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While pension risk continues to be a 'hot button' issue for many organizations, a recent survey reveals that many Canadian CFOs are less likely to see the situation as a long-term crisis
Toronto (28 April 2008) — Changing views of Canadian Chief Financial Officers (CFOs) about the nature of the pension funding crisis are expected to give human resources (HR) executives more latitude to use plan design for employee attraction and retention in the future, according to the findings of the Watson Wyatt/Conference Board of Canada 2008 Survey on Pension Risk.
“While pension risk continues to be a “hot button” issue for many organizations, this year’s survey reveals that respondents are less likely to see the situation as a long-term crisis,” said Gilles Rhéaume, Vice-President, Public Policy, of the Conference Board. “The percentage of CFOs that think that there is a crisis that will be long-lasting has dropped significantly in the past couple of years.”
Twenty-six (26) per cent of CFOs responding to the fifth annual survey indicated that they felt the crisis was long-lasting, down from highs of 61 per cent in 2006 and 48 per cent in 2007. Meanwhile, 31 per cent of CFOs view the crisis as cyclical.
A total of 168 Canadian organizations responded to the 2008 Survey on Pension Risk, conducted by Watson Wyatt Worldwide in association with The Conference Board of Canada. Both CFOs and senior human resources executives (VPs HR) were surveyed.
Forty-three (43) per cent of VPs HR respondents consider the pension crisis to be long-lasting, compared to 40 per cent in 2007, but down from a high of 67 per cent in 2006.
The trend of converting pension plans from defined benefit (DB) to defined contribution (DC) appears to be slowing down. Less than 3 per cent of respondents are implementing some form of DB-to-DC conversion in the next 12 months, down from nine per cent in the last 24 months.
“The increasing influence of the HR function will allow respondents to use plan design to address the issue of attracting and retaining highly-skilled or high-performing employees,” said David Burke, Canadian Retirement Practice Director, Watson Wyatt Worldwide. “Respondents continue to view DB plans as superior to other retirement savings arrangements for employee retention, which may be due partly to the concerns they have expressed about the ability of DC plans to provide adequate retirement income for plan members.”
Seventy per cent of respondents indicated that they are very concerned with attracting highly-skilled individuals, and 76 per cent stated that they are very concerned about retaining high-performing employees. Fifty-eight percent of respondents view the inability of DC plans to provide sufficient retirement savings— due to poor investment returns—as the most serious threat to these pension plans’ sustainability.
Continuing the trend of previous surveys, the volatility of funding contributions remains a top concern for DB pension plans (with 68 per cent regarding it as a major threat), particularly for respondents from publicly-traded companies. In both the private and public sectors, the next highest ranked threats from the sponsor’s perspective are asymmetry between risk and reward (63 per cent) and the volatility of pension accounting expense (55 per cent).