US - Pension schemes are becoming an increasing burden on the profitability and financial health of American corporations, despite improved market performance, a new survey by SEI Investments has found.
More than three quarters of CFOs surveyed (76%) said pension plans were negatively affecting corporate finances, up 15% on the previous year, SEI said. In addition, some 86% of CFOs lack a sufficient level of control over the impact their DB plan has on their companies’ corporate finances.
The survey, conducted among 100 CFOs from North American organisations with an average of US$344m in DB or cash balance plan assets, found one third of mid-sized pension funds were altering their business plans in order to cope with pension under-funding.
The research follows a similar study in 2003 conducted in the US, UK and Netherlands.
Jim Morris, senior vice president of SEI’s retirement solutions, said: “This has become an acute pain that is now spreading well beyond the traditional pension spectrum.
“Credit analysts, equity analysts and bankers are becoming keenly aware of how pension scheme decisions are impacting corporate finance and they want to know that companies have a strategy to control this impact.”
According to SEI, 62% of CFOs said pension schemes had lowered corporate profitability and 29% reported a negative impact on cash flow. The number of CFOs who reported a decreased credit rating due to pension impact increased tenfold from 2003 to 2004.
Almost all of those surveyed (96%) believed it would be helpful to have the ability to measure the long term impact of their pension decisions on their company’s corporate finance prior to making those decisions.
Morris added: “It’s clear that CFOs want greater visibility and control of pensions and their impact on corporate finances. But to get that control companies must look at things differently and adopt new management strategies. With new tools and techniques, CFOs can improve the health of their pensions, protect the well-being of their businesses and give employees new hope that their pension plan will be secure.”
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