A growing number of US employers are planning to de-risk their defined benefit pension plans a Towers Watson's survey revealed today. Plans are benefiting from rising interest rates and improved equity performance.
The firm's, US pension risk management - what comes next report questioned 180 US companies that sponsor at least one non-bargaining DB programme. The survey found that 75% of respondents had either implemented, are planning to, or are considering developing a formal 'journey' plan to de-risk their DB plans. Forty-two per cent said they had a journey plan in place before 2013, while 8% implemented a plan this year.
Michael Archer, leader of the client solutions group for retirement, North America, at Towers Watson, said pension plan sponsors remained under tremendous pressure to reduce the financial liabilities of their DB plans.
He said last year was marked by 'unprecedented' pension de-risking settlement activities, primarily lump-sum payments and annuity purchases. According to him, employers see these settlements as the most viable option to lower their DB burdens.
He said: 'A significant number are planning to take action in the next year or two.'
Respondents cited several factors that led them to develop a formal de-risking plan, with the most attractive factor being the impact of DB plans on financial statements (69%), followed by the effect of the DB plan on company cash flows (58%) and general costs of the plan (41%).
Matt Herrmann, leader of retirement risk management at the firm, noted that he had seen a continued interest in companies offering lump-sum buyouts to 'vested former employees' who were yet to retire. While a majority of plan sponsors with DB schemes still open to new hires and intend to offer a pension to all employees five years from now.
He said: 'The success of these programs in 2012 will help drive a significant amount of activity over the next several years.
'The low interest rate environment coupled with moderate funded status levels limited the options for many plan sponsors over the past several years. However, if the recent improvements in funded status continue, de-risking activity could be strong for the foreseeable future.'
In September companies were urged to take advantage of the improved pension de-risking climate.
At the time professional support services firm Capita said because DB pension schemes represented a growing financial risk companies that had successfully taken some or all of this pension risk off the table were simply more attractive to investors.
