Thought leaders 2010: The year ahead: Focus on good governance and cost saving

Key Points

  • International benefits managers are likely to adopt the same cautious approach that they did in 2009
  • Sensible benefits managers will work with the finance function to manage benefits risk
  • Management of global benefits will continue to be centralised

It will be another cautious year for benefits, says Tim Reay, secretary of the International Employee Benefits Association

After a difficult 2009, the outlook for the general economy and HR is still uncertain in 2010. For multinational employers, this makes any sort of planning difficult, and it is likely to see them continue the cautious approach that many adopted in 2009. New benefit plans are less likely to see the light of day in 2010 than in more ‘normal’ years.

The trend for employers’ finance function to become more involved in benefits is almost certain to continue. The financial aspects of benefits governance and of risk management will continue to sit at the forefront of benefits management, to help meet organisations’ concerns that benefits are being managed properly and with an appropriate level of risk. A sensible international benefits manager will look to work in conjunction with the finance function to achieve this.

Good benefits governance means ensuring, as far as possible, that the organisation around the world is doing what it must do, in terms of legislation, as well as what it should do, as best practice. As most organisations seek to centralise management of benefit plans – a trend we have seen over the past few years – governance is also being centralised, and the corporate benefits manager is having to do more in this field. One area where governance can be improved is by introducing cross-border pension plans in Europe, covering employees in more than one EU/European Economic Area member state, and we expect these to become significantly more widespread in 2010 as practical obstacles are overcome.

In addition to operational risk, the benefits manager also needs to address financial risk, taking effective action to mitigate unrewarded risks. One of these is the longevity risk resulting from sponsoring a defined benefit pension plan. Longevity swaps, whereby the pension plan passes this risk to a financial institution, were first seen in the UK in 2009 and are expected to appear across Europe in 2010.

However, most benefit managers have recently had to focus more on short-term cost reduction. Obtaining immediate (current year) savings is not easy in the benefits field, apart from the obvious route of cutting benefits here possible, although some have achieved this by speedy rebroking of death or disability insurances, or renegotiating investment management fees.

Cost savings

This focus on short-term cost savings is likely to continue in 2010. For example, organisations that have not reviewed their risk insurance pooling arrangements (or do not operate such arrangements) are advised to do so, because this can often lead to real savings on insurance premiums within a year. Significant first-year savings can also be made by reviewing the total cost of health – the cost to the organisation of its employees’ ill health, not just the medical insurance premiums – and introducing absence management and health management systems.

Then there are opportunities in certain countries, often by taking advantage of tax savings available by adjusting components of the remuneration package, such as paying pension contributions by salary sacrifice in the UK. A well-informed benefits manager can add value to this process by proactively suggesting opportunities for savings to those responsible for benefits in the countries concerned.

At a time of increased uncertainty and insecurity, employees will look to their employer to provide reassurance. In the benefits area, this might simply take the form of better communication: it may be just as beneficial to communicate existing benefits properly as to introduce new ones.

So the international benefits manager can look forward to an interesting year, and should aim to keep abreast of developments in the field as much as possible, in order to improve governance as well as to squeeze some more cost savings out of their organisation’s benefit plans.

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