When a particular pension or benefits topic is making waves in the media, I often hear from PR firms. If I had a dollar for every time someone has called or emailed me recently saying, “How about a story on risk management?”…well, it certainly wouldn’t make up for the losses in my mutual funds, but it might tide me over until the markets recover.
Now that we’ve come to terms with the fact that this recession could be a lengthy affair, the focus has shifted to risk exposures and how to manage them. Malcolm Hamilton, noted pension consultant with Mercer, has said that many pension plan sponsors underestimated the probability of severely adverse events in their risk models and strategies—events that, in late 2008, became an alarming reality. They’re still reeling from the ramifications of that oversight.
Our Top 100 Pension Funds report finds many posting losses this year—some more than 25%. And, in today’s low-return environment, a significant number of pension plans are underfunded. In certain cases, solvency funding relief may be available through extended payment schedules, but some say the provisions associated with this relief—particularly the need to get buy-in from members and retirees—make it unfeasible.
That word, underfunded, makes everyone anxious. Employees are waving goodbye to thoughts of early retirement and wondering if they’ll have time to recoup their losses. Retirees are hammering on their former employer’s door, seeking assurances that they’ll be paid their due. Employers are worried about their ability to meet their pension obligations—obligations that, for some, have the potential to sink the organization.
And now we’re talking about pension risk, plan governance and risk management? Of course, these are important topics in all markets…but for some employers, it may be too little, too late.
Maybe it takes a crisis to make these issues a priority. But I wonder, will we learn from this experience? Or will we simply heave a collective sigh of relief and go back to business as usual?
When this latest crisis fades into memory, so, too, may concerns around managing risk. At least until the next crisis. Then, I expect, my phone will start ringing again.
Alyssa Hodder is Editor of Benefits Canada.
alyssa.hodder@rci.rogers.com
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© Copyright 2009 Rogers Publishing Ltd. This article first appeared in the June 2009 edition of BENEFITS CANADA magazine.