Almost four-fifths (78%) of U.S. private-sector plan sponsors said their long-term objective is something other than pension plan termination, while the remaining 22% expect to terminate their pension plan, according to Aon's U.S. Global Pension Risk Survey, which was released Nov. 14.
For plan sponsors that seek to maintain their pension plans over the long term, most intend to continue derisking the assets and/or shrink the liabilities through lump sums or partial annuity settlements.
An even among respondents that seek to terminate their pension plans, only 12% expect this to occur in two years or less, while more than 50% expect it to happen in six years or longer.
Aon also noted that U.S. corporations have progressively reduced the size of their pension obligations over the past 10 years through lump-sum and annuity settlements. As of the end of 2012, the average large plan sponsor had a global projected benefit obligation of about 28% of their market cap and a deficit of 11% of market cap. By the end of 2022, those figures had declined to 13% and 2%, respectively.
"For many corporate sponsors, pensions are not the existential threat they might have been after the Global Financial Crisis," Aon wrote in the report. "So even most 'terminating' plans don't appear to be rushing to the exit."
While U.S. private-sector pension plans are maturing, they are not disappearing, Aon observed, Indeed, most pension plans are moving toward lower-risk positions to cut their impact on the plan sponsor. Also, as plans shrink and derisk, many plan sponsors are also seeking to outsource the management of this non-core business to other parties that are better equipped to run the plans.
Moreover, the survey found that among plan sponsors seeking to manage and maintain their pension plans, some plans will likely be run as chronically slightly underfunded, and many plan sponsors have yet to change their investment policies due to the high-interest-rate environment.
In addition, among these plan sponsors, they have a greater awareness of fiduciary liability insurance than they did a year ago. Fiduciary liability insurance protects plan fiduciaries against claims alleging that they mismanaged an employee benefit plan or plan assets.
The survey also found that only 5% of respondents have an environmental, social and governance policy in place and have made changes to their investments as a result of this ESG policy.
Meanwhile, for sponsors planning to terminate their pension plans, the survey found that favorable insurance pricing will continue for plan terminations, customized liability-driven investment strategies will become more common; and outsourced CIO mandates will continue to grow, as plan sponsors increasingly find the benefits and costs of this approach attractive.
The survey was based on 118 responses from private-sector U.S. pension plans between April and June.
