A new survey shows that a growing number of plan sponsors are making moves to manage risk and mitigate their funded status volatility.
The Mercer/CFO Research 2015 Risk Survey finds that nearly two thirds (59%) of sponsors surveyed have already offered some type of one-time lump sum payment to vested DB plan participants — and nearly half (49%) of survey participants stated their companies are likely to employ some form of lump sum payout in the next two years. Annuity buyouts may also be on the rise — approximately a third (36%) of this year’s respondents state they are likely or very likely to purchase an annuity in either 2015 or 2016.
The main reasons influencing DB activity cited by 2015 survey participants included:
Mortality assumptions. The Society of Actuaries (SOA) updated its mortality assumptions in late 2014, reflecting an increase in longevity. These new tables were cited by survey participants as the leading impetus for sponsors (37%) when considering modifications to pension funding policies and practices in the next two years.
Funded status. Total funding deficit in 2014 rose and aggregate funding levels sank to 79%, a decline of 9 points from the previous year, according to the report, which notes that funded levels have improved to an aggregate level of 84% at the end of Q2 2015.
Pension Benefit Guaranty Corp. (PBGC) premiums. Just over a quarter (27%) of plan sponsors reported that rising PBGC premiums would affect changes in their funding policies.
Most (81%) percent of sponsors indicated they had either adopted (42%) or were considering (39%) a dynamic de-risking strategy to reduce risk as funded status improves. According to the Mercer/CFO Research survey, those that implemented dynamic de-risking were almost universally satisfied with the outcome (87%).
Twenty-two percent of those surveyed said they have already closed plans to new hires, and 26% have either partially (10%) or completely (16%) frozen their DB plans to get themselves "on sounder footing."
The survey was conducted in April and May 2015 by CFO Research, in conjunction with Mercer LLC. It included the perspectives of 213 qualified responses to the survey, from finance executives employed at companies and nonprofit organizations with defined benefit plans that had $100 million or more in assets.
