Boston–Senior finance executives at U.S. companies with pension plans are showing increased interest in a range of strategies for controlling costs and reducing the risk of their benefits offerings, while still protecting the benefits quality, according to the new study by CFO Research Services, sponsored by Prudential Financial, Inc. The full report on this study, titled The Future of Retirement and Employee Benefits, is available for download at

The majority of respondents to the CFO Research survey (70%) say that controlling employer costs for healthcare benefits remains their company’s top priority in 2012, and two-thirds (65%) say their company is likely to shift a larger portion of costs for healthcare coverage to employees. At the same time, most finance executives (79%) agree that employee benefits are critical for attracting and retaining employees, and a similar number (76%) say that employee satisfaction with benefits is critical for their company’s success.

“Striking the best balance between these competing goals is a challenge for companies,” explained David Owens, Director of Research at CFO Research Services. “Part of the solution is giving employees more latitude to select their own benefits options via an employee-choice model for benefits packages.” In an employee-choice model, each employee is provided a set amount to apply to a menu of benefits from which the employee selects those are most important to himself or herself. Today, only 15% of respondents describe their company’s current strategy as an employee choice model, according to the new research, but nearly twice as many (29%) expect their companies to adopt this strategy within two years.

More companies are exploring voluntary benefits offerings as another way of striking the balance between costs and attractive offerings. Voluntary benefits are those employees can elect to pay for–like dental insurance (in some companies), or group life insurance above and beyond the level an employer provides. Two-thirds of respondents (69%) indicate that their companies are likely to expand the range of voluntary benefits offered to employees, and a similar number (71%) say they are likely to replace some employer-paid benefits with voluntary benefits.

For retirement plans, companies are looking for additional ways to reduce or eliminate the financial and strategic risks posed by their obligations to fund their defined-benefit (DB), or pension, plans. Nearly two-thirds of respondents (64%) admit that DB plan obligations at least moderately impair their company’s cash flow, and nearly as many (59%) worry about their ability to increase balance sheet leverage. And half (52%) view their DB plan obligations as a constraint on their ability to invest in growth.

More finance executives expect to transfer at least some portion of the financial risk of DB plan obligations to third parties. While only 5% of respondents have already implemented a DB risk-transfer solution, a large number (43%) say they are likely to do so within two years–up from 30% in a similar study CFO Research and Prudential conducted in 2010. Finance executives also show more interest in liability-driven investment strategies, which focus on matching the duration of DB plan assets with the plan’s liabilities to reduce risk.

Most companies with DB plans also offer their employees additional security through other kinds of retirement plans know as defined contribution (DC) plans, such as 401(k) plans. In these plans, retirement payouts depend on the amounts contributed by the employee along with any matching funds the company may provide. A large percentage of respondents (69%) believe that their companies’ employees will be forced to delay retirement due to inadequate savings, prompting higher interest in exploring additional ways of improving DC plan outcomes for employees. In particular, target-date funds, stable value investment products, and guaranteed lifetime income products are generating more interest.

This study is based on 186 electronic survey responses from senior finance executives working at U.S.-based companies. All survey respondents work for companies with DB plans with $250 million or more in assets, representing a wide range of industries.

About CFO Research Services

CFO Research Services is the sponsored research group of CFO Publishing LLC, which produces CFO magazine,, and CFO Conferences. For more than 25 years, CFO Publishing has been a trusted source of insight into the issues that matter most to finance professionals.

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Matt Surka
CFO Publishing LLC
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