Globally, defined-benefit retirement plans are becoming a
thing of the past and defined-contribution plans more widely accepted as the
preferred alternative, a trend that could spur inquiries from international
employer clients.
Just 6% of multinational employers say defined-benefit plans
are the best way to provide pension benefits to employees, while 90% intend to
use a defined-contribution plan as the primary form of retirement benefits,
according to a recent PricewaterhouseCoopers (PwC) survey of multinational
companies. Seventy-one percent intend to freeze defined-benefit accruals for
all workers, the survey also found.
“The benefits world is changing. Large multinational
corporations are looking for something new,” Isaac Buchen, a principal at PwC,
said in a recent webinar on the survey results.
“The vast majority of employers said what we are seeing and
doing now is not what we expect to see in the future. We expect to see a lot
more defined-contribution provisions and a lot fewer defined-benefit
provisions,” added Liz Mack, a PwC manager.
Benefit advisers prospecting these employers will need to
have a clear understanding of the benefits of defined-contribution retirement
plans and be prepared to answer inquiries from current clients looking to
switch their current DB plan to a DC plan.
“What’s interesting is how pervasive this has become,”
Buchen commented. “A guaranteed retirement benefit is no longer viewed as a
sacred cow.”
In fact, 88% of multinational corporations said they are
concerned about adverse effects of legacy pension liabilities. About 45% of
respondents intend to shift their defined-benefit plan liabilities to a third
party, such as an external insurance company.
“Major multinationals are resoundingly rejecting the
open-ended financial risks of defined-benefit,” the survey report states.
Still in the game
However, they’re not leaving the retirement game completely.
“Employers still believe they have a critical role to play in the provision of
retirement benefits, but they’re unsure what exactly that role should be,”
Buchen explained.
They also feel it remains “important for employers to help
employees make informed decisions about their retirement savings,” he adds.
“Employers are spending more time and resources on helping employees make these
informed decisions. That’s what we’re calling this new paternalism.”
With that in mind, benefit brokers can advise their clients
to not totally give up on retirement benefits, but instead look for innovative
and effective ways to educate their employees on retirement planning.
“Retirement benefits are still seen as a whole part in
keeping the people we want and maintaining our reputation as an employer,” Mack
said.
For retention and recruiting purposes, companies try to
provide roughly the same retirement contribution that their competitors offer.
In general, the “type and level of benefits are driven by competitors,” Mack
confirmed.
For benefit brokers, that means it’s good to find
benchmarking data to discuss with clients.
Source: Employee
Benefit Adviser
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