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The 2013 U.S. Pension Risk Behavior IndexSM Interactive Display

How well are defined benefit pension plan sponsors managing different kinds of plan risk?

 

Welcome to the 2013 MetLife U.S. Pension Risk Behavior IndexSM (PRBI) Interactive Display. For the past five years, MetLife has commissioned a study of plan sponsors of the largest U.S. defined benefit (DB) pension plans to measure their aptitude for managing — and attitudes about — the investment, liability and business risks to which their plans are exposed. The study consists of two parts: an Index, which measures the extent to which plan sponsors are managing the risks they believe are most important, and an analysis, which examines patterns and interrelationships between risk attitudes and behaviors. These are then expressed in terms of the relative importance ascribed to each risk and the self-reported success of managing each risk.

 

This display summarizes the results of the 2013 survey in graphic form and allows you to see trends by comparing this year's results with those from previous years.

 

Low Importance Rank - High Success Rank
High Importance Rank - High Success Rank
Underfunding of Liabilities
Asset & Liability Mismatch
Asset Allocation
Meeting Return Goals
Accounting Impact
Liability Measurement
Ability to Measure Risk
Plan Governance
Investment Management Style
Fiduciary Risk & Litigation Exposure
Investment Valuation
Decision Process Quality
Longevity Risk
Advisor Risk
Quality of Participant Data
Mortality Risk
Early Retirement Risk
Inappropriate Trading
Low Importance Rank - Low Success Rank
High Importance Rank - Low Success Rank
  • 2009
  • |
  • 2010
  • |
  • 2011
  • |
  • 2012
  • |
  • 2013
  • 82
  • 79
  • 81
  • 85
  • 87

Click each risk factor to find out more.

Risk items with consistent importance and success rankings would lie along the diagonal blue line.

The following description of each risk factor was presented as a risk management statement to plan sponsors during the study interviews.

Underfunding of Liabilities

We have successfully designed and put into place investment strategies that have proven effective in enabling us to comfortably manage our funding contribution levels.

 

2013 Highlights for This Risk:

  • This risk was ranked first in importance among the 18 risk factors for the third year in a row
  • This risk, along with Asset & Liability Mismatch (the risk ranked second in importance this year), highlights an increased liability-related focus, which is quite different from the inaugural study, when two investment-related risks — Asset Allocation and Meeting Return Goals — topped the importance rankings
  • Ranks 10th in how successfully sponsors feel they are managing this risk — the same spot it held in 2009

Asset & Liability Mismatch

We carry out regular studies that have proven accurate and effective in managing mismatches between the duration of plan assets and liabilities.

 

2013 Highlights for This Risk:

  • This risk was ranked second in importance for three consecutive years
  • This risk, along with Underfunding of Liabilities (the first ranked risk in importance this year), highlights an increased liability-related focus, which is quite different from the inaugural study, when two investment-related risks — Asset Allocation and Meeting Return Goals — topped the importance rankings
  • Ranks 12th in how successfully sponsors feel they are managing this risk

Asset Allocation

We use disciplined rebalancing to implement a documented strategic asset allocation policy.

 

2013 Highlights for This Risk:

  • This risk was ranked fourth in importance, whereas in 2009 this was ranked first
  • Followed in importance by Meeting Return Goals in 2009, the asset-centric approach for that year has given way to a more balanced mindset that takes into account both the asset and liability sides of the pension risk management equation
  • Ranks fifth in how successfully sponsors feel they are managing this risk

Meeting Return Goals

We have policies and procedures in place to determine our return goals, to identify the reasons for any deviation between actual results and goals, and to take appropriate action in a timely manner.

 

2013 Highlights for This Risk:

  • This risk was ranked sixth in importance, falling two places from 2012
  • In 2009, this risk was ranked second in importance behind Asset Allocation. The asset-centric approach for that year has given way to a more balanced mindset that takes into account both the asset and liability sides of the pension risk management equation
  • Ranks 11th in how successfully sponsors feel they are managing this risk
  • Related to Asset Allocation

Accounting Impact

We are able to forecast and we regularly monitor the impact on the sponsor's balance sheet, income statement and cash flow of fluctuations in pension assets and liabilities.

 

2013 Highlights for This Risk:

  • This risk was ranked third in order of importance
  • Ranks seventh in how successfully sponsors feel they are managing this risk
  • Plan sponsors remain more cognizant of the balance sheet and income statement impact of DB plans

Liability Measurement

We routinely review liability valuations and understand the drivers that contribute to our plan's liabilities and changes in these over time.

 

2013 Highlights for This Risk:

  • This risk was ranked fifth in order of importance
  • Ranks first in how successfully sponsors feel they are managing this risk for the fourth consecutive year

Ability to Measure Risk

We routinely use analytical tools that allow us to measure the level, volatility, correlation and effects of multiple risk factors at the investment portfolio level, and, where appropriate, within and across different investment fund managers, investment styles and asset classes.

 

2013 Highlights for This Risk:

  • This risk was ranked seventh in order of importance, same as 2009
  • Ranks 13th in how successfully sponsors feel they are managing this risk, same as 2012

Plan Governance

Those responsible for plan governance exercise effective, independent oversight, supported by internal controls within all areas and at all levels of plan management.

 

2013 Highlights for This Risk:

  • This risk was ranked eighth in order of importance, same as 2012
  • Ranks second in how successfully sponsors feel they are managing this risk, which maintained the same ranking four of the last five years

Investment Management Style

We have policies to determine whether we use passive investment managers to track indices or retain active managers, and to the extent we retain active managers, we have processes for systematically measuring and enforcing performance standards.

 

2013 Highlights for This Risk:

  • This risk was ranked 10th in order of importance
  • Ranks eighth in how successfully sponsors feel they are managing this risk

Note - In 2009 and 2010, Investment Management Style was titled Negative Alpha

Fiduciary Risk & Litigation Exposure

We explicitly manage fiduciary risk and related litigation exposure based on careful monitoring of litigation trends, including claims, costs and decisions.

 

2013 Highlights for This Risk:

  • This risk was ranked ninth in order of importance
  • Ranks 14th in how successfully sponsors feel they are managing this risk

Investment Valuation

We clearly document, systematically implement and periodically review procedures that ensure the complete, accurate, timely and independent valuation of all plan investments, including non-USD investments or any illiquid or complicated positions such as derivatives, hedge funds or private equity.

 

2013 Highlights for This Risk:

  • This risk was ranked 12th in order of importance
  • Ranks sixth in how successfully sponsors feel they are managing this risk

Decision Process Quality

We periodically assess the effectiveness of our decision-making processes by explicitly considering the links between the way in which we make decisions and the outcomes of those decisions.

 

2013 Highlights for This Risk

  • This risk was ranked 11th in order of importance
  • Ranks 16th in how successfully sponsors feel they are managing this risk

Longevity Risk

Distinct from the risk that participants will die before obtaining full benefits, we implement and regularly review the effectiveness of procedures to mitigate, transfer or actively manage the risks associated with increasing longevity among plan beneficiaries.

 

2013 Highlights for This Risk:

  • This risk was ranked 13th in order of importance, same as in 2012
  • Ranks 18th in how successfully sponsors feel they are managing this risk
  • Although U.S. longevity improvements appear to have slowed somewhat in recent years*, plan sponsors should be mindful that Longevity Risk may nonetheless increase in importance over the next several years

* The Economist, "Life Expectancy: The American Exception," January 11, 2013

Advisor Risk

Plan trustees and internal plan managers have sufficient knowledge, experience and training to assess the quality of advice and the effectiveness of services provided by third parties.

 

2013 Highlights for This Risk:

  • This risk was ranked 16th in order of importance
  • Ranks fourth in how successfully sponsors feel they are managing this risk, increased two places from 2012

Quality of Participant Data

We implement a procedure to ensure that census information on plan participants is correct and complete.

 

2013 Highlights for This Risk:

  • This risk was ranked 14th in order of importance
  • In order to ensure accurate actuarial assumptions, plan sponsors should begin to focus on this risk to make certain that census information on participants is accurate and up-to-date
  • Ranks ninth in how successfully sponsors feel they are managing this risk, same as in 2012

Mortality Risk

Distinct from the risk that plan beneficiaries will live longer than expected, we have modeled and understand how the expected mortality of our participants affects our plan cash flows and funding requirements.

 

2013 Highlights for This Risk:

  • This risk was ranked 15th in order of importance
  • Ranks 15th in how successfully sponsors feel they are managing this risk
  • With the exact same importance and success ranking, indicates that there is 100% consistency between the relative importance plan sponsors ascribe to this risk and how successfully they believe they are managing this risk relative to other risks

Early Retirement Risk

We actively implement and regularly review the effectiveness of procedures to manage the impact of Early Retirement Risk on the level and timing of future liabilities.

 

2013 Highlights for This Risk:

  • This risk was ranked 18th in order of importance, same as in 2009
  • Results are consistent with reduced early retirement incidence in the current economy. However, if the younger Boomers retire early as some have predicted, Early Retirement Risk may become a greater concern for plan sponsors
  • Ranks 17th in how successfully sponsors feel they are managing this risk

Inappropriate Trading

We have designed and proactively review compliance with clear investment guidelines for all investment managers to avoid inappropriate use of leverage, shorting, illiquid instruments, inadequate collateral, or other risk exposures to boost investment returns.

 

2013 Highlights for This Risk:

  • This risk was ranked 17th in order of importance
  • Ranks third in how successfully sponsors feel they are managing this risk, same as in 2012
  • Results suggest that sponsors feel this risk has been successfully addressed, so is no longer a current high risk for most plans

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