Survey: Finance Executives Plan Changes to Retirement Plans to Reduce Risk and Provide Employees with a More Secure Retirement

Nearly half of senior finance executives said in a recent survey that their companies are very or somewhat likely to freeze or terminate their defined benefit retirement plans in the next two years. However, more than two-thirds of the surveyed executives said that they would like their defined contribution plans to more closely resemble DB plans through the addition of features such as guaranteed income during retirement, according to the results of a recent survey by CFO Research Services and Prudential Financial, Inc. (NYSE:PRU).

The survey of 140 financial executives at companies sponsoring DB and other retirement benefits plans examined the impact of the financial crisis on how finance executives are managing retirement benefit programs. A report entitled Managing Retirement Benefits Amid Capital Market Disruption outlines the survey findings.

"Finance executives are spending more time than ever on managing their companies' retirement benefit programs," said Bernard Winograd, executive vice president and chief operating officer of Prudential's U.S. Businesses. "Importantly, we found that executives are focused on reducing benefit risks through a range of measures including the implementation of liability-driven investment strategies in DB plans, and the addition of new risk management features to DC plans. The focus on risk management by senior finance executives is likely to help millions of plan participants achieve a more secure retirement."

Executives with defined benefits plans see plenty of change coming over the next two years, according to the survey. Forty-five percent of respondents said their pension plan performance has had a substantial impact on their company's financial performance in the past year, and 57 percent said that reducing the volatility of their plans' funding status is a high priority. As a result, 74 percent said their companies are very likely to conduct--or have already conducted--a formal risk assessment of those plans. Sixty-four percent said they have adopted or were very likely to adopt a liability-driven investment strategy to help mitigate risk.

Respondents to the survey also recognize that DC account values have plummeted and put many employees' near-term plans to retire in jeopardy -- 63 percent of respondents said they are more concerned than they were a year ago about employees who are financially unable to retire and would therefore "retire on the job". Finance executives are preparing to take steps to help participants avoid future market downturns, with 44 percent saying they are very likely to add to their DC plans investment products that protect against market declines.

Key DB findings from the CFO Research survey:

-- To address near-term benefit obligations, 60 percent of respondents said they have already increased, or are very likely to increase, contributions to their DB plans.

-- Seventeen percent of respondents have closed their DB plans to new entrants. Twenty-seven percent say that they are very likely to do so in the next two years.

-- DB plan sponsors are looking to mitigate risk, with 66 percent of finance executives saying they would likely adopt, or have already adopted, a more conservative asset allocation strategy.

Key DC findings from the CFO Research survey:

-- Respondents are keen to strengthen DC plans, with 56 percent saying they are more concerned now than they were a year ago about investment options offered to plan participants, and 54 percent saying they are more concerned about whether participants have sufficient retirement savings.

-- Fifty-nine percent said they are more concerned about the fiduciary risks of DC plans than they were a year ago, 59 percent are more concerned about the costs of plan administration, and 58 percent are more concerned about the cost of employers' matching contributions.

-- Forty-six percent said they are very or somewhat likely to eliminate or suspend employer matches to DC plans over the next two years. Twenty percent said they had already done so.

-- More than 60 percent said they are very or somewhat likely to increase automatic enrollment and contribution escalation efforts within their DC plans over the next two years.

Key post-retirement benefit findings:

-- The financial crisis is causing many companies to plan a shift from a funded model for post-retirement benefits to a pay-as-you-go model. Sixty-three percent of respondents at companies that sponsor post-retirement life insurance benefits plan to move to pay-as-you-go, up from the 46 percent that fund this benefit in this manner today. Fifty-four percent plan to move to pay-as-you-go for retiree health coverage, up from 47 percent today. Fifty-one percent plan to shift to pay-as-you-go for executive deferred compensation, up from 42 percent today.

For a full copy of the report, please click here.

Prudential Financial, Inc. (NYSE: PRU), a financial services leader with approximately $580 billion of assets under management as of June 30, 2009, has operations in the United States, Asia, Europe, and Latin America. Leveraging its heritage of life insurance and asset management expertise, Prudential is focused on helping approximately 50 million individual and institutional customers grow and protect their wealth. The company's well-known Rock symbol is an icon of strength, stability, expertise and innovation that has stood the test of time. Prudential's businesses offer a variety of products and services, including life insurance, annuities, retirement-related services, mutual funds, investment management, and real estate services. For more information, please visit http://www.news.prudential.com/.

Control Number: 0160308-00001-00

SOURCE: Prudential Financial, Inc.

Prudential Financial, Inc. 
Theresa Miller, 973-802-7455 
theresa.miller@prudential.com