Only 16% of multinationals feel benefits plans are sufficient

Only 16% of multinational organisations feel their existing governance structures of employee benefits programmes are sufficient to meet current and anticipated future needs.

The Global governance of benefit plan survey by consultancy Mercer of 114 multinational organisations also found significant declines in asset values and the dramatic deterioration of defined benefit (DB) pension plan funding positions putting stress on already constrained resources.

More than three-quarters (77%) of organisations are seeking to make changes that facilitate better management of risk globally. Many are planning or considering changes to elements of their governance frameworks to ensure that they deliver on objectives.

When asked about the extent to which their benefit plans affect key aspects of their business, 93% of respondents said the plans pose a potential risk to the organisation’s business strategy, 81% said the plans pose a financial risk to the company, and 93% said they are a potential source of reputational risk.

While most organisations recognise the potential impact of benefit plans, more work is needed to understand the actual level of risk organisations face and to mitigate that risk. The majority (60%) of employers surveyed said they need more information about their risk exposure.

Areas for attention to achieve governance objectives include a focus on defined contribution (DC) pension schemes. While 92% of respondents sponsor defined contribution (DC) retirement plans in some or all geographies, most decision-making on these DC issues remains with local management or fiduciary boards, with little involvement from the corporate head office.

Vicki Stokoe, global governance consulting leader at Mercer, said: “For many multinational organisations, the financial crisis in major markets and the impact on benefit programs were unanticipated, and they paid insufficient attention to risk management activities, such as scenario planning and extreme event modelling.

“To make matters worse, companies lacking ready access to key information or without an established decision-making structure struggled to respond quickly and effectively.

“Most organisations focus on plan design and funding decisions, but few devote the same attention to investment policy and monitoring. An integrated approach is needed to effectively manage risk.

“Equally, for organisations with DC retirement plans and non-retirement benefit plans, operational and communication risks require active management. Current policy and oversight suggest these risks are not yet fully appreciated – to the detriment of workforce planning and employee relations.

“In order to make needed changes, organisations should develop a compelling business case that articulates the risks and proposed mitigating actions. This will support the education and awareness-building required to gain executive and local-level support for action and commitment to the longer-term efforts."