DC or Hybrid Plans Common as Pension Add-Ons Globally

November 12, 2007 (PLANSPONSOR.com) - A new study from Mercer has found that most employers use a defined contribution or a hybrid retirement plan to supplement government-sponsored pension programs.

According to the study report, Benefit Plans Around the World: A Guide for Multinational Employers, traditional defined benefit plans remain the most common supplemental retirement plan in a number of countries, including Japan, the Philippines, South Korea, Mexico, Venezuela, Finland, the Netherlands, and Israel. H owever, Mercer found there is still a strong trend toward covering newly hired employees through DC or hybrid arrangements even in these countries.

“Multinational and local-country employers face many pressures – such as an aging population, market volatility, and increased governance and accounting requirements – that are hastening the move to defined contribution and hybrid plans,” Giles Archibald, a Mercer international consultant based in New York, said in a Mercer news release about the report. “While DC and hybrid approaches have understandable appeal, their popularity may come at a cost. 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 employee savings and retirement patterns.”

Mercer said the trends identified take place as companies generally:

  • move away from defined benefits,
  • raise the retirement age,
  • comply with new requirements for plan governance,
  • introduce new types of benefit plans, and
  • grapple with rapidly rising medical costs.

“Increased reliance on defined contribution arrangements will lead to more government intervention,” said Deborah Cooper, principal in Mercer’s London office in the UK, in the news release. “This will in turn increase costs. Hybrid arrangements can balance the risks employees face by relying on investment markets in pure DC schemes, with the regulatory and financial pressures experienced by employers providing DB schemes”.

More information is at www.mercer.com/bpaw .