COVID-19 stress tests US pensions, CFOs seek counsel to navigate policy and market volatility, Mercer survey finds

Based on the latest Mercer/CFO Research survey: 

  • 65% of pension plan sponsors said they struggle to find the time and expertise to oversee their pension investment strategy
  • Defined benefit plan sponsors are leveraging a favorable market and policy environment to explore a broad array of risk management services and tools – with half allocating to alternatives
  • Transferring risk remains a paramount concern for plan sponsors – given volatility in 2020 funding levels. 90% of executives report having offered lump sums to plan participants within the last decade

May 25, 2021, NEW YORK – Defined Benefit (DB) pension plans in the US are emerging from the COVID-19 pandemic into one of the most favorable policy and market environments they have seen in years – but DB sponsors remain cautious from years of secular headwinds. According to the 6th edition of the biannual Mercer/CFO Research Risk Survey “Next Steps in Pension Risk Management,” the pandemic offered a unique stress test for plan sponsors, as well as new opportunities to solidify and strengthen their deliberate, multi-year strategies. The survey makes clear that CFOs are seeking strong, strategic counsel – both in-house and outsourced – to help navigate what could be the most favorable landscape for defined benefit pension plans in many years. 


“2020 proved to be a true stress test for defined benefit plans, as COVID-19 created disruptions in financial markets and corporate balance sheets. However, it also created opportunities for sponsors with a strategy to improve their financial position, and many took advantage,” said Matt McDaniel, Partner, US Financial Strategy Group, Mercer. “This survey makes clear that CFOs saw a heightened need for good strategy through the pandemic and are seeking both the right tools and counsel to navigate funding policy, risk transfer activity and investment portfolio management.”

Among the survey’s key findings:


  • Companies and CFOs are ready to take advantage of policy: The survey of over 200 executives showed companies are primed to make changes to their DB plans and they’re planning to leverage the American Rescue Plan Act funding relief legislation. Under the American Rescue Plan Act, companies have more flexibility on funding options for their DB pension plans.

    About one third of survey respondents cited their motivation to fund to a threshold was to avoid benefit restrictions or participant notices. However, as a slight departure from prior survey’s results, only 15% say they are geared to fully fund the plan over a shorter time period than the regulations stipulate. This is down from 29% in 2019 and points to higher needs for cash in other parts of the business.

    “Funding flexibility in pensions allows companies to keep that liquidity in-house so that they can reinvest those funds back into their workforce and business through this turbulent period. Most companies on the whole still have more work to do in shoring up their DB plans, and the funding relief in the new legislation provides more discretion on the pace and time horizon of getting there,” said Tony Wagman, Partner, DB Consulting, Mercer. 
  • Transferring risk: Plan sponsors continue to reduce their contribution and funded status volatility risk by transferring liability to an insurer or another party. Survey results indicate that the vast majority (90%) of the surveyed executives said they had offered lump-sum features to DB plan participants to transfer risk within the decade, and with 77% of the respondents likely to offer additional lump-sum options within the next two years. Annuitization is trending; while 70% of respondents have already transferred benefits to insurers via an annuity purchase, 77% expect to do this in 2021 or 2022.
  • Making smart investment choices: Governance of a pension plan is complex, and 65% of survey respondents said they struggle to find the time and expertise to oversee their pension investment strategy. Further, 67% said they struggle to execute changes required by their investment strategy in a timely fashion. Given the dynamic and more favorable environment, this is leading many plan sponsors to seek strategic counsel to improve their plan’s approach to allocation and risk management. Over 70% of respondents have implemented either a full or partial outsourced chief investment officer (OCIO) model to support their investment strategy and execution.
  • CFOs are changing their portfolios: The most-cited investment change in 2020 was adding alternative investments – such as private equity, private debt, hedge funds and real assets – a shift cited by half the respondents.

    Historically, plan sponsors have shied away from alternative investments as the liquidity restrictions and fiduciary risk were too high, but new solutions within the alternative space have the potential to provide attractive returns with more favorable liquidity. In the most recent findings, plan sponsors are ready to use these tools to seek to achieve their DB pension goals. Half of survey respondents use private assets selectively and 40% have them as a core part of their asset mix.

    This reinforces the idea that plan sponsors are paying closer attention to their plans and looking for innovative solutions to address their risks and aim to improve investment outcomes.

About the survey methodology

The survey, conducted by CFO Research of Industry Dive, polled 201 senior finance executives at companies in the United States with an online questionnaire. Most of the companies represented had annual revenues of $500 million or more. Companies represented a full spectrum of industry sectors, including financial services/real estate, auto/industrial/manufacturing, healthcare, technology, and retail/consumer.

About Mercer

Mercer believes in building brighter futures by redefining the world of work, reshaping retirement and investment outcomes, and unlocking real health and well-being. Mercer’s approximately 25,000 employees are based in 43 countries and the firm operates in 130 countries. Mercer is a business of Marsh McLennan (NYSE: MMC), the world’s leading professional services firm in the areas of risk, strategy and people, with 76,000 colleagues and annual revenue of $17 billion. Through its market-leading businesses including MarshGuy Carpenter and Oliver Wyman, Marsh McLennan helps clients navigate an increasingly dynamic and complex environment. For more information, visit Follow Mercer on Twitter @Mercer.


About CFO Research

CFO Research, of Industry Dive, has been a trusted source of insight into the business issues that matter most to finance professionals since its founding in 2000. CFO Research is the sister firm of and relies on senior finance executives to share their experiences, insights, and observations on critical business issues. This cutting-edge research supports critical business decisions by our sponsors, as well as their thought leadership positioning and marketing efforts.