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Corporate CIOs Know Liabilities (But Not Longevity)

A MetLife poll of plan sponsors showed CIOs are more liability-aware than ever--except regarding how long those liabilities will stick around.
Reported by Featured Author

(June 6, 2013) -- US corporations got the memo about defined benefit plan liabilities, according to MetLife's fifth annual pension risk behavior survey. 

Respondents-126 of them in all-ranked underfunding of liabilities as the single most important factor in managing pension risk. When MetLife first did this survey in 2009, underfunding came in third place, behind asset allocation and meeting return goals. Five years later, return goals do not even make the top five, and asset allocation comes in behind accounting impact.

"It appears that the days of an asset-centric, total-return approach to mitigating risk are truly behind plan sponsors, and the practice of managing assets in the context of liabilities has firmly taken hold," the report said.  

Liabilities were both an area of focus and achievement for the plan sponsors surveyed. More respondents reported success with liability measurement than any other area. Plan governance came in second, and inappropriate trading in third.

The factor fewest plan sponsors felt they were managing effectively was longevity risk, which has stubbornly remained low on the survey's success ranking. In total, 18% of respondents felt they had a reasonable probability of failing at managing longevity risk. Early retirement risk was the next-poorest managed factor, while none of those surveyed saw a risk of inappropriate trading occurring or failure with plan governance.

 MetLife concluded that overall, however, US corporate CIOs and their teams were on top of the risks facing pension funds. "Many plan sponsors are already acting, or planning to take action, to reduce, mitigate and/or transfer risks affecting their plans. This movement from awareness to intent to action-in a five-year time span-is particularly noteworthy" in an industry where change in perspective is typically slow to come, the report said.

Most (80 out 126, or 63%) of the senior investment staff who responded to the poll represented plans with more than $1 billion in liabilities.