Expatriate Mobility Creates Benefit Challenges

International plans can provide a single solution across assignments

By Stephen Miller, CEBS Aug 7, 2012
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While the number of employees on international assignments has remained relatively stable over recent years, the percentage of “global nomads” (employees who move from country to country on multiple assignments) and long-term expatriates has increased, causing challenges for employers when it comes to providing expatriate benefits.

According to Mercer’s 2011/2012 Benefits Survey for Expatriates and Internationally Mobile Employees—covering 288 multinational firms worldwide that together have 119,000 expatriates—85 percent of respondents have specific procedures in place to monitor the success of expatriate benefit programs in supporting business and HR strategies and meeting employees’ needs.

The demand for global leadership talent and the growth of new business ventures abroad has prompted a rise in global mobility. The number of global nomads rose from 6 percent to 10 percent of the expatriate population between Mercer's 2008-09 and 2011-12 surveys, while the percentage of short-term expatriates (those assigned to a project for less than a year) fell from 17 percent to 11 percent. Long-term expatriates as a percentage of the total assignee population increased from 21 percent to 40 percent between the surveys.

“Seasoned professionals can bring solid international experience and a depth of knowledge across a number of operating environments,” Mark Price, a principal in Mercer’s international consulting group, told the press. “We are seeing that multinationals are expecting their talent pool to have varied geographical experience as a prerequisite to climbing the top rungs of the career ladder.”

Retirement Policies: An International Plan

The most common retirement approach for all internationally mobile employees is to maintain coverage in home country 401(k) or similar plans, based on the assumption that assignees are more likely to retire back home. Some 63 percent of traditional and long-term expatriates are maintained in their home country retirement plans.

“The benefit of keeping expatriates in their home country retirement plan is alignment with employee expectation as they remain in a plan that is known prior to the assignment, and avoidance of benefit fragmentation as benefits continue to accrue under a single plan,” Price said. While this arrangement can work for short-term and traditional assignees, “problems can occur applying these plans to global nomads.”

One solution is to establish an international retirement plan, providing a single solution across assignments and the potential for a common plan design, Price said. He described these plans as “very effective in providing consistent cover for mobile populations and in jurisdictions where no appropriate plans exist.”

International plans may not address all concerns, such as taxation or facilitating exclusion from host country pension arrangements, depending on the jurisdictions concerned, but do go some way toward allowing for continued pension plan membership under a single arrangement while employees are on various assignments.

International Medical Benefits: Higher Premiums

Nearly all respondents (98 percent) currently provide private medical insurance for their globally mobile workforce, compared to only 57 percent in 2005. Medical benefits and the quality and standards of health care vary significantly from country to country, so the main challenge for companies is to provide expatriates with a broadly equitable system of health care while managing costs. Other factors that may be driving uptake of international medical plans include an increase in local health insurance compliance and the increasing demand by employees for medical benefits to be in place prior to the commencement of the assignment.

According to Price, an international medical plan provides equality among expatriates and reduces administration effort and time resource constraints. But challenges remain, particularly around costs. Fifty-three percent of respondents have experienced increases of 6 percent or more in their international medical plan premiums at their last renewal. Twenty percent of companies have seen their premiums increase by between 11-15 percent.

“Complexity in administering multi-country plans can increase the cost of providing medical benefits, said Price. “Furthermore, the ‘hot destinations’ for expatriates happen to be countries with some of the highest medical inflation in the world, such as the Middle East, India, China and Latin America. So it is not surprising that the global trend towards high premium increases is particularly prevalent in international medical plans.”

According to the survey, traditional cost-containment options remain popular, with a large proportion of respondents adopting the use of cost-sharing approaches such as employee deductibles (up 8 percent from 2008-09), co-insurance and annual benefits limits.

Stephen Miller, CEBS, is an online editor/manager for SHRM.

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