Reform of pension and health and welfare systems in many countries is creating significant challenges for multinational companies looking to manage the cost, risk and competitiveness of employee benefit programs. Reforms, prompted by an aging population and the increasing cost of providing adequate retirement income and health services, are gathering pace in numerous countries including the U.S., France, the U.K., Australia and Canada, according to the annual Benefit Plans Around the World report from HR consultancy Mercer.
“The decline in public finances has prompted a general retreat in state retirement and health provision; some countries are even looking to their private pension and health systems for new sources of revenue. Changes vary but include increases in retirement ages, restrictions on tax relief, reductions in benefits, and increases in worker contributions,” said Jean-Philippe Provost, U.S. international consulting group leader at Mercer.
“As governments shift the cost of benefit provision from the public sector to the private sector, employers are seeing a significant knock-on effect on the programs they provide, and employees are left wondering how to fill the gap,” he added.
There is, consequently, a greater appreciation among employees of the value and security of their benefits after two years of economic uncertainty and pay restraint, according to Mercer.
“One of the trends coming out of this research is the manner in which companies are looking for cost efficiencies and value for money,” Provost continued. “Some are reducing benefits for new hires or introducing cost sharing, while others are consolidating with third-party vendors or pooling of insurance risk to achieve economies of scale. A number of firms are taking a different approach and are introducing programs to help control costs in the longer term such as wellness and flexible benefits programs. Most multinational companies are looking to deliver cost savings one way or another, but the manner in which they are dealt with will determine whether a company has the funds and strategies in place to give it a commanding position.”
According to Mercer, many companies still grapple with how to deal with the financial volatility inherent in legacy defined benefit pension plans. This is exacerbated in many countries where changes in funding levels and regulatory requirements will have a financial impact. According to the report, this has led to a measure of centralization. Companies are re-evaluating their financial management policies and looking to keep tighter control over plans to react to market conditions quickly and appropriately and to ensure that risk levels are acceptable.
“Central oversight and monitoring of policy can identify risks and issues and enable companies to react appropriately—by encouraging behavioral change through a global health management program, for example," said Mercer's John Hall, international consulting group leader for Europe, the Middle East and Africa. "Money saved in these areas, such as reduced insurance premiums, can be diverted into other programs that can support the productivity of the workforce,” he noted.
The increased visibility of retirement and benefit programs at board and senior management levels has encouraged a trend toward increased global oversight and use of frameworks, Hall said. These often include written policies on design, funding and investment, clear delegation of authority and assignment of responsibility related to benefit programs, and a defined approach to monitoring and mitigating risks.
“Multinational companies often have fewer resources available on the ground to manage these programs locally and fewer headquarters’ resources available to oversee adherence to them centrally,” said Provost. “Frameworks allow local offices to operate within set guidelines, so that multinationals can capitalize on them without the need for extra specialist headcount.”
Debt Limit Negotiations Could Impact Health and Retirement Plans in the U.S.
The U.S. congressional Joint Select Committee on Deficit Reduction is charged with developing legislation to reduce the federal deficit by approximately $1.5 trillion over 10 years. If the committee decides to address tax issues, then there is a possibility that retirement plan tax incentives, which are one of the largest tax expenditures in the federal budget, could be impacted, according to an August 2011 report by Groom Law Group.
In addition, changes to the tax treatment of employer‐sponsored health plans could be explored. The tax exclusion for employer‐provided health coverage is one of the largest tax expenditures, and changes to limit the exclusion have been examined by other groups seeking to address the deficit situation.
If no agreement is reached by the committee, automatic across-the-board cuts will take place, which could have a significant impact on the federal health care spending provisions under the Patient Protection and Affordable Care Act, as most federal discretionary spending will be reduced on a pro‐rata basis.
Stephen Miller, CEBS, is an online editor/manager for SHRM.
Multinationals Adjust Health Benefits, SHRM Online Benefits Discipline, May 2011
Learn the Landscape When Managing Benefits Globally, HR Magazine, May 2011
For Expats, Juggling Cost-Cutting with Competitive Benefits, SHRM Online Benefits Discipline, September 2010
SHRM Online Benefits Discipline
SHRM Online Health Care Reform Resource Page