EMPLOYEE BENEFITS
Mercer study outlines top five challenges for international employee benefit programmes
Multinational employers face five key challenges in offering benefit plans in 2010 against a background of patchy economic recovery and a rapidly ageing workforce, according to a new report by Mercer.
1: Balancing the response to the recession with long-term positioning
Mercer reckons companies have relied on “tried and tested” cost control tactics to weather the recession, including reducing contributions to defined contribution (DC) plans and stopping accruals in defined benefit (DB) plans.
Many companies are also introducing strategic innovations to benefit programmes to help with cost control in the longer term, says Mercer. Instances include adding wellness programmes and allowing employees to tailor their own benefit packages through the implementation of flexible benefits. Companies are also assessing whether the level of certain benefits provided can be linked to profitability, such as introducing a profit-sharing component into DC plans.
“The recession has raised the profile of retirement, health and risk benefit programmes among employees and the issues that they’re facing,” says David Newman, Mercer principal and international consultant. “Companies will need to take this into account as they formulate reward strategies for the recovery and beyond.”
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2: Shifting from defined benefit to defined contribution
The trend from DB to DC retirement plans will continue, says Mercer. This shift has generally been accompanied by a trend to lower employer-provided retirement benefits. In many countries, market-average DC plans provide significantly less retirement income than market-average DB plans. The recent financial turmoil has highlighted some of the pitfalls of providing lower retirement benefits through a DC plan.
As Newman explains: “Many companies have in response increased their focus on DC plan management, often on a global basis. The emphasis is to ensure cost efficiency, and that employees are empowered to make good decisions relating to retirement. This often includes financial education.”
3: Understanding the cost and risk drivers
According to Mercer, numerous companies are intensifying efforts to develop a “clear understanding of the cost and risk drivers embedded in retirement and benefit programmes” to ensure they can adopt targeted solutions to control these factors.
Tactics being considered include encouraging behavioural change through global health management programmes or adjusting investment strategies to “neutralise certain uncompensated risks being carried in retirement plans,” says Newman.
4: Improving global benefits governance
The increased visibility of retirement and health benefit programmes to a wide range of stakeholders from employees to board members has, says Mercer, encouraged a trend toward increased global oversight. Management of financial risk and volatility and the related reputational issues requires a more structured approach than many organisations may have needed in the past.
“As multinational companies often have fewer resources available on the ground to manage these programmes locally – and at head office to oversee them centrally – having a robust global governance framework is vital,” says Vicki Stokoe, Mercer’s global retirement governance consulting leader.
This framework includes both the structure and the supporting processes needed to achieve the desired level of central oversight and frequently includes written policies on design, funding and investment, clear delegation of authority and assignment of responsibility related to benefit programmes, and a defined approach to monitoring and mitigating risks.
5: Reacting to changes in government policy
In the short term, reform is being contemplated in public health care policy in countries such as the US, China and Germany. Mercer maintains that employers can expect such reform will have a significant effect on the programmes they provide.
A number of public policy changes have been enacted to help companies respond to the recession and the decline in capital markets. Minimum funding standards for retirement plans have been relaxed in several countries even as increased disclosure to participants is now required. Companies should be examining the implications of these changes on funding strategy in the short to medium term. “In the long term, it’s likely that governments will continue to shift cost from the public sector to the private sector as they grapple with the impact of aging societies,” says Newman.
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The data comes from Mercer’s annual "Benefit Plans around the World" report which provides a comparison of all the health and retirement plans and practices across 49 major economies. For more details visit www.mercer.com/bpaw.
Mercer is a “leading global provider of consulting, outsourcing and investment services”. It works with clients to solve their most complex benefit and human capital issues, designing and helping manage health, retirement and other benefits. Mercer’s 18,000 employees are based in more than 40 countries. For more information, visit www.mercer.com.