Survey: Pension Plan Shortfalls Plague Firms

Retired workers enjoying their golden years may be blissfully unaware of the epic struggle companies are engaged in to ensure that the pensions they rely upon continue uninterrupted.

A recent survey found that about 25 percent of mid-sized firms in Britain, the United States, Canada and Holland — four of the world’s largest economies — are cutting capital spending to offset pension funding shortfalls. Half of the surveyed firms report that their pension burden is cutting into profits.

Twenty-two percent of 151 firms surveyed — all having pension assets valued at an average of $180 million — said the difference between assets and expected pension payouts has required them to cut capital spending, reported a survey by SEI Investments. SEI is a leading provider of asset management and investment technology solutions.

"The scope of the damage to mid-sized companies is sobering," said Jim Morris, Senior Vice President, SEI Investments. "Without the ready access to capital markets enjoyed by bigger corporations, these companies face tougher choices when facing pension funding pressures."

The survey, conducted when firms have been complaining of ever growing gaps between assets and expected pension payouts, indicates that 32 percent of firms with underfunded pensions are changing their business plans to deal with the issue.

"The 22 percent of executives we surveyed attributed the reduction in their capital spending to their current or expected future funding requirements," Morris told Reuters.

The survey showed that 58 percent of those sampled tied the condition of their pension funding schemes directly to their profitability with as much as 90 percent saying they had taken some steps to deal with their pension plights while another 27 percent said they have closed their defined benefit plans.

In Britain, for example, nearly two thirds of pension plans run by the country’s largest firms have funding deficits, when measured according to new accounting rules that enhance transparency in company pension costs, according to advisers Mercer Human Resources Consulting in April.
Nine out of ten of the surveyed companies are taking at least one corrective action. Half are adjusting their pension plan investment strategy and 44 percent are increasing contributions.

"The downside impact of pensions plans on corporate operations has grown dramatically during the past three years of market decline," noted Morris. "Pension plans have the attention of senior management, who now recognize that integrating plan management with overall business operations is necessary, regardless of market conditions."

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