Demographic risk is dictating the need for asset owners to reconsider the plan design of their retirement arrangements, speakers agreed at Pensions & Investments' WorldPensionSummit in The Hague on Wednesday.
Panelists pondered a number of different approaches to a possible robust plan design for the future, agreeing both defined benefit and defined contribution plans have their challenges in current social and economic conditions.
"We think the future is between DB and DC. We are open (to changing the plan design) but we think the transition should be smooth," said Gregoire Haenni, chief investment officer at Caisse de prévoyance de l'Etat de Genève, Geneva, speaking on a panel on the future of pensions and investments. The 13 billion Swiss franc ($13 billion) pension fund is considering adding a defined contribution plan. "In the coming month we will have an idea" as officials continue to discuss the changes with the Swiss government, he added.
However, Julie Cays, chief investment officer at Colleges of Applied Arts and Technology Pension Plan, Toronto, said the C$10.8 billion ($8.2 billion) pension fund for college employees opened the defined benefit plan to non-college related employees. "Defined benefit as a plan design is more palatable. (And) a secondary plan design is easier to administer," Ms. Cays said, speaking on the same panel.
Andrew Halsey, head of group global pensions at ABB, Zurich, on the same panel, agreed saying a defined benefit plan is better from a risk management point of view. "A company can better navigate risk and take a longer-term view," he said.
But "there is an asymmetry in regulation," he said, that makes defined benefit less palatable to corporations. Mr. Halsey added that if a company's pension fund ends up in a surplus, often the company finds it hard to access that surplus. "But if there is a deficit, the board will ask for that money," he said. ABB has $14 billion in pension assets.
Manuel Garcia, senior consultant in the labor markets and social security division of the Inter-American Development Bank, in a separate panel discussion, expressed his personal view that "there is only so much a plan design can do" to solve more structural issues such as informality of participants' employment.
Olga Ruf-Fiedler, savings and pensions leader EMEA and India at Dow Chemical Co., speaking on the same panel as Mr. Garcia, added that although within the European framework it is possible for a corporation to set up a multinational framework that can pool assets of all retirement plans "there are challenges as it is difficult to leverage scale, fees and administration." Dow Chemical migrated to a multinational cross-border plan earlier this year using Aon's United Pensions platform.
In addition to the technical and legal work that goes into a multinational cross-border plan, there are human issues to manage as well. "There are not that many corporations that have succeeded at this," she said. "Companies have to manage internal stakeholders' (fears about moving their assets to another country). It is difficult to take that fear away."