Considering the wide-ranging economic impact COVID-19 has had on businesses worldwide, it’s not surprising that the vast majority of defined benefit (DB) pension plan sponsors report that their companies have been broadly impacted by the pandemic. But not everything has been slowed down by the coronavirus.
Insurance firm MetLife surveyed 200 US defined benefit plan sponsors with $100 million or more in plan assets and found that 92% said the pandemic has affected their organizations, while only 8% said the pandemic has had no effect on them.
According to the survey, 47% of plan sponsors said they have reprioritized or redeployed their resources and staff internally, while 43% reported borrowing money in the form of accessing a line of credit or other financing solutions. Additionally, 42% have prioritized their cash and liquidity needs, while the same percentage of respondents said they borrowed money through the government’s Paycheck Protection Program (PPP).
There has also been a significant effect on employment during the pandemic, as 25% of plans sponsors said they have enacted furloughs or layoffs, with 10% reporting that they have filed or are considering filing for bankruptcy, and another 10% having permanently closed some operations. And the pandemic has also created a lot more work for C-level personnel as 42% of plan sponsors reported that top executives have become more involved in plan management.
The survey also found that 40% of plan sponsors said they have borrowed money to fund pension deficits, while 35% restricted benefit payment options such as lump sums due to the impact on the plan’s funded status. Some 22% decreased or called back planned contributions, while 19% increased contributions; 15% initiated a partial plan termination due to layoffs and furloughs, and 6% went so far as freezing or closing their plans.
When asked what they consider to be the most challenging part of managing their companies’ plans in the current macro-economic environment, MetLife said many plan sponsors appear to be most concerned about maintaining or funding their plans in order to ensure that they are meeting their required benefit obligations. They also said they are focusing on their plan investments, including minimizing volatility and managing the impact of low interest rates.
The Coronavirus Aid, Relief and Economic Security (CARES) Act has turned out to be key for plan sponsors, with 89% of survey respondents saying they have taken or will take advantage of the provision in the act that extends the deadline to make plan contributions until Jan. 1, 2021.
The report also found that, despite a slowdown of annuity buyout activity during the first half of the year compared with 2019, buyout activity has picked up significantly during the second half of 2020. Of the plan sponsors who said they were interested in an annuity buyout and had a specific timeframe in mind, 81% reported that there had either been no change to their risk transfer plans, or that the pandemic has accelerated their plans. Only 19% said that the pandemic has decreased or delayed the likelihood of entering into a buyout deal.
“Despite a slowdown at the beginning of 2020 due to COVID-19, we have seen the pension risk transfer (PRT) pipeline build momentum in the third and fourth quarters,” Melissa Moore, MetLife’s head of US pensions said in a statement. “This is consistent with the poll findings, which show plan sponsors do not expect buyout activity to be delayed by either the pandemic or a protracted economic recovery.”