GLOBAL - Multinational companies are looking at innovative ways to redesign defined benefit schemes but will cut contributions by 10% in the process, research by Mercer suggests.
The consultant's research - analysing responses from 220 multinational companies in the UK, US, Germany, France, Italy and the Benelux countries - found 33% were looking to make changes to their DB scheme but this would involve cutting contributions by 10% on average.
It added in such cases, the average level of employee contributions, excluding additional voluntary contributions, is expected to fall to 5.5%.
Mercer said the results indicated the evolution of "traditional" DB will continue as companies find innovative ways to keep their DB schemes open and resist closing to future accrual.
Mercer head of scheme design group Chris Sheppard added: "This is a story of evolution. The DB plan as we have known it is heading towards extinction but new species are appearing as companies try to adapt and preserve what is a very highly-valued employee benefit and staff retention tool."
However, Mercer's Scheme Design Survey also found only 14% had a DB scheme open to future accrual, while 38% confirmed their schemes were closed to future accrual and 48% said their schemes were closed to new entrants.
Of the schemes still open for accrual, the average level of employer future contributions was 17% and the average level of employee contributions was 6.3%.
And where changes have been made to benefit provision, the average level of employer future service contributions decreased to an average of 11.3%, while the average level of employee contributions (excluding additional voluntary contributions) had increased to 6.4%.
Sheppard said: "A notable change has been the drop in the average size of employer contribution. This reduces the cost of schemes. However, with employee contribution rates broadly the same, less company contribution has a detrimental impact on an employee's retirement, so good member communication is vital."
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