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Defined Contribution

More multinationals have global retirement policy

PIMCO survey shows companies increasingly centralize DC practices

Stacy Schaus
Stacy Schaus is seeing more adoption of global plan philosophies.

Benefits executives at multinational corporations are seeking more centralized coordination of defined contribution plans due to DC's growing role in corporate retirement policies, according to a survey by Pacific Investment Management Co. LLC.

“Companies are becoming more involved than they have in the past,” said Stacy Schaus, executive vice president and defined contribution practice leader for Newport Beach, Calif.-based PIMCO, noting that the companies try to strike a balance between headquarters-based standards and the cultural or operational differences among various countries where they offer DC plans.

“Within a few years, the vast majority will have a global plan philosophy for oversight of benefits,” she said. “Defined contribution is becoming more important and more prevalent in international markets.”

A report on the survey, published Jan. 23, noted that 43% of multinational DC plans already have completed a written global retirement philosophy document, an important early effort in setting goals for multinational DC plans, Ms. Schaus said. Another 22% will achieve this goal within one to two years.

The survey report said 46% of multinational corporations have completed an inventory of local DC plans in countries where they do business. Ms. Schaus said this illustrates a “very first step” in corporations' understanding the differences among plans. Thirty-eight percent said they will achieve this goal within one to two years. “We hear many sponsors saying they're not sure what DC plans have done locally,” she said.

Among other key actions to improve global DC oversight, PIMCO found that 43% of companies had already established a global leadership team and 26% will do so in one to two years; 35% have reviewed global plan governance, and 43% will do so in one to two years; and 33% have evaluated the design of local DC plans, and 29% will do so in one to two years.

The PIMCO report, “Global DC Survey for Multinational Corporations, contains responses from executives at 26 corporations whose DC plans have more than $230 billion in assets covering more than 1.2 million participants.

The survey report cited several goals for establishing greater global oversight of DC plans, and executives said the most important was improving plan governance. Forty-two percent cited this as having significant value, while 29% said it would add value.

Twenty-five percent of executives said greater global oversight would provide significant value in reducing costs, while 46% said it would add value.

Another benefit to global retirement efforts is information sharing, which 29% of executives said would provide significant value and 33% said would provide value. Ms. Schaus said this could provide a systemwide benefit as DC plans in one country might be using practices that corporate executives find worthwhile for plans in other countries.

Local with global oversight

The PIMCO survey found that the most popular strategy for multinational DC plan decision-making is relying on local plans plus global oversight. Thirty percent of respondents used this approach for investment design, 39% for plan design, 35% for investment provider selection and 36% for administration provider selection.

By contrast, 11% of respondents used a centralized approach to global DC leadership, 18% did so for plan design, 12% for investment provider selection and 11% for administration provider selection.

Executives said information most-needed for improving global DC plan governance was investment fee benchmarking data (21% of respondents) and investment performance benchmarking data (21%). Administration fee comparisons (17% of respondents) and administration service comparisons (17%) also were cited as the most-needed.

Among other survey findings, PIMCO reported:

  • Auto-enrollment of new hires (21%) and auto escalation (13%) were cited by executives as plan features that they would be most likely implement for global DC plans over the next several years.
  • Forty-four percent of executives were indifferent to retaining assets of participants who had retired. Although 36% preferred to retain these assets, they did not actively encourage retirees to keep money in the plan. Eight percent actively encourage retirees to keep assets in the plan while another 8% said they preferred retirees remove the money.
  • Plan executives said non-U.S. bonds, emerging market equity and developed international markets equity were the most important asset classes that would benefit from actively managed investing. They said U.S. large-cap equity, commodities and Treasury-protected inflation securities were the least important for active management.
  • Eighty percent of executives said they don't set specific retirement income savings targets in their plans for participants while 20% said they do in some countries. Among those answering “no,” 56% said they don't have specific targets; 16% said they don't set goals because their DC plans are viewed as supplemental savings plans; and 8% said they don't do so now, “but we plan to set targets in the future where applicable by country.”

This article originally appeared in the January 23, 2017 print issue as, "More multinationals have global retirement policy".