Corporate DB Plans Aim to Minimize Global Investment Risk, Survey Says

(August 26, 2010) — According to a recent survey by Mercer, 77% of companies plan to make changes to better manage risk.

The consultancy said given the added complexity of managing benefit plans across borders, schemes had been given a “wake-up call” by the recent downturn in the global financial markets, as significant drops in asset values and the dramatic deterioration of defined benefit (DB) pension plan funding positions put stress on already struggling resources.

“For many multinational organizations, the financial crisis in major markets and the impact on benefit programs were unanticipated, and they paid insufficient attention to risk-management activities, such as scenario planning and extreme-event modeling,” Vicki Stokoe, global governance consulting leader at Mercer, said in a news release. “To make matters worse, companies lacking ready access to key information or without an established decision-making structure struggled to respond quickly and effectively.”

Mercer surveyed 114 companies between October 2009 and January 2010 and found that of those multinational organizations, 16% said they believe their governance structures are sufficient for meeting anticipated needs. Meanwhile, 30% are planning changes to their reporting structures.

Additionally, the survey found:

• 93% of respondents confirmed that plans (retirement and benefit plans) are strategically material, thus presenting business and/or strategic risks;
•  81% said the plans pose a financial risk;
•  93% confirmed that plans are material from a reputation point of view; and
•  60% need more information about risk exposure.

In an interview earlier this month with Global Pensions, Bruce Rigby, Mercer global chief retirement strategist, said that more and more multinational companies are developing global pension committees and policies in order to gain a better grasp on their fund liabilities.