According to a new Towers Perrin survey of senior financial executives in the United States, more than two-thirds of them believe that available solutions to the major risks posed by defined benefit pension plans are usually too expensive or ineffective. The survey, A Problem in Search of Solutions: A Study of Defined Benefit Pensions, reports that the "potential financial impact of a pension plan on an organization is clearly top of mind among plan sponsors and would be significant enough for many executives to consider freezing their plans." Of those surveyed, 32% had already closed their plan to new entrants.
Cecil Hemingway, principal and head of the Legacy Pension Solutions unit at Towers Perrin, says that the study shows that "these plans are still an important employee benefit at many companies," but that CFOs and other financial executives "see a clear link between plan risk and its potential impact on cost of capital, rating changes and other threats to their business plans." He suggests that, as new solutions become available, "plan sponsors need to expand their abilities to assess and evaluate these choices to ultimately determine which best fits their companies' pension situation." However, comparatively few companies have adopted sophisticated processes for evaluating pension risks holistically and over the longer term.
Source: News Release Towers Perrin (March 22, 2006)