U.S. Pension Risk Management. What Comes Next?

Transcription

1 U.S. Pension Risk Management What Comes Next? November 2013

2 In 2012, there was an unprecedented amount of various settlement activities. In 2013, many pension plans financial positions benefited from a rise in interest rates and improved equity market performance. So now that many defined benefit (DB) plans have experienced an improvement in their funding levels, what comes next?

3 U.S. Pension Risk Management What Comes Next? Table of Contents Executive Summary 2 Journey Planning 4 Plan Sponsorship 7 Funding Policy 8 Investment Management 9 Liability Management 10 Employer Views on Maintaining an Open DB Plan 12 Conclusion 12 About the Survey 12 U.S. Pension Risk Management What Comes Next? 1

4 Executive Summary In 2012, there was an unprecedented amount of various settlement activities. In 2013, many pension plans fi nancial positions benefi ted from a rise in interest rates and improved equity market performance. So now that many defi ned benefi t (DB) plans have experienced an improvement in their funding levels, what comes next? With the expected cash outlay necessary to proceed with certain settlement activities potentially reduced, will a signifi cant portion of frozen and closed pension plans take action to lessen obligations in the next decade? At the same time, with DB fi nancials improving, do larger employers still sponsoring open DB plans expect to offer DB pensions to new employees in fi ve to 10 years? Towers Watson, in cooperation with Institutional Investor Forums, conducted a survey of U.S. pension risk management practices in mid-2013 to shed light on these questions. The 180 participants, 86% of whom were fi nance executives, provided insights on fi ve key areas relating to their objectives and likely actions in managing the risks of their largest U.S. non-bargained DB pension plans. Half of all responding plan sponsors are looking to transfer some or all of their DB plan obligations off their balance sheet. Journey plans. Three-quarters of respondent companies (75%) have a de-risking road map or journey plan, are planning one or seriously considering implementing one by Also, half of all responding plan sponsors are looking to transfer some or all of their DB plan obligations off their balance sheet. However, companies with larger plans do not appear to have the same goal as those with smaller plans. In fact, 50% of responding companies whose DB plans have over $5 billion in assets, compared to only 31% of those with pension assets below $5 billion, indicate they are looking only to de-risk through investment practices. None say they are looking to transfer all of their obligations to a third party. Irrespective of the fi nal objective in developing a journey plan, the majority of responding plan sponsors expect to achieve their ultimate derisking goal in the next decade. Plan sponsorship. Respondents whose plans remain open to new hires (30%) expect that their plans will still be open fi ve years from now. Larger DB sponsors were more inclined to have an open plan than their smaller counterparts. Of those companies whose plans are still open, more than 70% say they expect to offer a DB plan to new employees fi ve years from now, with sponsors of plans that have over $1 billion in assets more likely to keep their plans open. Comparatively, more than one-third of respondents that sponsor a fully frozen DB plan today expect to terminate their DB plan within fi ve years. One out of six survey respondents expect that their DB plan will be fully terminated by towerswatson.com

5 Funding/Investment Funding policy. The overall cash-fl ow needs of the entire organization trump other considerations for over 65% of respondents. And despite low interest rates, few (less than 10%) respondents indicate they had borrowed to fund their DB plan. Similarly, few respondents contributed company stock in place of cash to their DB plans. Investment management. More than threequarters of responding sponsors (78%) expect to focus more on reducing risk than seeking higher investment returns over the next two to three years. Respondents also indicate a preference for investment strategies focused on aligning changes in assets with movements in pension liabilities. Seventy-one percent of respondents have implemented, are planning on or are seriously considering implementing a liabilitydriven investment (LDI) strategy by Liability management. Lump sum offerings have gained traction among plan sponsors. Fifty-eight percent of responding sponsors have already offered or expect to offer lump sums to their former employees. These payouts are particularly prevalent at companies whose ultimate de-risking goal is to transfer all their pension obligations. Eighty-seven percent of sponsors that have stated terminating their pension plans is their ultimate de-risking goal expect to offer lump sums to former employees. The activities that companies have adopted to manage DB fi nancial risk have generally fallen into three broad categories: plan design, investment strategies and settlement activities (Figure 1). While some plan sponsors have made separate decisions at different times in each of these areas, others have addressed items in a systematic way with a clearly articulated fi nal goal as opportunities arose. Over the last decade, plan sponsors have sought to better quantify, and in many cases mitigate, the various risks inherent in their DB plans. With the market dislocations and volatility of the last 15 years, many of the fi nancial risks associated with DB plans have become apparent and, for many sponsors, have been deemed unacceptable. The fi ndings of this survey can be used by other plan sponsors as they consider their own plans and derisking strategies to meet their business needs and the economic challenges ahead. Figure 1. Sponsors make pension risk decisions in three broad areas Plan Design Close Plan to New Entrants Prospective Lump Sum Option Freeze Benefit Accruals Increased Funding Liability- Driven Asset Strategies Bulk Lump Sums (Former Employees) Bulk Lump Sums (Retirees) Settlement Account-Based Plans Annuity Purchases Traditional Ongoing Plans Plan Termination Spectrum of Pension De-Risking Actions U.S. Pension Risk Management What Comes Next? 3

6 Figure 2. Most sponsors use or plan to use a journey plan 50% 40% 30% 20% 10% 0% 42 Yes This was put in place prior to Yes This was put in place for Yes We are planning on implementing in 2014/ Considering for No We have considered a strategy, but decided against it 14 No We have not considered a formal de-risking strategy Journey Planning A journey plan is a formal pension de-risking strategy, typically including the implementation of preapproved actions when predefi ned triggers are met. A common component of a journey plan is an asset allocation policy that increases fi xed-income allocations as funded status improves. Such an asset allocation approach is typically referred to as a glide path or dynamic asset allocation. The vast majority of survey participants indicate that de-risking is a high priority. Seventy-fi ve percent of respondents report that they either have implemented, plan to implement or are considering implementing a journey plan by 2015 (Figure 2), with roughly less than half of those indicating they already had a journey plan in place for their largest non-bargaining U.S. DB plan prior to This focus on formal de-risking strategies is consistent across responding sponsors of DB plans of all sizes. Only 19% of respondents with over $5 billion in DB plan assets have not considered a formal de-risking strategy, while only 13% of respondents with DB plans with under $1 billion in assets have not done so. Of the responding sponsors with over $5 billion in DB plan assets that have not considered a formal de-risking strategy, 75% still have open DB plans and are therefore likely comfortable with the risks associated with their plans. Plan status appears to infl uence the decision to develop a journey plan. Eighty-two percent of responding companies that no longer offer a DB plan to newly hired workers have implemented, plan to implement m or are considering implementing a de-risking strategy, versus only 57% of responding companies with open plans. This fi nding may indicate that sponsors that are comfortable with the risk exposure of their DB plans are more likely to keep the plan open and less likely to develop a formal de-risking plan. 4 towerswatson.com

7 Implementation A majority of responding companies that have adopted a journey plan or are in the process of adopting one are well along the implementation path. Sixty percent of these sponsors are either monitoring metrics for de-risking trigger points (44%), or have reached some or all de-risking trigger points and have taken the intended de-risking actions (16%). This fi gure increases to over 90% among companies that implemented a journey plan prior to 2013 and 80% among those that implemented such a plan in Long-term objectives Regarding the long-term objectives of companies with a journey plan, half of respondents are looking to settle some or all of their pension liabilities (Figure 3), with 29% seeking to transfer some of their liabilities and another 21% looking to transfer all of their obligations to a third party. Plan size appears to be correlated with a sponsor s long-term objective with regard to de-risking. None of the companies with larger DB plans (those with assets over $5 billion) have a long-term objective of fully settling their DB plan. The largest DB sponsors in this survey are more likely to seek to de-risk assets without settling any pension obligations (50%) or to settle some but not all liabilities (44%) (Figure 4). Plan size appears to influence a sponsor s long-term objective with regard to de-risking. Figure 3. Many sponsors with journey plans seek to transfer/settle some or all obligations 0% 10% 20% 30% 40% Change the design to lower risk/cost for long-term ongoing sustainability of the plan 16 We have/plan to de-risk the trust assets but have no desire to transfer/settle any obligation at this time 33 De-risk with final objective of transferring/settling some pension obligations but likely retaining some as well 29 De-risk with final objective of transferring all pension obligations to a third party 21 Other 1 Figure 4. Sponsors of larger plans show more interest in de-risking assets than settling liabilities 0% 10% 20% 30% 40% 50% Change the design to lower risk/cost for long-term ongoing sustainability of the plan We have/plan to de-risk the trust assets but have no desire to transfer/settle any obligation at this time De-risk with final objective of transferring/settling some pension obligations but likely retaining some as well De-risk with final objective of transferring all pension obligations to a third party Other Under $1B $1B $5B Over $5B 30 U.S. Pension Risk Management What Comes Next? 5

8 Time horizon to reach long-term objectives If market conditions continue to be favorable to DB plans, the next decade may see a period of high activity for sponsors with journey plans as execution triggers are reached. Regardless of the sponsor s ultimate goal, many respondents expect to take action in the near future. For every tactic, the most common response concerning timing was in the next one to fi ve years. When viewed over a 10-year horizon, 62% of respondents expect to reach their ultimate objective and for those respondents whose goal is to transfer all obligations to a third party, this climbs to 76% (Figure 5). Although respondents point to a number of main factors that led them to develop a formal de-risking plan, the most cited is the effect of the DB plan on fi nancial statements, closely followed by the effect of the DB plan on company cash fl ow and the general cost of the plan. Those sponsors for whom the effect of the plan on company fi nancials mattered even more were also more likely to be looking to transfer some or all of their liabilities. Eighty percent of responding plan sponsors whose objective was to settle some or all obligations developed a journey plan due to the effect of the plan on company fi nancials. In contrast, only 52% of those stating they were only likely to change plan design considered the effect of the DB plan on company fi nancials as a main factor in their decision. Of those respondents that do not have a formal derisking plan in place at this time, two main reasons were cited: 44% indicate they are comfortable with the current level of risk in their plan, while 38% say that de-risking is too expensive in the current economic environment. Plan status matters for this question as well. Among those in the former group, 65% still have an open DB plan, likely indicating an overall comfort with their plan design and its risks. Among the second group, 70% have considered a de-risking strategy but decided against it. Given recent increases in discount rates and the generally strong equity markets this year to date, perhaps some of the sponsors in this second group may be inclined to reconsider their decision on journey-plan implementation. Or perhaps the positive fi nancial climate for DB plans will be a welcomed situation, easing the urgency to execute. Figure 5. Most sponsors expect to reach their de-risking goal in five to 10 years Time to reach ultimate de-risking goal All Change the design to lower risk/ cost for longterm ongoing sustainability of the plan We have/plan to de-risk the trust assets but have no desire to transfer/ settle any obligation at this time Final objectives De-risk with final objective of transferring/ settling some pension obligations but likely retaining some as well De-risk with final objective of transferring all pension obligations to a third party Already have 1% 0% 5% 0% 0% This year 0% 0% 0% 0% 0% Next 1 5 years 35% 38% 29% 38% 38% Next 6 10 years 27% 14% 22% 31% 38% Next years 3% 5% 0% 3% 7% When the plan s funded ratio meets our goals 20% 29% 24% 15% 14% No specifi c time horizon 14% 14% 20% 13% 3% 6 towerswatson.com

9 Plan Sponsorship One way DB sponsors have been attempting to address risk in their pension plan is by no longer offering such a benefi t to newly hired workers (closing the plan) and, in some cases, ceasing the accruals of future benefi ts for current workers as well (freezing the plan). This is true despite the relative ineffectiveness of these actions from a riskreduction standpoint, particularly the closing of DB plans. It is not new information that the number of DB plans open to new hires has been decreasing over the last decade. As of the date of this survey, 70% of respondents DB plans are no longer open to new participants (Figure 6). While this is generally an increase from prior surveys, one must wonder whether we have now reached a more stable environment where those companies with plans that are still open have reviewed the design and risks, and have actively decided to maintain a DB plan offering for new hires. The size of the plan affects plan sponsors decisions in this regard. Larger DB plans are more likely to still be open for newly hired workers relative to smaller plans. Approximately 40% of plan sponsors whose DB plan assets are over $1 billion report that they have taken no action to close participation to new hires in their plans. However, this is the case for 22% or less of companies whose plan assets are under $1 billion. Figure 6. More large plans remain active relative to their smaller counterparts Last action taken toward DB in past 10 years All $5B or more $1B $4.9B DB asset size $500M $999M $200M $499M Less than $200M Closed plan to new hires but accruals continue for current employees 27% 43% 19% 19% 30% 39% Froze benefi ts for certain pension-eligible employees but continuing accruals for others (three-quarters are fully closed) 7% 0% 9% 6% 3% 13% Froze benefi ts for all participants 34% 19% 27% 47% 43% 35% Have started discussions with third-party insurance carrier about terminating the DB plan 2% 0% 2% 6% 3% 0% No actions taken, DB pension plan is still open to new entrants 30% 38% 43% 22% 21% 13% U.S. Pension Risk Management What Comes Next? 7

10 Figure 7. Nearly 40% of frozen plans will be terminated 38% 62% 62% DB plan will be frozen 38% DB plan will be terminated 0% We may reopen our DB plan if future financial conditions are favorable or if we feel it is necessary from an HR strategy standpoint The future of DB offerings Among sponsors whose plans are still open to new hires today, there is a high expectation that these plans will still be open fi ve years from now. Seventyone percent of responding companies whose largest noncollective bargaining DB plan is open today still plan to offer a DB plan to all employees fi ve years from now. This may signal a more steady state in the number of companies offering DB benefi ts to new hires in the shorter term. At the same time, three out of eight companies with fully frozen DB plans expect to terminate their plan and settle all liabilities by 2018 (Figure 7). While we have seen an increase in settlement activity during 2012, if these expectations materialize, there could be an unprecedented increase in the number of plan terminations in the next few years. In addition, among responding companies with fully frozen DB plans, the smaller the size of plan assets, the higher the expectation that the plan will be terminated. Among fully frozen plans, 43% of those with DB plan assets under $1 billion expect to terminate their plan, while no company with plan assets over $5 billion expects to do so in the next fi ve years. Funding Policy In 2012, the Moving Ahead for Progress in the 21st Century Act (MAP-21) made signifi cant changes to the funding rules for U.S. DB plans. Chief among them was the methodology for determining the discount rate to be used in calculating pension liabilities for purposes of determining minimum required contributions. In general terms, interest rates are now averaged over a 27-year period, and constrained by widening upper and lower bounds. The result of this change in the rapidly decreasing interest rate environment in which MAP-21 was adopted was to allow plan sponsors to use an otherwise higher discount rate than under the prior rules, thereby lowering the minimum required contributions to DB plans. In light of this change and the relatively low interest rate environment, we inquired as to changes to sponsors funding strategies. While approximately half (48%) of respondents have not recently changed the amount they were planning to contribute to their plan, practices for the other half vary widely. Twenty-three percent still contribute the minimum required amount, which under MAP- 21 can be expected to be a much lower amount, meaning a total of 31% of respondents have in some way decreased their contributions to their plan. However, 21% have increased their planned contribution (Figure 8). Figure 8. Most sponsors have not recently changed funding strategy 48% 8% 16% 21% 3% 4% 16% We still contribute the minimum required, as we believe cash is best deployed in other areas of the business 3% We still contribute the minimum required, as there are other cash constraints 4% We still contribute the minimum required, as we believe the markets will rebound and help fund the plan 21% We have increased the amount we contribute to the plan 8% We have decreased the amount we were planning to contribute to the plan due to the changes in pension legislation, which provide interest rate relief (i.e., MAP-21) 48% We have not changed the amount we were planning to contribute to the plan 8 towerswatson.com

11 It is, of course, impossible to know the entire motivation behind the increased contribution amounts for this last group. However, perhaps a combination of lower borrowing costs, a desire to implement de-risking strategies and increasing DB governmental (Pension Benefi t Guaranty Corporation [PBGC]) premiums were all contributing factors. Regardless of the funding policy itself, for 67% of respondents, a main consideration when deciding how much to contribute to their DB plan is the cashfl ow needs of the entire business (Figure 9). Other main considerations include balance sheet impact and de-risking concerns. External fi nancing and company stock contributions appear not to have gained much traction among plan sponsors as funding options. Despite low interest rates, 10% of companies relied on borrowing to fund their DB plans in 2012 and 2013, and a mere 2% are planning to do so in 2014 or considering it for Also, an even smaller percentage of responding companies have contributed, plan to contribute or are considering contributing company stock to their DB plans during these same periods. Investment Management Reducing risk in DB plan assets Despite generally positive market performance, and as documented in previous Towers Watson surveys, plan sponsors say they continue to follow an investment strategy that places greater focus on risk reduction than on the pursuit of higher returns. Our survey fi ndings reveal that an even greater percentage of companies expect to follow such a strategy in the future. While about 60% of responding companies focused more on risk reduction in the last 12 months, approximately 80% expect their focus to be on risk reduction in the next two to three years versus seeking higher returns (Figure 10). Figure 9. Cash-flow needs is most often a key factor in funding policy determination 0% 20% 40% 60% 80% Cash-flow needs of the entire business Income statement/balance sheet impact De-risking concerns (e.g., improve funded status as a precursor to initiating de-risking actions) 46 Pension cash-flow volatility from year to year 32 PBGC premiums Benefit restrictions under current pension legislation 27 Tax benefit Other financial measures (e.g., debt ratings) 23 Employees concern about underfunded plan 12 Don t know 1 Other Figure 10. The focus on reducing risk continues Focus more on Focus more on Year reducing risk higher returns Don t know Past 12 months 58% 37% 5% Next 12 months 69% 25% 6% Next 2 to 3 years 78% 15% 7% Sponsors of both large and small plans expressed this preference for a strategy with a greater focus on risk reduction than on high returns. However, the biggest shift in this direction from the past 12 months to the next two to three years is seen in DB plans with assets over $1 billion. The proportion of these companies focusing more on reducing risk in the next two to three years is almost 30%, versus only 12% for fi rms with DB plan assets totaling under $1 billion. U.S. Pension Risk Management What Comes Next? 9

12 Figure 11. Sponsors increased their allocation to fixed income 0% 20% 40% 60% 80% 100% Cash Alternative return-seeking assets (hedge funds, private equity, real estate, etc.) Fixed income (other than long bonds) 23 Fixedincome (long bonds) Employer stock 0 Foreign equity Domestic equity (not including employer stock) 8 Increase No change Decrease Figure 12. A majority of sponsors are pursuing LDI strategies 15% 9% 9% 10% 5% By 2015, 71% expect to have implemented an LDI strategy. 52% % Yes We have implemented an LDI strategy prior to % Yes We have implemented/will implement an LDI strategy in % Yes We are planning to implement an LDI strategy in 2014/considering for % No We have considered an LDI strategy, but decided against implementing it 9% No We have not considered an LDI approach 5% Don t know One lever of risk reduction in the DB investment arena is the lowering of public equity exposure. In fact, many plan sponsors say they are decreasing their public equity allocation. In 2013, 38% of responding companies reduced their domestic equity (not including employer stock) allocation, while another 27% decreased their holdings in foreign equity (Figure 11). At the same time, 27% increased their allocation to alternative return-seeking assets, and 34% of plan sponsors increased their longbond allocation. Almost 70% of plan sponsors have changed, plan to change or are seriously considering changing their asset allocation in favor of longterm fixed income and other interest-rate-sensitive instruments by This may be a result of funded status trigger points having been (or about to be) reached in de-risking strategies. A majority of responding plan sponsors are pursuing investment strategies focused on movements in asset values mirroring movements in the liabilities of their DB plans. These types of LDI strategies seem to have become quite prevalent over the last few years. Seventy-one percent of responding DB sponsors have implemented, are planning to implement or are seriously considering implementing an LDI strategy by 2015 (Figure 12). LDI is already a well-established investment strategy, as over half (52%) of respondents had adopted an LDI strategy prior to The steps to implementing an LDI strategy will differ depending on a number of factors and objectives. Companies often follow a glide path where the asset allocation is changed, in a dynamic and systematic manner, to reduce market risk and increase the fi xed-income component as the funding status for the DB plan improves. Sixty-one percent of responding plan sponsors have implemented, plan to implement or are considering implementing a glide path or dynamic asset allocation by These strategies had already been implemented by 37% of respondents prior to Plan size does not appear to infl uence the decision to adopt this type of strategy. Liability Management Over the past two years, we have seen an increasing demand from plan sponsors for strategies to either lower or slow the growth of their pension liabilities in an effort to reduce long-term pension risk. Lump sum offerings continue to serve as a strategy for de-risking DB plans and reducing the size of the obligation on a company s balance sheet. In fact, during 2012, an unprecedented number of bulk lump sum offerings occurred, with a Towers Watson study of bulk lump sum activity showing acceptance rates by those eligible participants often in excess of 60%. 10 towerswatson.com

13 In fact, 58% of respondents say that they have offered or are planning to offer lump sum payments to former employees without terminating their plans, while only 16% have considered this option and decided against it (Figure 13). Survey results also reveal that approximately 6% of respondents have offered lump sum payouts in multiple years. Not surprisingly, companies whose ultimate objective in de-risking their DB plan is to transfer all of their pension obligations say they are more likely to take action by offering lump sum payments than companies with other long-term de-risking objectives. Eighty-seven percent of companies in this group have offered, plan to offer or are seriously considering offering lump sum payouts by In addition to a sponsor s ultimate de-risking objective, plan size appears to infl uence the decision to offer a lump sum payout. Responding companies with smaller plans are more likely to view lump sum offerings as an appealing option. Seventy percent of responding companies whose DB plan assets total under $1 billion have offered, plan to offer or are considering offering lump sum payouts by In contrast, only 53% of responding companies with DB plan assets of $5 billion or more have pursued, plan to pursue or are considering pursuing this option by Lastly, interest rate levels appear to affect a company s decision to offer lump sum payouts. Thirty-three percent of responding companies not offering a lump sum window option to former employees cite the interest rate environment as their main reason for not doing so. Interest rate levels are also cited as a reason few companies have offered or are planning to pursue annuity purchases by 2015 to settle part of their pension obligation (buyout), or as an investment option (buy-in) without terminating the plan. Only 11% of responding DB sponsors indicate that either approach is an option by Thirty-two percent of sponsors report that their main reason for not proceeding with an annuity purchase for some employees is the low interest rate environment (Figure 14). Perhaps the signifi cant rise in rates this year may be a precursor to settlement activities by those sponsors that had elected to defer for that reason. Figure 13. Sponsor interest in lump sum settlements remains strong 30% 20% 10% 0% 26 Done in Done/ Will be done in Planning for 2014/ Considering for 2015 Note: 11 companies offered lump sum offerings in multiple years. 1% 2% 9% 15% 6% 2% 32% 11% 5% 17% 16 Considered and decided against 23 Have yet to consider/no significant changes are currently planned 3 Don t know Figure 14. Low interest rate environment was the primary reason for not offering annuity purchases 11% We do not have access to sufficient funds to settle, within or outside pension trust 5% We do not want the one-time accounting impact 17% We believe we can earn more in the pension trust 32% Interest rate environment has been too low 6% Not consistent with philosophy of providing pensions 15% We have other corporate priorities and have not had the opportunity to fully analyze these options 1% We are concerned about the solvency of the insurance industry 2% We are concerned about concentrating risk with one insurance company 9% Other 2% Don t know U.S. Pension Risk Management What Comes Next? 11

14 Figure 15. Sponsors of open plans view them as a key retention tool 0% 20% 40% 60% 80% 100% Frozen/Closed Open 00 All Strongly disagree Disagree Neither agree nor disagree Agree Strongly agree Not applicable Employer Views on Maintaining an Open DB Plan With the DB plan space constantly evolving from an HR, legislative and fi nancial standpoint, we also captured the opinions of senior fi nance executives on matters concerning their company s benefi t philosophy. From an HR and benefi t philosophy perspective, respondents with open DB plans are more likely to view their pension plan as a driver of employee attraction and retention. Seventy-three percent of responding employers with open plans agree or strongly agree that their DB plan is an important factor in attracting new talent to their organization. Moreover, an even greater percentage (87%) of responding companies with open DB plans view their plan as an important factor in retaining employees (Figure 15). Consequently, while there are fewer open DB plans, those that have made the decision to continue offering these benefi ts appear to have a strong HR viewpoint and consideration for doing so. Consistent with these fi ndings, responding employers with open DB plans are more likely to view their pension benefi t as a market differentiator (64%). Conclusion DB plan risk management has clearly become the norm for most DB plan sponsors, and the majority of respondents indicated they have documented their de-risking strategy through a formal journey plan/glide path. While the ultimate goals and the strategies followed to execute the journey plan vary among sponsors, many survey respondents that sponsor frozen plans have already indicated they are looking to fully terminate their plans in the next decade. Sponsors of the largest DB plans, those with assets in excess of $5 billion, are more likely to de-risk through investment strategies rather than transfer obligations to third parties. They are also more likely to have DB plans that remain open to new hires. The majority of the roughly 30% of respondents that still have open DB plans expect to still offer this benefi t to newly hired employees fi ve years from now. Not only do they indicate they are comfortable with the risks of the plan, but they view their plan as an important driver of talent attraction and retention. One thing is certain pension risk management, in all of its various forms, is clearly top of mind for senior fi nance executives. About the Survey Towers Watson, in cooperation with Institutional Investor Forums, conducted this survey in June and July Executives from 180 organizations participated. Eighty-six percent of respondents work in the fi nance function. These include CFOs, directors of fi nance, VPs/EVPs of fi nance, treasurers and comptrollers. A substantial majority (67%) of respondent companies have at least 10,000 employees, and 37% employ 25,000 or more employees globally. Respondents represent a variety of industries, ranging from utilities and manufacturing, to health care and fi nancial services. The majority of respondents come from companies with $5 billion or more in global net revenue. The survey asked about the largest U.S. non-bargaining DB plan sponsored by the company. Half the sample has $1 billion or more in assets for their largest U.S. non-bargained pension plan. Twenty percent of sponsors have an asset size between $500 million and $1 billion. 12 towerswatson.com

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16 About Institutional Investor Forums Institutional Investor through its publications, forums, membership groups, databases, research and online services delivers premium, uncompromised fi nancial, markets, and investments intelligence to decision-makers globally. For more than 40 years, Institutional Investor Forums (previously Institutional Investor Conferences) has delivered unique, exclusive events highly interactive forums for senior fi nancial executives and investors to hear from global thought leaders and selected solutions providers. We believe it is the exchange of information and experiences among peers that is the hallmark of truly relevant, productive events and it is that factor especially that sets us apart. About Towers Watson Towers Watson is a leading global professional services company that helps organizations improve performance through effective people, risk and fi nancial management. With 14,000 associates around the world, we offer solutions in the areas of benefits, talent management, rewards, and risk and capital management. Copyright 2013 Towers Watson. All rights reserved. TW-NA towerswatson.com