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Corporate America Anxious About Providing Pensions And Benefits

Stocks in this article: PRU

The rising price tag of healthcare and the risks and costs associated with funding pension plans weigh heavily on corporate finances, according to “ Balancing Costs, Risks, and Rewards: The Retirement and Employee Benefits Landscape in 2013,” new research released today by Prudential Financial, Inc., in collaboration with CFO Research Services.

As corporate America struggles to manage costs and risks while maintaining the competitive retirement and benefit packages needed to recruit and retain workers, finance executives are exploring and adopting new ways to address these challenges, the survey found.

“The current economic environment, changing world of pensions, and ever increasing cost of healthcare all continue to present challenges to companies providing employer-paid benefits,” said James Gemus, senior vice president for group life and voluntary benefits, Prudential Group Insurance. “Employers are finding solutions like developing new investment strategies and offering voluntary benefits employees choose and pay for themselves.”

The survey targeted senior financial executives at companies with defined benefit retirement plans holding $250 million or more in assets. These are plans that pay out a specified benefit to retirees. The survey, conducted by CFO Research in February, complements studies done in 2009, 2010 and 2012. More than 80 percent of the 181 companies included in the survey had revenues of more than $1 billion.

If healthcare is the top concern for employers, funding pensions is not far behind. The survey found nearly sixty percent of the companies have either frozen accruals for all participants or closed their defined benefit plans to new entrants and many more are likely to do so within two years. Many are looking at transferring pension risk and enhancing defined contribution plans – like 401(k) s – to improve operating flexibility and help employees better fund their retirements.

“These financial executives are worried about management attention being diverted from running the business to dealing with pension liabilities,” said Margaret McDonald, senior vice president and actuary for pension risk transfer, Prudential Retirement. “An increasing number are looking at transferring the entire pension risk.”

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