Survey: 90% of Corporate Pensions Lack Eurozone Break-Up Plan

Nearly two-thirds of corporate treasurers have a contingency plan for their business in place, but just 10% have taken measures to protect their pension funds, according to Towers Watson.  

(September 13, 2012) – Imagine corporations preparing for a potential Eurozone break-up as Floridians battening down for a hurricane: They’re boarding up the windows, but leaving the front door wide open. 

While no self-respecting Gulf Coast-dweller would make such an oversight, a new survey from Towers Watson shows most corporate treasurers plan to let them just swing in wind. Out of roughly 90 respondents, including several from blue chip companies, almost two-thirds reported having a contingency plan for their business either in place or in the works. But in contrast, just 10% of the treasurers said they’d made any preparations whatsoever to protect their firms’ pension plans in such an event. 

“Pension schemes can be a company’s biggest subsidiary or even dwarf the size of the main business, and the vast majority (over 80%) of the treasurers at this event thought pension issues had a bearing on the value investors placed on their company,” Alasdair Macdonald, head of investment strategy at Towers Watson, said in a statement. “Pension risk is much higher up the corporate agenda than it used to be but is not always managed as intensively as risks that affect the operational side of a business. That is true both of ‘everyday’ risks and of major structural changes which might or might not happen, like the possible dissolution of the Eurozone.” 

Towers Watson surveyed the treasurers at a London event, and all preside over pensions. 

Unlike a hurricane in Florida, a continental break-up poses an unprecedented threat, according to the consulting firm. It would raise a raft of financial and legal entanglements, much like municipal bankruptcies have in the United States. In Stockton, California, for instance, creditors are doing battle with pension members for the employees retirement fund’s remaining assets. The situation will likely end in court. 

It’s impossible to foresee the impact of a Eurozone dissolution on corporate pensions, but crossed fingers seem to be the extent of most firms’ contingency plans. 

Corporations can–and should–take action to help their pensions weather the potential storm, according to Macdonald: “Schemes trying to anticipate how a eurozone break-up would affect them can start by thinking through practical details like which assets could be redenominated in local currencies, whether any of these could conceivably be subject to capital controls, and what would happen to contracts denominated in euros but written outside the Euro-zone if the Euro ceased to exist altogether. Then there are more fundamental questions like the impact on different asset classes and on the covenants of scheme sponsors.”