Multinats Taking Global Pension Management Perspective

Mercer’s latest poll of multinationals said that group of sponsors are considering at a minimum the key plans (46%) and in some cases all plans (35%) their companies field around the world.

Seven out of 10 respondents said, in general, retirement plans present a financial risk to their company; most said they have taken action to address the issue.

The Mercer data shows a particularly striking change in developing pension funding policies with, 9% of respondents not having a global funding policy – down dramatically from the 76% six years earlier. Fifty-percent of multinationals that do have global funding policies indicated that targets are either based on statutory minimum funding requirements or on an accounting measure.

Mercer said more than half those companies with no established policy or only a regional policy in place expect to move toward some form of global policy in the next two years.

“Changes in national and international accounting standards mean that volatility in pension funding levels and costs have a greater impact on company financials, making retirement plan risk management much more important to companies,” said David Fogarty, principal in Mercer’s Financial Strategy Group in London, in a news release. “In addition, the tightening of national regulatory regimes means that costs are rising and plan fiduciaries – or regulators – are exerting greater pressure on the companies for monetary support to their pension plan. Multinationals are reacting by applying more corporate resource to setting and managing pension policy.”

Mercer said its data also showed governance remains a high priority for multinationals, driven by the desire to have a framework that mitigates financial risk and volatility. The majority of respondents (62%) state that senior management has identified retirement plans as a key corporate issue.

However, a further 33% feel that while they are on the corporate agenda, they don’t get enough visibility and 10% of companies do not feel that retirement plans are on the agenda at all.

In line with the general move away from the provision of defined benefit (DB) plans, multinationals continue to limit the types of retirement plans available to new hires, Mercer said.

Across all regions, the percentage of respondents with a stated policy of only using defined contribution (DC) plans for new hires has gone from 31% in 2004 to 61% in 2008. Over half of respondents globally have closed their DB plans to new members or to future accruals for existing members as well as introduced a DC plan.

There has been a significant increase in companies setting global investment policies, with 60% confirming they have some sort of global approach to setting investment objectives and strategy for DB plans. In 2004, this figure was 46%. The most common investment policies are the use of an investment committee and measurement of management performance.

Mercer reported that when asked what drove their funding or investment decisions, 73% stated that pension plan asset mismatch was a "very important" or "important" consideration (27% and 46%, respectively).

The Mercer survey of 49 multinationals with total pension plan assets of $437.3 billion provides an analysis of trends in retirement plan management by multinationals based in North America, Europe and Asia.