Reform of pension and health and welfare systems in many countries is creating significant challenges for multinational companies looking to manage the cost, risk and competitiveness of employee benefit programs around the world. Reforms, prompted by an aging population and the increasing cost of providing adequate retirement income and health services, are gathering pace in numerous countries including the US, France, the UK, Australia and Canada.
“The decline in public finances has prompted a general retreat in state retirement and health provision; some countries are even looking to their pension and health systems for new sources of revenue. Changes vary but include increases in retirement ages, restrictions on tax relief, reductions in benefits and increases in worker contributions,” said Jean-Philippe Provost, US International Consulting Group leader at Mercer.
“As governments shift the cost of benefit provision from the public sector to the private sector, employers are seeing a significant knock-on effect on the programs they provide and employees are left wondering how to fill the gap,” he added.
According to Mercer, there is, consequently, a greater appreciation amongst employees of the value and security of their benefits after two years of economic uncertainty and pay restraint.
“One of the trends coming out of this research is the manner in which companies are looking for cost efficiencies and value for money,” Mr. Provost continued. “Some are reducing benefits for new hires or introducing cost sharing while others are consolidating with third party vendors or pooling of insurance risk to achieve economies of scale. A number of firms are taking a different approach and are introducing programs to help control costs in the longer term such as wellness and flexible benefits programs. Most multinational companies are looking to deliver cost savings one way or another but the manner in which they are dealt with will determine whether a company has the funds and strategies in place to give it a commanding position.”
According to Mercer, many companies still grapple with how to deal with the financial volatility inherent in legacy defined benefit pension plans. This is exacerbated in many countries where changes in funding levels and regulatory requirements will have a financial impact. According to the latest Benefit Plans Around the World report, this has led to a measure of centralization. Companies are re-evaluating their financial management policies and looking to keep tighter control over plans, to quickly and appropriately react to market conditions and ensure risk tolerance levels are met.
According to John Hall, Mercer’s International Consulting Group leader for Europe, the Middle East and Africa (EMEA), “Central oversight and monitoring of policy can identify risks and issues and enable companies to react appropriately – by encouraging behavioral change through a global health management program, for example. Money saved in these areas, such as reduced insurance premiums, can be diverted into other programs that can support the productivity of the workforce.”
The increased visibility of retirement and benefit programs at board and senior management levels has encouraged a trend toward increased global oversight and use of frameworks, said Mr. Hall. These often include written policies on design, funding and investment, clear delegation of authority and assignment of responsibility related to benefit programs, and a defined approach to monitoring and mitigating risks.
“Multinational companies often have less resource available on the ground to manage these programs locally and less headquarters’ resource available to oversee adherence to them centrally,” said Mr. Provost. “Frameworks allow local offices to operate within set guidelines, so that multinationals can capitalize on them without the need for extra specialist headcount.”
About Mercer
Mercer is a global leader in human resource consulting, outsourcing and investment services. Mercer works with clients to solve their most complex benefit and human capital issues by designing, implementing and administering health, retirement and other benefit programs. Mercer’s investment services include investment consulting, implemented consulting and multi-manager investment management. Mercer’s 20,000 employees are based in more than 40 countries. The company is a wholly owned subsidiary of Marsh & McLennan Companies, Inc., which lists its stock (ticker symbol: MMC) on the New York and Chicago stock exchanges. For more information, visit www.mercer.com.
