A new guide from Mercer to help global companies more effectively assess, compare and provide retirement and medical benefits to their employees reveals a move to defined contribution and 'hybrid' approaches.

Most employers offering retirement plans to supplement government-sponsored pension systems do so in one of two ways, reveals Mercer's new guide  'Introduction to Benefit Plans Around the World: A Guide for Multinational Employers',

The first, defined contributions (DC), is defined as benefits paid depending solely on the amount of contribution paid into a scheme and the investment return it receives.

The second, 'hybrid' approaches, means different things to different people. Some people call a scheme that has two sections, one defined contribution and the other defined benefit, a hybrid scheme. However, it is also used to apply to some forms of 'risk sharing' scheme where the benefit provided might be a mixture of defined benefit and defined contribution.

The guide’s objectives

The guide was created to help global companies more effectively assess, compare and provide retirement and medical benefits to their employees.  This single source, comprehensive guide provides information on 47 countries.  The information ranges from a country’s legislative, legal and regulatory climate in regards to benefits, as well as provides extensive information on the design and prevalence of retirement, medical, sickness, disability and death benefits provided in these countries.

Mercer’s guide also summarises key global trends by country as companies move away from defined benefits, raise the retirement age, and introduce new types of benefits, all issues to be dealt with while complying with new requirements for plan governance and grappling with rapidly rising medical costs.  Additionally, Mercer’s guide works to define the mandatory retirement practices under law and regulation, summarise typical market practices, assess the general pension environment, identify opportunities and trends, and outlines recent proposed legislation.  

Assessing the pros and cons

Giles Archibald, a Mercer international consultant based in New York, says that "multinational and local country employers face many pressures, from an ageing population and market volatility to increased governance and accounting requirements." 

Archibold explains that these are some of the issues that are hastening the move to defined contributions and hybrid plans.  

“While DC and hybrid approaches have an understated appeal…we anticipate some reassessment of their use as companies make more of an effort to truly understand the impact of these retirement plan designs on employees savings and retirement patterns,” he says.

Deborah Cooper, principal in Mercer’s London office observes, “Increased reliance on defined contribution arrangements will lead to more government intervention [which] will in turn increase costs.

“Hybrid arrangements can balance the risk employees face…” 

Traditional defined benefit plans remain the predominant type of supplemental retirement plan in a number of countries, notably, Japan, the Philippines, South Korea, Mexico, Venezuela, Finland, the Netherlands and Israel.  However, even among these countries there is a strong trend toward covering newly hired employees through DC or hybrid arrangements.  

3 March 2008

[Copyright Expatica 2008]