GLOBAL – One third of mid-sized corporations in the Netherlands, UK, US and Canada, are altering their business plans to cope with pension under-funding, says the latest research from SEI Investments.
According to a survey conducted earlier this year in which 151 senior financial executives of mid-sized pension plans in the Netherlands, UK, US and Canada were interviewed:
32% of companies with under-funded plans are adjusting their business plans due to concerns over their pension.
26% of companies with both funded and under-funded schemes are concerned that the state of their pension fund will put them at a competitive disadvantage because they are unable to finance it.
22% are cutting back on capital spending.
58% said that their scheme had directly impacted their companies’ profitability.
In order to combat the problems of pension fund under-funding, around 90% of those surveyed had taken some sort of corrective action. Half those interviewed are adjusting their investment strategy, 44% are increasing contributions, 27% are closing their defined benefit plans, and 27% are converting to defined contribution plans. This last point is particularly obvious in the UK, where 45% of those UK companies surveyed had converted their fund to a defined contribution scheme.
The role of the adviser is considered vital with regards to finding solutions for pension funding problems. Nearly all (94%) respondents use more than one adviser, with four being the average number called upon. Almost all consult actuaries, and 76% consult their investment manager. Other advisers used are investment consultants, benefit consultants, administrators, accountants and banks.
Despite corporations clearly attempting to address the problem, Jim Morris, senior vice president of institutional asset management at SEI Investments believes that more must be done. “Companies need to streamline the way they run their pension plans in light of a continued bear market. Many CFOs and finance directors have been in a wait and see mode on the pension issue, keeping their distance to see whether problems might resolve themselves in a market recovery but now they are starting to explore other options.
“Companies need to review their pension fund holistically as an integral part of their company financials, a strategic asset that can directly affect the competitiveness of the company.”
SEI Investments is headquartered in the US, and has 78 billion dollars (66 billion euros) in assets under managements.