GLOBAL - Companies in more countries are starting to adopt the two-tier model of defined contribution funding typically found in the US, said Craig Burnett, Mercer's European head of DC.
Under the dual structure of a base and a discretionary match, companies will typically offer a floor match set at a relatively low percentage, but will pay an additional amount if certain financial watermarks are hit.
Burnett said this gives the employer flexibility with regards to its pension costs, and allows the employee to participate in the up-side.
"It drives employee responsibility...I think that's a sound theory," said Burnett.
He said a typical set-up would be to offer a 25% match on the first 6% of salary an employee contributes, and offer a discretionary amount on top of that.
Burnett said he's already seen examples of this emerging in the UK, France, Australia, Denmark and Sweden.
"Countries where it will be more complicated are where they've settled into a DB/DC sweet spot," said Burnett.
These include countries like Germany, Switzerland or Belgium, where the government has made it legally impossible to shift all the risk onto the member and the company may be required to deliver a guaranteed minimum payment.
Often, a social partner like a union will also be involved in setting a pension guarantee, he said.
Since the pension payment is typically based on a hard-coded formula, those companies are less likely to also offer a discretionary match, said Burnett.
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