Research & Perspectives

Rethinking Risk: Defined Benefit Plan Management Is Poised for Significant Change

Elevated levels of market volatility, significant Pension Protection Act funding requirements, evolving pension accounting standards, and highly competitive business conditions are among the many factors converging to change the face of defined benefit plan management. This article—appearing in the Spring 2011 issue of The ASPPA Journal—examines these dynamics and their impact on widely held pension risk management practices.

Still Facing Headwinds: Institutional Investors Hone Their Approach

Improved investment returns have enabled institutional investors to regain some of the ground lost during the financial crisis of 2008—but complex challenges still lie ahead. Underfunded plans, declining interest rates, increasing liabilities, and heightening legislative and media scrutiny are just some of obstacles confronting institutional investors. This paper examines these challenges—and the strategies being employed to overcome them.

Innovating Pension Risk Transfer Strategies

After experiencing unprecedented losses during the financial crisis of 2008-2009, many defined benefit plan sponsors are now considering risk transfer as a means to reduce their pension risk and fulfill their fiduciary obligations. Prudential is well positioned to deliver the flexibility and security plan sponsors need.

Market Evolution and the Return of Insecurity: New Challenges for Finance Executives

Finance executives are managing in an environment in which business fundamentals appear to be gradually improving, while the financial markets continue to exhibit relatively high levels of instability. This paper explores why this situation is likely to persist, and discusses the implications of such an environment for finance executives.

Keeping Promises: New Solutions for Retirement Benefit Obligations

Business leaders and finance executives are focused on ensuring that their companies have the financial resources to fulfill long-term benefit obligations, while maintaining the flexibility to conduct core business activities. A growing number of solutions are available to help companies fulfill their benefit obligations.

Riders on the Storm: CFOS and the Credit Crisis

As the credit market storm of late 2008 and early 2009 fades, it's time to take stock of where it has left us. The causes of this credit cycle are well known and widely discussed. At this point, we think it's better to look forward than to look back, trying to understand how the landscape has been altered by the crisis.

Managing Retirement Benefits Amid Capital Market Disruption

This research report, commissioned by Prudential and prepared by CFO Research Services, demonstrates that finance executives are more involved than ever in managing their companies' retirement benefit programs and are prepared to take concrete steps to strengthen these programs.

New policy allows firm to transfer pension risk

A manufacturing company used an innovative new product to transfer its pension plan risk to Prudential Retirement while still offering the plan to its employees, and scores of other employers are likely to follow suit, according to this article appearing in Business Insurance. Under the terms of the transaction, the manufacturer purchased Prudential’s Portfolio Protected Buy-in, effectively transferring the liability for approximately $75 million in pension benefits to Prudential and shielding the manufacturer from risks associated with the plan. 

"Rewriting Pension History"

A number of large corporations are changing the way they account for pension plan gains and losses in their financial statements—a change that can make earnings reporting more transparent, and have significant implications for investors. In this article, The Wall Street Journal reporter Michael Rapoport describes how some firms that used to "smooth" large pension asset gains or losses into their financial results over a period of years are now counting all such gains and losses in the same year they are incurred.

"How Corporate Pension Plans Impact Stock Prices"

A company’s stock price is directly impacted by the pension plans it sponsors, according to this article appearing in the Oct. 27, 2010 edition of Pensions in Practice, a periodical published by Morgan Stanley. Using both empirical and statistical research, the authors found that pension-heavy stocks—those with pension liabilities exceeding 25% of market capitalization—underperformed during the recent credit crisis, and outperformed during the subsequent market rebound.

For questions about the content in "How Corporate Pension Plans Impact Stock Prices," please contact Jim Kelly at (212) 761-8935. www.morganstanley.com

"Funny Money"

Many defined benefit plan sponsors are seeking ways to mitigate the impact of pension volatility on their balance sheets and income statements, allowing them greater focus on their firms' core businesses. This paper, published by Oliver Wyman and Mercer, explores the advantages of reducing pension risk; re-evaluating the earnings current pension strategies generate; and implementing rational and active risk management.

For questions about the content in "Funny Money", please contact the authors, and for media, please contact Jung Kim at jung.kim@oliverwyman.com. More information about Oliver Wyman and Mercer can be found at www.oliverwyman.com and www.mercer.com.

"Pension Funds Flee Stocks In Search of Less-Risky Bets"

A growing number of corporate pension funds are reducing their stock exposure in favor of the more stable returns of bonds. This article, written by E.S. Browning for The Wall Street Journal, examines the trend toward secure investments as many pension managers—still stinging from the financial crisis of 2008-2009—seek returns that keep pace with their plans' obligations.

"Pensions: the Lump-Sum Gamble"

Employees who choose a lump-sum disbursement from their pension plan could be making a costly mistake, according to an article written by Ellen E. Schultz for The Wall Street Journal. The Pension Protection Act of 2006 enables employers to change the way they calculate lump-sum payouts—a change that can mean substantially reduced benefits for employees who select this option.