Employers Globally Consider Pensions a Risk

December 13, 2006 (PLANSPONSOR.com) - Over half of companies around the world surveyed by Mercer Human Resource Consulting said their pension plans represent at least a moderate financial risk to their organization.

According to the Global Pension Risk Survey report, aside from the 56% of respondents rating their pensions as a moderate risk, 16% said their pension plans posed a great financial risk to their companies. A larger number of companies headquartered in the UK (29%) and Continental Europe (24%) rated their pension plans as a great financial risk than in the US (9%).

One in five respondents said it is “very challenging” managing the volatility of profit and loss/income statement expense caused by their pension plans, the report said. In addition, 18% said managing balance sheet volatility is “very challenging.”

The survey also found almost 20% of respondents in Continental Europe indicated they find managing the current level of cash funding requirements for their primary pension plan “very challenging,” while 11% of US and 11% of UK respondents said the same.

To address these challenges, responding companies plan to adjust pension investment allocations. According to the report, in the next two years 30% of companies plan to increase their pension plan’s allocation to fixed income instruments, 26% to hedge funds/private equity/infrastructure investments, and 26% to interest rate hedging via fixed income investments and/or derivatives.

Almost 60% of respondents said they have either made or are planning make at least one of the following changes to the design of their pension plans:

  • Close plan to new hires,
  • Freeze or suspend benefit accruals,
  • Reduce the level of benefits provided.

By region, companies in Continental Europe were the most likely to have closed their pension plans to new hires (60%), followed by the UK (50%), and the US (just over 40%). More than half (54%) of survey respondents said they have introduced or are planning to introduce or enhance a defined contribution plan.

Mercer surveyed 312 employers, of which 167 are based in the US, 52 in Continental Europe, 44 in the UK, and 29 in Canada. The remaining were based in Asia, Latin America, Australia, or New Zealand. More information can be found at www.mercerhr.com .