GLOBAL - A growing number of multi-national companies are developing global pension committees and policies in order to gain a better grasp on their fund liabilities, says Mercer global chief retirement strategist Bruce Rigby.
"More multi-national companies are interested in taking control of their pension risk," said Rigby in an interview with Global Pensions. "There is more governance taking place."
Those actually developing a global pension committee are the minority, but their actions exemplify an emerging trend among multinationals to understand the impact their pension offerings in various countries can have on their overall business.
Rigby said: "The biggest single change taking place in multi-nationals is getting out of pension risk all-together. All multi-nationals who I have heard state a pension policy will state, ‘We want to have DC wherever we can'."
There is no set way in which multi-nationals are dealing with their pension liabilities and historically, pensions have been dealt with on an individual country level. But now companies are asking what their overall pension situation is, what changes can be made at a local or headquarter level, and what governance structure is needed to support those changes.
"So there are multi-nationals at different stages along that line," said Rigby.
Companies had originally shown interest in better understanding their pension liabilities in the early 2000s after the tech bubble burst and interest rates started dropping. But interest waned again when markets started to boom. Many schemes hit peak assets in 2007 "and people kind of forgot about it," said Rigby.
He said many companies could have taken their liabilities off the table in 2007.
"There's a big regret factor there... They've been burned not once, but twice in the last number of years," he said.
During the crisis, plan sponsors were hit by a double whammy of dropping market values and lower interest rates, both of which play a role in increasing overall pension liabilities and contributions. Meanwhile, stricter funding regulations in some countries meant that the yearly cost of providing the pension was set to skyrocket.
In the US, for example, funding relief was recently passed. But before relief was put in place, plan sponsors were expecting contributions of $78.4bn for plan year 2010, $131bn for 2011 and $159bn for both 2012 and 2013, according to data by consultancy Towers Watson. (Global Pensions; August 2, 2010)
That could have been a hard pill to swallow for companies based in countries without a history of providing DB - such as France - but with subsidiaries in countries where DB was considered the norm.
To read more about how multi-national companies are tackling their pension risk, read the GP feature, Captives - The reinsurance solution?
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