Directors of companies with defined benefit retirement plans are worried they're not getting the most bang for their buck from these plans, according to a survey by Mercer.
"I think what we're finding in the survey is that for organizations that still have defined benefits plans, with what's gone in the markets, is that board members want to have more of a role," Jess McGrath, principal at Mercer, said.
Mercer's analysis of defined benefits plans offered by the Standard & Poor's 1500 showed they were funded at 86 percent at the end of May, up from 70 percent at the end of July 2012. That stability has board members ready to be more involved with how the plans benefit their companies.
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More than half (59 percent) of respondents said their company has not attempted to quantify the effectiveness of the retirement program in terms of attracting and retaining staff. That's despite the fact that 51 percent said they would like more oversight of retirement plans offered and to align their objectives with the business and talent objectives of the company.
"Many boards of U.S. companies with defined benefit plans have very limited understanding or visibility into the economic risk profile of their plans, because most CFOs and CEOs do not have an adequate understanding of the risks themselves," Mercer quoted one respondent saying. "While this understanding has improved over recent years, it is still striking how poorly understood this area of risk is relative to management's and the board's understanding of other aspects of enterprise risk management."
Of the 201 directors and corporate officials of public, private and corporate businesses who participated in the survey via email in May, 68 percent said managing the cost and risk of their defined benefit plans was their top priority.
Moreover, 88 percent said they were seeing the impact of the plan on company financials, and half were concerned about this impact.
One-quarter (26 percent) said hiring a consultant to advise the board would be valuable, good news to companies such as Mercer. On the other hand, 55 percent said they don't think it would help.
Other areas respondents said they are interested in are: Quantifying the workforce management implications of the retirement program (e.g., if employees can't afford to retire, will that create a blockage in the talent pipeline?), 32 percent; the risk and cost implications of the defined benefit plan, 29 percent; having a strategy in place to "derisk" the defined benefit plan, 28 percent; and mitigation of fiduciary risk of the plan, 27 percent.
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