CASE STUDY
Although getting a handle on pension plans globally seems daunting, a look at an example of the steps taken by one major multinational to establish a manageable structure reveals how this may be accomplished.
One multinational headquartered in Europe has major pension plans in Australia, Belgium, Canada, France, Ireland, Japan, Netherlands, Singapore, Spain, Switzerland, the UK, and the U.S. with total global pension assets of over $20 billion. Its goal was to improve corporate oversight of worldwide pension plans and to implement consistent reports for worldwide pension plans. It also wished to improve risk management over global pension assets and to reduce costs.
In late 1999, the company issued a formal request for a proposal for global custody services, selecting a global custodian early the following year. The headquarter pension plan and a few other country plans transitioned to the global custodian first. Other plans joined the custody platform through 2005, as trustee boards granted approval.
During that five-year period, the firm implemented headquarter reporting to include data from its plans not custodied by the global custodian. It also began exploring cross-border pension pooling, implementing a non-tax transparent pooling vehicle to support fixed income and pan-European equity mandates. It added country participants and investment mandates to its pooling program between 2002 to 2005.
At present, the company is implementing a tax-transparent pooling vehicle to support global equity mandates. It is also exploring U.S. plan participation in its cross-border pooling program. As a result, the multinational has been able to achieve each of its originally outlined objectives. Further, the company has been able to continue to enhance risk management and administrative efficiencies by taking advantage of new tools such as cross-border pension pooling.
REALIZING SYNERGIES
Cross-border pension pooling does not fit every organization. However, for those companies that have at least $250 million of pension assets that can be attracted to common investment mandates across country plans, significant synergies can be realized. A phased project plan for global pension management can make the implementation process less cumbersome for limited corporate staff.
Keeping each company plan in the loop is also beneficial to the process. While the headquarters of a multinational can recommend a global custodian, each country plan should conduct a formal review so the respective trustee boards can become comfortable and make independent decisions. The subsidiaries want to understand the benefits of consistent reports, performance analysis and risk management across countries, as well as any potential cost savings of working with the same provider globally. The ultimate decision on any service provider change lies with the trustees.
Engaging local management and the local trustee bodies early in the decision-making process and fostering a collaborative approach is very important. Senior management support is also critical. The time required to implement a comprehensive global pension management strategy will depend upon the scope of your project. A workable solution is achievable. The incorporation of services offered by custodians can make pension managers at both corporate headquarters and subsidiary country plans more efficient.
Michelle Teteak is senior vice-president with the Northern Trust Company in Chicago. Michelle_m_teteak@notes.ntrs.com
