Impacts of the New Tax Law on Pension and Benefit Strategies CFO Research ABOUT THE SURVEY. June 2018

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SURVEY RESULTS Impacts of the New Tax Law on Pension and Benefit Strategies CFO Research June 2018 ABOUT THE SURVEY This year marks the eighth annual survey that CFO Research has conducted in

1 SURVEY RESULTS Impacts of the New Tax Law on Pension and Benefit Strategies CFO Research June 2018 ABOUT THE SURVEY This year marks the eighth annual survey that CFO Research has conducted in cooperation with Prudential Financial, Inc. These surveys provide insights into senior finance executives current thinking about their companies retirement and benefits programs. As part of this year s survey, 127 senior finance executives whose organizations have a defined benefit (DB) pension plan for current or former employees were asked about the impact of the Tax Cuts and Jobs Act (TCJA) on their organizations pension strategies and other business/benefits strategies.

2 2 Impacts of the New Tax Law on Pension and Benefit Strategies CFO Research 1. The Tax Cuts and Jobs Act is expected to generate excess capital for most US businesses. Which of the following strategies do you expect to employ to utilize this excess capital in your organization? (Please choose all that apply.) Invest in new infrastructure for current business Return capital to shareholders (e.g., issue dividend or execute stock buyback) Invest in talent via compensation (e.g., increase salaries or issue bonuses) Minimize liability risk (e.g., increase DB plan funding or retiree healthcare funding) Invest in talent via benefits (e.g., increase 401(k) match) Invest in new products/services for current business Invest in new businesses (e.g., acquisitions) 44% 40% 32% 29% 29% 27% 23% Other strategy (please specify) 3% Note: Does not include data from respondents who don t expect TCJA to generate excess capital in their organization. 2. In terms of your employee benefit plans, what actions do you expect the new tax law to prompt in your organization this year? (Please choose all that apply.) Increase our defined contribution (DC) plan company match temporarily 32% Reduce risk in our DB plan(s) 28% Increase our DC plan company match for the foreseeable future Use repatriated capital to bolster DB plan funding levels 25% 24% Take greater risk with our DB plan(s) 14% Use repatriated capital to mitigate future DB liability (e.g., via pension risk transfer) 9% None of the above 25% 3. My organization is very likely to make a substantial DB plan contribution by September 15, 2018, which would take advantage of the larger tax deduction available under the new law. Agree 50% Disagree 18% Strongly disagree 8% 4. My organization is very likely to use the tax savings from the new law to increase funding of our DB pension plan(s). Strongly agree 23% Agree 41% Disagree 26% Strongly disagree 10%

3 3 Impacts of the New Tax Law on Pension and Benefit Strategies CFO Research 5. Once my DB pension plan becomes well-funded, my organization is very likely to execute a full or partial pension risk transfer to an insurance company. Strongly agree 27% Agree 35% Disagree 31% 6. The new tax law is very likely to impact my DB plan asset management strategy (e.g., if new, high-grade bonds become less available). Strongly agree 18% Agree 48% Disagree 29% 7. My organization will increase wages this year as a direct result of the new tax law. Disagree 29% Strongly disagree 9% 8. My organization will accelerate capital expenditures this year as a direct result of the new tax law. Agree 43% Disagree 28% Strongly disagree 4% 9. My finance function s strategies for accounting, compliance, and reporting will substantially change this year as a direct result of the new tax law. Disagree 28% Strongly disagree 9% 10. I believe that increasing employee financial wellness will improve my organization s bottom line through increased productivity, reduced absenteeism, reduced healthcare costs, better employee retention, and improved workforce management. Strongly agree 28% Agree 54% Disagree 17% Strongly disagree 1%

4 4 Impacts of the New Tax Law on Pension and Benefit Strategies CFO Research 11. The increase in interest rates from a year ago (and the prospect of further increases) makes it much more likely that my company will consider a full or partial liability transfer via a group annuity purchase for our DB plan(s). Disagree 34% Strongly disagree 4% 12. The recent rise in Pension Benefit Guaranty Corporation (PBGC) premiums (and the prospect of further increases) makes it much more likely that my organization will consider a group annuity purchase in the near term. Agree 37% Disagree 39% Strongly disagree 2% 13. Strong equity market performance in recent years has closed our DB plan funding gap and is increasing our interest in de-risking our plan to mitigate our future risk. Strongly agree 25% Agree 47% Disagree 23% Strongly disagree 5% 14. The recent change in actuarial mortality assumptions, and the prospect of further changes, are creating longevity risk for my organization that places additional pressure on our DB plan funding levels. Strongly agree 23% Agree 47% Disagree 24% 15. In your opinion, how likely would your company be to transfer the financial risk of its retiree medical plan to a third party, if such a solution were readily available? (Please choose one.) Very likely 21% Somewhat likely 46% Not at all likely 26% Don t know 7% Note: Does not include data from respondents who don t have retiree medical plan.

5 5 Impacts of the New Tax Law on Pension and Benefit Strategies CFO Research METHODOLOGY CFO Research gathered survey responses from 127 senior finance executives working in a variety of industries. All respondents work for organizations that have a defined benefit (DB) pension plan for current or former employees. Which of the following titles fits you best? (Please choose one.) Chief financial officer 22% Director of finance 22% CEO, president, or managing director 15% VP of finance 14% Controller 12% Treasurer 7% EVP or SVP of finance 6% Other senior finance title (please specify) 2% What were your organization s worldwide revenues, in US dollars, in its most recent fiscal year? (Please choose one.) $10 million to $50 million 13% $50 million to $100 million 15% $100 million to $250 million 17% $250 million to $500 million 12% $500 million to $1 billion 8% $1 billion to $5 billion 19% More than $5 billion 17% What is your organization s primary business? (Please choose one.) Aerospace/Defense 2% Auto/Industrial/Manufacturing 11% Business/Professional services 9% Chemicals 1% Construction 7% Energy/Utilities 6% Financial services/real estate 22% Food/Beverages/Consumer packaged goods 2% Hardware/Software/Networking 2% Health care 12% Insurance 4% Media/Entertainment/Travel/Leisure 2% Pharmaceuticals/Biotechnology/Life sciences 2% Telecommunications 3% Transportation/Warehousing 6% Wholesale/Retail trade 5% Other (please specify) 5% *Percentages may not total 100% due to rounding. The Prudential Insurance Company of America, Newark, NJ

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