Consulting, outsourcing and investment giant Mercer identified five pension risk management steps in survey results released Tuesday. According to the company, the survey, conducted in partnership with CFO Research Services, found a significant amount of concern among plan sponsors about their exposure to market risk, with 65% worried about the impact of future economic uncertainty and volatility.

“Pension deficits and the impact upon the financial health of their organizations are a key concern in many boardrooms and C-suites, and the time to act is now,” Jonathan Barry, a partner in Mercer’s retirement, risk and finance business, said in a statement. “With such market volatility, plan sponsors need to be nimble to take advantage and put in place a robust risk management plan.”

In order to protect against said risk, Mercer offered what it sees as the five most important pension risk management tips for U.S. pension plan sponsors:

1. Review the plan’s funded status as part of your regular plan reporting. Most plan sponsors review investment performance on a quarterly basis, according to the company. With the increased linkage between assets and liabilities, consider including a review of the plan’s funded status. This type of funded status monitoring is not merely looking at the ratio of assets to liabilities, but also includes a reconciliation of funded status from period to period, attributing any movements in funded status to various factors, such as interest-rate and credit-spread movements, equity performance, and contributions and benefit payments.

2. Understand the range of possible outcomes to which your pension plan exposes your organization. With the volatility experienced in recent months, now is a critical time for plan sponsors to forecast the potential outcomes of their plan’s funded status on key financial measures, such as cash, expense and balance sheet adjustments. Funding requirements coming out of the Pension Protection Act of 2006 will mean a substantial increase in cash funding requirements in 2012 due to having to meet a full-funding target, generally over a seven-year period, with liabilities being discounted using a shorter-term interest rate. 

3. Develop a formal de-risking plan. There have been several opportunities since 2000 to take risk off the table as funded status improved. Yet most sponsors did not take advantage of this opportunity, as they did not have a plan in place to know when to reduce overall plan risk, nor did they have the time, resources and specialized investment expertise. Sponsors should develop a roadmap to de-risk the plan that can be executed quickly as and when opportunities arise.

4. Explore liability transfer strategies. Lump sum cash-outs for terminated vested participants, annuity buy-ins and buy-outs are viable options for many plan sponsors. However, analyzing and implementing these strategies takes collaboration from both the finance and human resources sides of the organization. Sponsors looking to implement these strategies in either 2012 or 2013 should begin planning now to help maximize the effectiveness of the program.

5. Review your governance structure and decision-making process. Developing a plan is easy but executing and implementing investment decisions is difficult. Market volatility can create opportunities that only last for a couple of days. Consideration of the appropriate governance model for each plan sponsor is critical, and might include delegation to a third party who can measure asset and liability values daily and then act quickly to take advantage of these opportunities.