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Towers Watson - Forbes Insights 2010 Pension Risk Survey

Posted on 05 Jan 11

Pension plan sponsors in the United States are seeking more effective management of pension risks through better investment and funding strategies and implementation, according to the Towers Watson-Forbes Insights 2010 Pension Risk Survey. More than 400 executives who are in charge of pension finance at large companies responded to the survey, which was conducted in September and October 2010. The results provide new insights about the current trends and practices of pension plans.

There is no sign that the decline in the sponsorship of active defined benefit (DB) plans has reversed. Neither is the extinction of DB plans imminent. Instead, the survey shows that most sponsors of active plans will continue to provide retirement benefits, although many will cut back on benefits, and some are indeed seeking to close or freeze. The task for pension plan sponsors, according to respondents, is to take action to manage risk and reduce liabilities.

There is a strong desire on the part of plan sponsors to reduce the risk of their pension plans. Many plans are significantly underfunded in the aftermath of the financial crisis, and their sponsors have experienced the resulting pressure on corporate cash flows. Rather than rushing to seek higher investment returns to close this funding gap, however, the majority of sponsors attach greater importance to reducing risk. The most favored strategy is to seek a better alignment of assets with liabilities — for example, through liability-driven investment programs. Executives expect to increasingly utilize swaps, options and other hedging derivatives to achieve better risk management. More plan sponsors today are setting formal funding policies in place of ad hoc decisions. Over time, lump sum payments and annuity purchases are also expected to be vehicles for settling DB obligations on a wholesale basis.

Please go to to download the survey.