Index Value Reaches Five-Year High in MetLife's 2013 U.S. Pension Risk Behavior Index Study
-- Many Plan Sponsors Poised to "De-risk" Their Defined Benefit Pension Plans --
NEW YORK--(BUSINESS WIRE)-- Five years after MetLife released the first U.S. Pension Risk Behavior Index (PRBI), the Index value of the 2013 U.S. PRBI is 87, the highest value recorded since the study was introduced in 2009. This value shows that the consistency between the importance plan sponsors ascribe to the risks facing their defined benefit (DB) pension plans and how successfully they believe they are managing those risks has improved. In its inaugural study, MetLife stated that while it was "unrealistic to expect to achieve an Index value of 100, a target of 87 would not be unreasonable."
The 2013 U.S. PRBI Study, which was conducted among 126 large corporate plan sponsors, measures plan sponsors' aptitude for managing - and attitudes about - 18 investment, liability and business risks to which their plans are exposed. A full copy of the report, including descriptions of the 18 risks, can be downloaded at www.metlife.com/pensionrisk.
Plan Sponsors Poised to "De-Risk"
Another key finding of this year's U.S. PRBI study is that many plan sponsors of the largest U.S. defined benefit (DB) pension plans are already acting, or planning to take action, to reduce, mitigate and/or transfer risks affecting their plans.
"While plan sponsors may still be grappling with how best to maintain minimum funding levels at a time when benefit obligations are climbing, recent de-risking moves by several major U.S. corporations may be paving the way for additional companies to consider a similar approach for their plans," said Ed Root, Vice President, U.S. Pensions, Corporate Benefit Funding, MetLife.
When asked if they were planning to take a similar approach, a question asked for the first time this year, four in ten plan sponsors (38%) indicated that they are planning to take action of some kind. They say they are doing so primarily because they want to reduce their liabilities, funded status volatility, contributions, pension expense and/or the cost of plan administration so that they can focus on their core business.
"De-risking - whether it's through a partial risk transfer, pension buyout or some other risk mitigation strategy - can go a long way in achieving these objectives," added Root.
Pension Plan Obligations are a Front-Burner Issue for Senior Management
Plan sponsors report that they are keeping a close eye on the impact that their plans' liabilities have on their companies' balance sheets. Eight in ten (82%) plan sponsors have quantified the present value of their company's pension obligation relative to their organization's size - as measured by market capitalization, annual revenues, total capital or other similar metrics. Nearly six in ten plan sponsors (58%) indicated that their senior leadership pays very close attention to these obligations.
Other notable findings from the 2013 U.S. PRBI include:
Underfunding of Liabilities and Asset & Liability Mismatch continue to rank as the first and second most important risk factors to plan sponsors, respectively. This liability-related focus, which has been consistent for the past three years, is juxtaposed with the first U.S. PRBI study in 2009, when two investment-related risks - Asset Allocation and Meeting Return Goals - topped the importance rankings.
Self-reported success ratings - which measure how strongly plan sponsors agree with statements that describe successful management of each of the 18 risk factors - reached an all-time high. More than eight in ten (85%) of all ratings indicated success, compared to 75% in 2009, indicating that plan sponsors believe they are successfully implementing comprehensive measures to manage each risk item.
Liability Measurement retained the number-one success ranking for the fourth year in a row, indicating that plan sponsors have made reviewing liability valuations and understanding the drivers that contribute to their plans' liabilities - including how the liability profile may change over time - a consistent priority.
In the wake of accounting rule changes, funding changes and more disclosure requirements, plan sponsors say they believe that fewer regulations, and more clarification, would be helpful in maintaining their DB plans. Plan sponsors say that if policymakers are going to take action, they believe that a more favorable interest rate environment, lower Pension Benefit Guaranty Corporation (PBGC) premiums, and certain changes to accounting rules such as simplification, a reduction or elimination of the impact of settlement accounting, and stabilizing interest rates used for accounting valuations, would be helpful.
"The findings of the 2013 U.S. PRBI answer one of the burning questions in the industry about pension risk management: Would this new risk framework that focuses on both the asset and liability sides of the pension risk management equation - as well this level of attention to pension plan management - be temporary, persisting only as long as the economic downturn was acute and then rebounding with the equity markets, or would it be sustained? Based on the findings of our study, the answer is clear: a long-term fundamental change in perception about the nature of pension risk management has occurred," said Cynthia Mallett, Vice President, Industry Strategies and Public Policy, Corporate Benefit Funding, MetLife, who supervised the research.
"Moving forward, we expect that this balanced and integrated approach will continue to provide a sustainable basis for the decisions made and actions taken," added Mallett.
About the Study
The MetLife U.S. Pension Risk Behavior Index℠ was conducted in conjunction with two research partners - Bdellium Inc. and Greenwich Associates - during the period of October 2012 through January 2013. Commissioned by MetLife, the 2013 U.S. PRBI Study surveyed 126 large plan sponsors (of which 95 reported defined benefit assets of more than $1 billion). Interviews were completed by telephone with a web-assisted option, i.e., respondents had the ability to view the risk factors and questions online while answering the survey via telephone. Respondents consisted of senior financial professionals whose primary focus is pension investments, risk management or employee benefits, in addition to corporate management. A complete report of the findings for the MetLife U.S. PRBI Study (and detailed description of the research methodology) is available at www.metlife.com/pensionrisk.
Metropolitan Life Insurance Company (MetLife) is a subsidiary of MetLife, Inc. (NYS: MET) , a leading global provider of insurance, annuities and employee benefit programs, serving 90 million customers. Through its subsidiaries and affiliates, MetLife holds leading market positions in the United States, Japan, Latin America, Asia, Europe and the Middle East. For more information, visit www.metlife.com.
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