While companies relied on tried and tested cost control tactics to weather the recession, including reducing contributions to defined contribution (DC) plans and stopping accruals in defined benefit (DB) plans, many companies are also introducing strategic innovations to benefit programs to help with cost control in the longer term, Mercer noted in a news release. Instances include adding wellness programs and allowing employees to tailor their own benefit packages through the implementation of flexible benefit programs.
Companies are also assessing whether the level of certain benefits provided can be linked to profitability, such as introducing a profit-sharing component into DC plans.
In addition, as the trend of moving from DB to DC retirement plan offerings will likely continue and the recent financial turmoil has highlighted some of the pitfalls of providing lower retirement benefits through a DC plan. David Newman, Mercer principal and international consultant, said in the news release that many companies have increased their focus on DC plan management, with an emphasis on ensuring cost efficiency and that employees are empowered to make good decisions relating to retirement. “This often includes financial education,” Newman added.
Mercer found companies are also intensifying efforts to develop a clear understanding of the cost and risk drivers embedded in retirement and benefit programs to ensure they can adopt targeted solutions to control these factors. Solutions being considered include encouraging behavioral change through global health management programs or adjusting investment strategies to neutralize certain uncompensated risks being carried in retirement plans.
Management of financial risk and volatility and the related reputational issues requires a more structured approach than many organizations may have needed in the past. “[H]aving a robust global governance framework is vital,” said Vicki Stokoe, Mercer’s global retirement governance consulting leader, in the news release.
Mercer suggests this framework includes both the structure and the supporting processes needed to achieve the desired level of central oversight, and frequently includes written policies on design, funding, and investment; clear delegation of authority and assignment of responsibility related to benefit programs; and a defined approach to monitoring and mitigating risks.
Finally, as reform is being contemplated in public health care policy in countries such as the U.S., China and Germany, Mercer said employers can expect that such reform will have a significant effect on the programs they provide. A number of public policy changes have been enacted to help companies respond to the recession and the decline in capital markets, and minimum funding standards for retirement plans have been relaxed in several countries even as increased disclosure to participants is now required. Companies should be examining the implications of these changes on funding strategy, Mercer suggested.