Plan Sponsors Can Expect Contribution Increases in 2012

December 16, 2011 (PLANSPONSOR.com) – Corporate pension plan sponsors face increases in contributions and expense in 2012.  

These increases will affect competitiveness, investment and job growth and possibly create a further drag on corporate earnings and cash flow, according to the Mercer and CFO Research Services Redefining Pension Risk Management in a Volatile Economy survey report.

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

Respondents cited a number of factors affecting their pension plan funding, risk management and investment policies. 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,” said Jonathan Barry, Boston-based 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.”