercer’s U.S. retirement, risk and finance business. “With no expectation for a quick recovery, plan sponsors should evaluate the effects of the recent turmoil on their future cash requirements, as well as the impact on their P&L and balance sheet.”

Over the past five years, more than three-fourths (78%) of the employers surveyed have made some form of change in their DB-plan’s design. Companies have been most likely to close existing plans to new employees (47%), freeze plans for all employees (21%) or terminate their plans outright (13%). This trend toward changing DB plans is likely to continue: roughly one in three of the executives surveyed say it is at least somewhat likely they will freeze or terminate their DB plans in the next two years.

“We see plan sponsors positioning themselves for rising interest rates or equity market recovery —  either would improve funded status and we expect there will be a significant shift from equities to bonds,” says Nick Davies, principal in Mercer’s investments business. “Corporate defined benefit plan sponsors are intently focused on risk management issues and many are poised to make significant changes. The open questions are: How quickly will market changes occur? And do sponsors have the conviction and capability to carry out their intended changes?”

The report, “Redefining Pension Risk Management in a Volatile Economy,” surveyed 192 senior finance executives at U.S. companies with annual revenues of $500 million or more and representing a wide range of industries. All companies sponsor defined benefit pension plans with an asset value of $100 million or more.

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