Benefits plan managers hoping to reduce their employers' long-term financial exposure are increasingly offering employees who have accrued pension and related benefits short-term options to get them off the books more quickly.
This trend came through loud and clear in a Mercer/CFO Research report, "Evolving Pension Risk Strategies," released this week. The survey sought input from finance executives of major corporations and nonprofits, each of which had at least $100 million in defined benefit plan assets.
"This year's survey confirms what we have seen in working with our clients: continued strong support for risk management strategies such as dynamic de-risking and, more recently, increased plan sponsor interest in risk transfer opportunities," intoned a summary of the findings.
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Comparisons of the results from the 2013 survey vs. the prior one in 2011 indicated that employers are pushing their plan managers to reduce their long-term exposure to the vagaries of employee benefits.
In 2011, 37 percent of respondents said they planned on matching fixed-income durations to defined plan liabilities; this year, 49 percent reported that they had actually done so in the last two years. Two years ago, 32 percent said they planned to employ "dynamic de-risking strategies" but this year, 43 percent said they actually did so. And while 30 percent said in 2011 they planned to increase allocations to fixed-income investments, turns out 41 percent did so during that two-year period.
Additionally, the trend toward offering employees and former employees lump sum settlements to close out their pension obligations accelerated.
"In the current survey, 67 percent of respondents are somewhat or very likely to offer cash-outs to former employees, and 48 percent are somewhat or very likely to transfer liability to a third party via an annuity purchase over the next two years," the report said. "Indeed, according to our estimates … as much as $100 billion could be transacted in annuity purchases by U.S. corporate pension plans over the next two to three years."
Respondents said that "a significant percentage of plan participants accept such conversion offers."
The Mercer CFO study offers a window into what large employers are actually doing with respect to "helping" their employees with retirement planning.
Earlier this week, Bank of America Merrill Lynch released data that showed that most employees who have 401(k)s through their employers are still worried about how they'll fare financially in retirement.
The sponsors of that study suggested that employers could help allay those fears by proactively helping employees make prudent choices about their retirement — one of which would likely be to hang on to accrued benefits rather than accept a lump-sum payout.
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Dan Cook
Dan Cook is a journalist and communications consultant based in Portland, OR. During his journalism career he has been a reporter and editor for a variety of media companies, including American Lawyer Media, BusinessWeek, Newhouse Newspapers, Knight-Ridder, Time Inc., and Reuters. He specializes in health care and insurance related coverage for BenefitsPRO.
