Mercer Unveils 'Retirement Shares' Savings Program

July 5, 2005 ( - Mercer Human Resource Consulting on Tuesday unveiled a new retirement savings program in which an employee purchases "Retirement Shares" with an employer's yearly contribution.

A Mercer news release said the system anticipates that an employer’s annual contribution will be a percentage of the employee’s pay – a sum that will be used to buy shares based on their end-of-the-year value. The share value is determined based on the collective value of the retirement trust assets, which, in turn, is based on the health of the markets at any one time, the company said.

Mercer Principal Don Fuerst said the system can also be personalized to a certain degree by offering two share classes that will be based on two levels of investment risk – equity shares and stable value shares (based on fixed-income holdings). Equity and stable value funds are selected and monitored by the plan sponsor and professionally invested, according to Mercer. “You have the ability to select how aggressive your portfolio is gong to be,” Fuerst said.

Fuerst said that a Retirement Share represents the right to receive a certain annual amount over a lifetime – in effect annuitizing the employee’s assets immediately. That compares with annuity options in a traditional defined benefit or defined contribution plan where employees can withdraw accumulated cash and purchase an annuity as a distribution option.

The system benefits employers in that the amount of pension contributions will be relatively stable – based on actuarial estimates of the cost of funding the yearly employee contribution, according to Fuerst. He said, however, that there are two potential downsides:

  • A down market could result in a decreased value of the trust’s collective assets, which would affect the value of the shares and the amount of lifetime income.
  • A company could still encounter sufficient financial trouble that it couldn’t fund a particular year’s contribution. Fuerst said that such a problem would be discovered much sooner than under a traditional pension because employers would be required to make sufficient cash infusion each year so the inability to do so would be apparent immediately. There would also be no payment “holidays” as there are currently in the traditional retirement system.

Fuerst said the new Mercer system is similar to existing cash balance plans, but differs in its reliance on the value of the collective trust assets to drive the program. Also, unlike a traditional pension plan that pays a fixed amount each year, the lifetime income of an employee in a Retirement Shares program is based on the value of the trust’s collective assets.

According to Mercer, the Retirement Shares Plan also can accept transfers from 401(k) plans, giving employees the opportunity to purchase annuities with their defined contribution account balances at more favorable rates than are generally available in the marketplace and still maintain some equity exposure.