When deciding on the pension plan that was best for its organization, Merck Frosst focused on value, not just cost.
For the Quebec-based pharmaceutical company, that value lays in offering a plan that would attract—and keep—the skilled employees it needs to remain competitive. Unlike many private companies in Canada, it recently chose to maintain its defined benefit pension(DB)plan.
“The Merck Frosst plan has been redesigned to attract top talent,” said Danny Greene, director of compensation and benefits for Merck Frosst Canada, speaking at the Conference Board of Canada’s 2007 Pensions Summit in Toronto. “The differentiation starts today.”
With 1,544 employees in Canada, the research and development-driven company was facing a number of difficult issues with its old defined benefit pension plan. Both costs and volatility were on the rise. Benefits were misunderstood and underappreciated by plan members. And the company was in competition for skilled workers. So the company embarked on an extensive review of its plan.
According to Greene, Merck Frosst took a balanced approach to making its decision. It weighed its objectives of attraction and retention against its need to decrease the cost and volatility of offering the DB plan. And it looked at a number of options, including maintaining the current design, offering a reduced DB plan, introducing a hybrid plan or converting to a defined contribution plan.
In the end, however, it was the human capital risk that figured most prominently in their decision. “At Merck Frosst, we’re all about our people,” said Greene, adding that losing key personnel would impact shareholder value. “We knew [keeping the DB plan] wouldn’t be the easy thing to do, but we knew it would be the right thing to do.”
While Merck decided to stay with the DB plan, it did reduce the core benefit provided by the plan. It also removed the plan’s early retirement incentive, except for current employees. “We didn’t want to subsidize employees leaving early,” said Greene. To help make up the difference, the company has added an enhanced Savings Plus Account, an optional plan that allows employees to purchase additional benefits to supplement the core DB plan.
To comment on this story email don.bisch@rci.rogers.com.