In class on Tuesday, we briefly discussed risks associated with companies with defined benefit pension plans. I found an article discussing how firm executives have been devoting more attention to containing these risks during this time of financial uncertainty.
Financial execs from North American companies with DB plans are shifting the focus away from making a return on their assets and putting more effort into eliminating risks associated with their pension plans. In fact, a survey from Towers Perrin shows that 76% of companies surveyed have made that shift. The extreme strain caused by failing financial markets coupled with new regulations put forth in the Pension Protection Act are forcing financial teams to manage pension plans more effectively.
The current financial state has companies worried about their pension plans impacting their cash flows, income statement, balance sheet, and their ability to comply with regulatory requirements. To manage these risks, companies are mainly focusing on improving their portfolio management techniques rather than changing their plan designs or involving third parties. 21% of the companies even reported that they are now managing their pension risks together with enterprise risk management techniques, and 46% said there was some coordination with broader risk management structures.
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