Maintaining Retirement Plan for Expatriates Presents Challenges

April 2, 2012 ( – Sixty-three percent of employers try to keep expatriates in the retirement plan offered by the firm in their own country, a Mercer survey found.

According to the Benefits Survey for Expatriates and Internationally Mobile Employees, 12% of companies have established international pension plans to ensure continuity of benefits for global nomads and long-term expatriates.  

Mark Price, principal, Global Mobility Consulting in Mercer’s London office, said in a press conference about the survey that the types and durations of assignments can cause complexity in retirement provisions for expatriates. “It is important to make sure expatriates understand that retirement savings focus should be for the long-term, not just the short-term time they are in another country,” he stated.  

The easiest way to manage expatriate expectations is to link the expatriate plan to the home country plan, he added.  Benefits are fragmented if expatriates have accounts in multiple plans, and this can be confusing at retirement.  Price noted that different jurisdictions and assignments can result in different salary and contribution caps and taxations rules. In addition, if an assignee is in multiple plans and cannot get out of them, there is a cost allocation to all plans.  

However, staying in the home country plan is most reasonable for short- and medium-term assignees, Price conceded. A host country plan is most suitable for employees that are localized; it creates equity between expats and locals.  

A dedicated international plan is most suitable for global nomads, and provides a common plan design no matter where they are assigned. However, there may be tax challenges, Price noted, and many jurisdictions will not allow the transfer of home plan accounts into international plans.

Survey Results  

The Mercer survey found a decrease in defined benefit plan use for expatriates from 79% in 1991 to 20% in 2012, as well as a corresponding increase in defined contribution plan use from 14% to 60%.  

The most common funding methods for expatriate retirement plans, according to the survey, are external offshore trusts (37%), external offshore insurance (26%), unfunded (19%) and other 19%. Price said one reason employers may choose an unfunded plan is the taxation differences among countries, in order to defer tax issues until a later date.  

In international DC plans, the most common form of payment is a lump-sum (48%), followed by annuity (24%), employee choice (14%), lump-sum with an annuity option (10%) and other (3%).   

The most common employer contribution structure is a percentage of compensation (78%). Nine percent of multinationals surveyed contribute an employer match, 4% use a varying rate for employer contributions and 9% chose other. The average employer contribution rate is 8.5%; 6% for American multinationals and 10% for European multinationals.  

Mercer’s survey report may be purchased at