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Benefits November 30, 2009
DB Plan Volatility among Top Exec Concerns
November 30, 2009 (PLANSPONSOR.com) – A recent survey by Towers Perrin finds that most finance executives remain concerned about several financial and risk management issues, most notably cash and cash flow, and defined benefit (DB) pension plan volatility.
Reported by Rebecca Moore
Fifty-four percent of finance executives surveyed reported
an increased level of concern around pension plan volatility, more than such issues
as risk management, access to short- and long-term financing, and executive
compensation, according to a press release. However, survey findings indicate
that only about one-third of the respondents have changed pension plan
investment strategy as a result of the financial turmoil, and even fewer (12%)
have changed pension plan hedging policies.
Towers Perrin said cash flow concerns are somewhat higher
on the executives’ radar because of the minimum funding requirements mandated
by the U.S. Pension Protection Act. Nearly 70% of respondents attached
some degree of importance to managing pension-related funding needs over the
next six to 12 months, with more than one-quarter saying it is very important
or essential.
Cash Flow Tops Concerns
When ranking the importance of certain activities they
will be considering over the next six to 12 months, 81% of respondents said
cash flow is important or essential. More than three-fourths of
respondents (77%) listed earnings, followed by revenue (74%), liquidity (72%),
and market share growth (37%).
Further, most executives said they still expect to be
focusing on capital and liquidity a year from now. Fifty-three percent
said they expect a long-term need to optimize liquidity levels, followed by the
need to invest in businesses to create growth (50%), and to reduce cash-flow
volatility (41%).
Other survey findings, according to the press release, include:
- Most companies have been hard hit by the recession, and nearly a quarter (23%) report a revenue shortfall of more than 20%.
- Although 30% of executives said the recession would end in 2009, 53% noted they believe it will end in 2010.
- Changes to short-term operating budgets and cash management have been greater than were anticipated a year ago. Sixty percent said they made changes to short-term operating budgets, while only 44% said they were planning on them a year ago. Further, 57% changed their cash management practices; 49% said last year that the change was in the offing.
- When it comes to specific areas of risk management most in need of improvement at their respective firms, 22% cited operational risk, and 16% indicated market risk, while 14% said liquidity risk.