GLOBAL - Just 16% of multinational companies feel their existing benefit plan governance structures are sufficient to meet current and anticipated future needs, research by Mercer shows.
The survey of 114 cross-border organisations found more than three-quarters (77%) are seeking to make changes that facilitate better management of risk globally, while many are planning or considering changes to elements of their governance frameworks to ensure that they deliver on objectives.
Mercer said given the added complexity of managing benefit plans across borders, schemes had been given a "wake-up call" by the recent turmoil in the world financial markets.
Significant declines in asset values and the dramatic deterioration of defined benefit (DB) pension plan funding positions put stress on already constrained resources, as organisations had to focus on the survival of their core businesses, the employee benefits consultant added.
"For many multinational organisations, the financial crisis in major markets and the impact on benefit programmes were unanticipated, and they paid insufficient attention to risk management activities, such as scenario planning and extreme event modelling," said Vicki Stokoe, global governance consulting leader at Mercer.
"To make matters worse, companies lacking ready access to key information or without an established decision-making structure struggled to respond quickly and effectively."
Roughly half of respondents indicated that better or timelier information is needed across various plan management activities such as design, funding and investment, with 30% planning changes to their reporting structures.
"If information is a key factor in achieving better risk management, then investment in resources, tools and processes is necessary," said Stokoe. "In fact, failing to do this increases risk, as gaps in information represent risk that has not yet been assessed or monitored."
Some 93% of respondents said their benefit plans pose a potential risk to the organisation's business strategy, while 81% said the plans pose a financial risk to the company and 93% said they are a potential source of reputational risk.
Earlier this month Mercer global chief retirement strategist Bruce Rigby said a growing number of multinational companies are developing global pension committees and policies in order to gain a better grasp on their fund liabilities .
The impact on reward strategy should not be under-estimated either, said Mercer.
"In the UK, the forthcoming legislative changes for ‘high earners' (in reality those earning above £60,000) may trigger wholesale benefit design change," said Amanda Cullen, head of Mercer's UK governance consulting team.
"Add to this the introduction of auto-enrolment in 2012, which will affect every UK organisation, and it is clear that without an effective governance structure, global businesses will be ill-equipped to respond promptly to such significant change."
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.
"In order to make needed changes, organisations should develop a compelling business case that articulates the risks and proposed mitigating actions," Stokoe said.
"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."
JP Morgan Worldwide Securities Services has also seen plan sponsors taking part in an "unprecedented" amount of custodian turnover.
Managing director and head of pensions Benjie Fraser said while the UK is leading the way in search activity, which is not unusual given the large size of the pension market, more and more interest has emerged in continental Europe, particularly in Sweden, the Netherlands, Germany and Switzerland. (Global Pensions: August 10 2010)
The registration deadline for the Workplace Savings & Benefits Awards 2019 is today.
This week's top stories were the DWP giving the green light to CDC and TPR granting extensions for 11 master trust authorisation applications.
Susan Martin says building strong foundations for business are the only way forward as the pensions industry is radically shaken up
The Pensions Regulator (TPR) has granted Now Pensions a six-week extension for its master trust authorisation application after the 31 March deadline, PP can reveal.