Benefits September 14, 2004

Mercer Survey Finds DC Plans on the Rise but Underutilized

September 14, 2004 (PLANSPONSOR.com) - A survey by Mercer Investment Consulting shows that defined contribution pension plans are on the rise, but rates of contribution are still well below published estimates of the savings level needed for a comfortable retirement.
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In both Canada and the US, DC plans are becoming the primary vehicle for retirement savings, trumping older-style pension plans such as defined benefit (DB) plans. However, Mercer warns that there are still a ways to go, for issues of participation, contribution levels, investment options, and conversion to pension income still persist.

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The study did find that plan sponsors in both countries were increasingly offering a greater range of investment vehicles, most notably of which are ‘premixed’ funds that target risk through asset allocation and specific-year payouts through ‘lifecycle’ funds. Some 63% of US plan sponsors now offer these types of vehicles, up from 25% in 2000. Only 45% of Canadian plan sponsors offer pre-mixed funds.

“Employees bear the investment risk in a defined contribution plan, but it’s up to the plan sponsor to offer competitive investment options and communicate the plan effectively so that employees can take full advantage,” says Perry Williams, Atlanta-based senior consultant for Mercer IC and an author of the study, in a press release.

Mercer Investment Consulting conducted the survey in April, based on 434 responses. The report may be downloaded free of charge at www.merceric.com .

Benefits September 13, 2004

Multinats Moving Toward Central Plan Admin

September 13, 2004 (PLANSPONSOR.com) - Multinational firms with retirement plans in several countries are moving toward the centralized plan control offered by global management platforms.
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Mercer Investment Consulting said in a news release about its 2004 Financial Management of Multinational Retirement Plans Survey that most respondents already have shifted or are moving decisively toward a more global perspective.

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Cutting both costs and risk along with increased focus on plan governance at a global level are the forces driving this trend, despite country differences in local legislation, culture, reporting, operating environments, valuation methodologies, and product availability.

The underpinning of most cross-border plan-governance programs is a series of committees divided according to function – for example, benefits, funding, accounting, investments, and governance. Very few multinationals create such committees at a global or pan-regional level.

“Multinationals are rising to the challenge of managing retirement plans on a cross-border basis,” says Stacy Scapino, head of Mercer IC’s multinational investment consulting services. “The primary drivers toward implementing a cross-border management framework are governance and risk and cost control.”

The shift toward global influence is clearest with regard to funding decisions. The movement toward global funding policies over the past two years has been swift and decisive. In 2004, 61% of respondents indicated that they have some form of global funding policy and 11% of respondents have no funding policies.

There is a strong trend toward more global corporate oversight and implementation of global plan-governance principles. This development shouldn’t come as a surprise in light of changes in regulatory tenor, particularly in the US, where regulatory scrutiny has dramatically increased.Fifty-five percent of respondents have global governance policies in place, with 77% expecting to implement them by 2006.

Despite a general global shift toward defined contribution plans, few multinationals have an explicitly stated preference for establishing only DC plans. Most prefer an approach that ensures benefits are locally competitive to attract and retain the right employees while controlling costs.

Among the 130 multinational respondents in the survey, 52% are headquartered in the US, 17% in Ireland/Continental Europe, 13% in the UK, and 9% in Canada. The remaining 9% of respondents are headquartered in South Africa, Australia, and Asia.

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