DB Plan Volatility among Top Exec Concerns

November 30, 2009 (PLANSPONSOR.com) – A recent survey by Towers Perrin finds that most finance executives remain concerned about several financial and risk management issues, most notably cash and cash flow, and defined benefit (DB) pension plan volatility.

Fifty-four percent of finance executives surveyed reported an increased level of concern around pension plan volatility, more than such issues as risk management, access to short- and long-term financing, and executive compensation, according to a press release. However, survey findings indicate that only about one-third of the respondents have changed pension plan investment strategy as a result of the financial turmoil, and even fewer (12%) have changed pension plan hedging policies.

Towers Perrin said cash flow concerns are somewhat higher on the executives’ radar because of the minimum funding requirements mandated by the U.S. Pension Protection Act.  Nearly 70% of respondents attached some degree of importance to managing pension-related funding needs over the next six to 12 months, with more than one-quarter saying it is very important or essential.

From a risk management perspective, 61% of respondents said pension risk management needs at least a little improvement and another 10% think a lot of improvement is needed.

Cash Flow Tops Concerns

When ranking the importance of certain activities they will be considering over the next six to 12 months, 81% of respondents said cash flow is important or essential.  More than three-fourths of respondents (77%) listed earnings, followed by revenue (74%), liquidity (72%), and market share growth (37%). 

Further, most executives said they still expect to be focusing on capital and liquidity a year from now.  Fifty-three percent said they expect a long-term need to optimize liquidity levels, followed by the need to invest in businesses to create growth (50%), and to reduce cash-flow volatility (41%).

Other survey findings, according to the press release, include:

  • Most companies have been hard hit by the recession, and nearly a quarter (23%) report a revenue shortfall of more than 20%.
  • Although 30% of executives said the recession would end in 2009, 53% noted they believe it will end in 2010.
  • Changes to short-term operating budgets and cash management have been greater than were anticipated a year ago.  Sixty percent said they made changes to short-term operating budgets, while only 44% said they were planning on them a year ago.  Further, 57% changed their cash management practices; 49% said last year that the change was in the offing.
  • When it comes to specific areas of risk management most in need of improvement at their respective firms, 22% cited operational risk, and 16% indicated market risk, while 14% said liquidity risk.



Conducted between October 6 and October 26, 2009, Towers Perrin latest survey gathered responses from 133 U.S. corporate finance executives.