EUROPE - Towers Perrin has warned companies ned to make re-assessing the risk management actions of their corporate pension fund a top priority, in their bid to weather the current market turmoil.
The consultant hosted a webcast today on the possible action companies can undertake to limit the damage done to their corporation by the credit crunch, as it argued corporate pension schemes should assess the damage the market turmoil has done to the fund's position, and closely monitoring how trustees will respond to this.
Peter Routledge, head of the UK retirement practice, said in the presentation employers should be prepared for trustees and fiduciaries looking for guarantees of solvency.
"They will be looking at the employer covenant," he said, adding employers might be pressed with big calls for more cash into the pension fund.
The higher pension expense is also bound to hit 2009 profits, and balance sheets will be weakened, warned the consultant.
As pension deficit are getting larger and there is a bigger charge to profits, Routledge urged corporate sponsors to review risk assessment strategies and take further risk management actions if necessary.
According to Towers Perrin, employers could cease DB accrual, opt for longevity swaps, interest rate matching or a deferred transfer exercise.
Routledge also suggested buy-ins and pensioner annuities might be a popular measure, next to a full buyout of the pension plan.
"Quantify your own risk, decide which risk you want to get rid of and develop a strategy," he said, adding funds should look at whether previous risk assessment strategies have worked or revisit risk management strategies.
"Falls in equity markets, the rise in inflation expectations, instability in the bond markets, and general uncertainty have showed how much risk certain employers have in running a defined benefit plan," said Routledge.
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