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06 May 2016

Finance executives concerned with funding defined benefit plans, focused on managing volatility and longevity risks

Finance executives are increasing contributions to defined benefit plans, moving them closer to full funding, according to a new report from Prudential in collaboration with CFO Research.

The findings of the report show that C-suites and board rooms are increasingly focused on the issue of funding pensions. In fact, 64 percent of respondents report that their companies have either already increased contributions or that they are likely to do so within two years.

"The results confirm what we hear in our conversations with plan sponsors,” says Harsh Parikh, vice president, Multi-Asset Class Solutions at PGIM, the global investment management business of Prudential Financial, Inc.

“Increased uncertainty is driving companies to close pension funding gaps and be better positioned to manage future volatility and longevity risk.”

Full funding can enable companies to employ different investment strategies and lay the groundwork for next-stage defined benefits de-risking strategies, such as liability-driven investing and transferring pension obligations to a third-party insurer.  

The report also revealed that finance executives anticipate increased uncertainties about the timing of interest rates increases, continued volatility in equity markets and increasing life expectancies, all of which make it more difficult to calculate defined benefit liabilities and returns over the long term. According to the findings, many finance executives are doing the analysis needed to manage uncertain outlooks, with 62 percent of respondents modeling for increased longevity and 49 percent modeling for extreme volatility.

"Closing the Gap in DB Plans" is the third in a series of five reports based on the 2015 results of an annual survey on the benefits landscape.

"As an industry,” Parikh notes, “we need to help plan sponsors by providing investment strategies that enable full pension funding and next stage defined benefit risk management."

Want more information? Read the report. Want to speak with Harsh? Contact Discretion Winter.

PGIM 0428-2300
PGIM is the primary asset management business of Prudential Financial, Inc. ("PFI") and is a registered investment advisor with the US Securities and Exchange Commission. PFI, a company with corporate headquarters in the US,  is not affiliated in any manner with Prudential plc, a company incorporated in the United Kingdom. 


Discretion Winter
phone: (973) 802-6701
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