A news release about the 2011 MetLife U.S. Pension Risk Behavior Index said underfunding of liabilities was selected as the most important more often than any other risk factor in the history of the study. Specifically, when plan sponsors in the latest research were asked to indicate the importance of the 18 risk factors affecting their plan, these top two risks were selected as the most important 66% of the time and 60% of the time, respectively.
MetLife said that is different from last year’s study in which sponsors placed nearly equal importance on all risks facing their plan and the 2009 study, which found that plan sponsors were intently focused on the asset side of the asset‐liability equation. “Plan sponsors are now placing a priority on liabilities in overall pension plan risk management, focusing on a core set of balanced risk factors,” said Robin Lenna, executive vice president and head of MetLife’s Corporate Benefits Funding group, in the news release.
Overall, the consistency between importance and success for each of the 18 risk items has improved slightly in 2011 over 2010, even though plan sponsors indicate they are not successfully managing the two most important risks facing their plans.
The third‐ and fourth‐ranked risk factors this year, Asset Allocation and Meeting Return Goals, are investment‐related risks. However, their selection rates are much lower than that of the top two risk factors (45% and 41% of the time, respectively), suggesting that plan sponsors are now focused on managing plan assets in the context of plan liabilities, MetLife said. By comparison, in 2009, these same four risk factors occupied the top rankings, but then the investment related risks (Asset Allocation and Meeting Return Goals) were ranked first and second in importance, while the liability‐related risks (Underfunding of Liabilities and Asset & Liability Mismatch) occupied the third and fourth positions.
Meeting Return Goals
Meanwhile, MetLife said, several risk factors, including Meeting Return Goals, Accounting Impact and Investment Management Style, dropped in the importance ranking from 2009 to 2010, but have regained importance in 2011. Conversely, Advisor Risk, Early Retirement Risk and Inappropriate Trading rose in the importance ranking from 2009 to 2010, but fell in 2011.
The third annual value of the U.S. PRBI is 81 out of 100, a slight improvement from 79 in 2010 and slightly down from 82 in 2009. The Index calibrates the importance that plan sponsors surveyed ascribed to each risk, their reported success at implementing comprehensive practices to manage each risk and the consistency between the two, effectively measure both attitudes toward, and aptitude for, managing pension plan risks.
The MetLife U.S. Pension Risk Behavior Index (PRBI) was conducted in conjunction with two research partners – Bdellium Inc. and Greenwich Associates – during the period of August through December 2010. The U.S. PRBI surveyed 149 large plan sponsors (94 of which reported defined benefit assets of more than $1 billion).
Interviews were completed by telephone with a Web‐assisted option, i.e., respondents had the ability to view the risk factors and questions online while answering the survey via telephone. Respondents consisted of senior financial professionals whose primary focus is pension investments, risk management or employee benefits, in addition to corporate management.
The survey report is here.