Pension plan risks pose a clear and present danger to corporate sponsors, but a majority of pension plan executives have failed to act aggressively to mitigate them, according to a survey released today by Lincolnshire, Ill.-based investment consultant Hewitt Associates.
While a significant and growing minority of sponsors has adopted leading-edge risk management practices, a majority of pension plans surveyed have fallen further behind in the current economic climate, Hewitt reported.
Plan sponsors havent done enough, soon enough, said Joe McDonald, a principal with Hewitt, and head of the firms North American pension risk services group, in an interview.
Progress is being made, but broadly speaking pension overseers have been slow in pulling the trigger when it comes to taking steps to manage their risks more effectively, he noted.
For example, 24% of respondents globally reported using liability-driven investment strategies in the latest survey, up from 17% for Hewitts previous survey in 2006. (For U.S. sponsors alone, the corresponding figures were 20%, up from 15%.) Meanwhile, 40% of respondents said they were seeking greater diversification through alternative strategies, up from 37% in 2006. (U.S. respondents reported a stronger take-up, with 46% in 2008, up from 34% two years before.) And 37% of respondents reported boosting bond exposure and reducing equity exposure, up from 28% in 2006. (The correspondent U.S. figures were 24%, up from 17%.)
Despite those advances, the survey showed ample room for further progress both in how plan sponsors gauge pension risk and how they act to mitigate it.
For example, the survey showed that only 18% of respondents looking at their pension risk in the larger context of the sponsoring companys overall enterprise risk, while nearly half or 46% still looked at that risk in isolation.Meanwhile, liability-driven investment strategies are garnering more attention but less than 20% of respondents said they benchmark the performance of their pension assets against their liabilities, suggesting little progress from Hewitts previous survey in 2006. That points to the need for further progress, because unless plan sponsors are looking at their pension risks in the right context, it will be that much tougher to make effective decisions, Mr. McDonald said.
The survey showed greater LDI progress in the U.K. and Europe where roughly 30% of respondents had adopted strategies to address the mismatch between assets and liabilities than in North America, where just 20% of U.S. respondents and 15% of Canadian respondents had done so.
Likewise, European respondents reported the broadest move out of equities, with 60% reporting reductions, compared with 27% of North American respondents.