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Defined Contribution

Currently, around $15 trillion of global retirement plan assets relate to DC plans, more or less matching the amount of global DB retirement plan assets. This number is clearly significant and is constantly increasing, representing the continuous global shift of company-sponsored retirement plans towards DC. Multinational companies currently face two main issues in relation to their DC retirement provision:

  • Enabling employees to retire with an adequate benefit level; and
  • Managing the inherent DC plan risks.

Average member contributions to global DC plans are typically below the levels required for employees to achieve target levels of retirement income. For instance in the US, only 1 in 5 employees are projected to have retirement savings that exceed the amount needed at age 65, and as such the typical employee will not be financially ready to retire until at least age 68. There is a clear and increasing need for multinational companies to focus on providing appropriate education and communication to employees, in order to help them appreciate the value of their DC benefits and achieve an optimal outcome at retirement.

At the same time, multinational companies are also struggling with the effects of wider challenges posed by ageing populations and the low interest rate environment. The latter in particular has decreased consumer confidence in financial and retirement savings products, which further emphasises the need to assist employees with financial education and ensure they have access to an appropriate range of investments to deliver an optimal return.

For multinational companies, having clear strategic policies and a robust operating model in place at a global level are key to addressing the above challenges. Many companies lack clear guidelines around fundamental areas such as data flow management, internal decision-rights allocation, and ongoing DC plan monitoring and compliance (both with the company’s strategic policies and global regulatory changes); achieving clarity in such areas enables efficiencies to be delivered through global cost savings and risk mitigation.

Supported by our unmatched global network, our international consultants assist multinational companies with developing a structured approach to managing the design, financing and operations of their global DC plans and addressing the challenges mentioned above. In particular, we support companies with:

  • Defining their strategic context, by developing/reviewing their corporate guidelines and design/financial/operational policies in relation to their global DC plans;
  • Assessing the performance and management of global DC plans against strategic policies and market norms;
  • Identifying opportunities to improve alignment of the plans with strategic policies and achieve cost savings;
  • Helping to prioritise and implement the required actions;
  • Developing a decision-rights allocation framework to determine the correct parties responsible for managing the risks and ongoing plan operations; and
  • Developing an ongoing monitoring process to ensure plan compliance with corporate policies, local market trends and the ever-changing global regulatory landscape.

2023/24 Global Pension Risk Survey

International Wealth Solutions 2024 Webinar Series