Pension executives at multinational corporations are becoming increasingly involved in their firms' pension funds around the world, a new survey by Mercer Investment Consulting shows.
Some 84% of respondents report some form of centralized corporate involvement in local pension plans, up from 50% two years ago. One example: 77% have common investment objectives for their plans worldwide, such as outperforming certain benchmarks and controlling risk relative to liabilities, up from 60% in 2000.
Despite the increased involvement, it appears executives from the home office aren't shoving policy and procedure down the throats of local pension fund officials.
"Even though corporate involvement has increased, the type of involvement has changed," said Stacy Scapino, head of Mercer's multinational investment consulting services, based in London.
Multinationals have moved toward a more "bottom-up" approach to managing retirement plans, from a "top-down" strategy, she said. For example, half allow local retirement plans to set plan policies, up from 42% in 2000, when the last Mercer study was conducted.
Meanwhile, 71% the survey's respondents said their pension plans are doing asset-liability modeling, up from 56% two years ago. That, said Barry McInerney, head of the U.S. investment practice at Mercer, is a reflection of the volatile markets as pension executives focus on risk management.
Global retirement plan management is a relatively new concept that will develop further as firms learn to balance the needs of local fiduciaries with corporate objectives, Mr. McInerney said. Only 38% of respondents cited global retirement plan management as a key corporate goal in 2002. About 40% have staff dedicated to global retirement plan management, although about 25% currently without staff expect to hire people in this area in the next two years.
Corporations that have adopted a global approach say cost reduction and risk reduction were the primary motives. Most critical to building a global program, they say, is senior management support.
Meanwhile, about 93% of respondents said volatility of pension expense was a key concern of theirs, and 83% said volatility in cash flows to local plans was another, Ms. Scapino said. Yet, only 24% have global funding policies and only 36% have global investment policies. "Multinationals have not aligned the framework to manage global funding with the elements they identify as most important," she said.
Some 43% are looking to improve returns to boost funding. To accomplish this, multinationals are reviewing investment policies, adding alternative investment classes, rebalancing, moving money into bonds, or conducting asset-liability studies.
Ms. Scapino expected that number to be higher, but she said the volatility and uncertainty of the market make it difficult for plan sponsors to make wholesale changes. "It shows that people are hunkering down," said Ms. Scapino. Multinationals thought through these investment decisions when they were made and they are largely sticking to them, she said.
The survey also showed use of preferred providers as money managers is relatively flat at 16%, but more fund executives plan to use them in the future. Preferred providers refer to a roster of firms selected by the corporation to use worldwide.
Ms. Scapino said the use of preferred providers has yet to increase significantly because firms have had more pressing concerns.
Of the 97 firms polled for the survey, 45% were based in the United States, 24% in continental Europe, 17% in the United Kingdom, 6% in Canada, and 8% in Asia, Australia, South Africa and South America. The firms have retirement plans in anywhere from three to 20 different countries; they have retirement assets of $3 billion to $25 billion each.