Pension, health and welfare reform in many countries has created significant challenges for multinational companies looking to manage the cost, risk and competitiveness of employee benefit programs, says Mercer.
According to Mercer’s latest Benefit Plans Around the World Report (BPAW Report), pension and health reforms, prompted by an aging population and the growing cost of providing adequate retirement income and health services, are gathering pace in numerous countries including Canada, the United States, the United Kingdom, Australia, France and Korea.
“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,” says Tim Jenkins, Mercer’s retirement, risk and finance leader for Asia Pacific. “There is, consequently, a greater appreciation, amongst employees, of the value and security of their benefits.”
Jenkins says the research identified some of the ways in which companies are hoping to increase cost efficiency.
“Some are reducing benefits for new hires or introducing cost sharing while others are consolidating with third party vendors or pooling insurance risk to achieve economies of scale,” he said. “A number of firms are taking a different approach and are introducing programs to help cost containment in the longer term such as wellness programs and flexible benefits programs. Most multinational companies are looking to manage cost 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.”
The increased visibility of retirement and benefit programs at the board and senior management levels has encouraged a trend toward increased global oversight and use of frameworks, says Jenkins. These often include written policies on design, funding and investment, clear delegation of authority, assignment of responsibility related to benefit programs and a defined approach to monitoring and mitigating risks.
According to Mercer, many companies still grapple with how to deal with the financial volatility inherent in legacy DB plans. This is exacerbated in many countries where changes in funding levels and regulatory requirements will have a financial impact. According to the BPAW 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 in order to quickly react to market conditions and ensure risk tolerance levels are met.