United States
New York , 25 August 2010

Good governance of employee benefit programs creates value and minimizes organizational risk for companies of all sizes. With the added complexity of managing benefit plans across borders, only 16% of the 114 multinational organizations surveyed by Mercer feel that their existing governance structures are sufficient to meet current and anticipated future needs – perhaps a “wake-up call” stemming from recent turmoil in the world financial markets.

Mercer fielded the survey during unsettled economic and financial conditions in much of the world – a period which, for many plan sponsors, highlighted the need to understand and proactively manage benefit plan risk. Significant declines in asset values and the dramatic deterioration of defined benefit (DB) pension plan funding positions put stress on already constrained resources, as organizations had to focus on the survival of their core businesses.

More than three-fourths (77%) of the organizations surveyed said they are seeking to make changes that facilitate better management of risk globally. Many are planning or considering changes to elements of their governance frameworks to ensure that they deliver on objectives.

“For many multinational organizations, the financial crisis in major markets and the impact on benefit programs were unanticipated, and they paid insufficient attention to risk management activities, such as scenario planning and extreme event modeling,” said Vicki Stokoe, Global Governance Consulting leader at Mercer. “To make matters worse, companies lacking ready access to key information or without an established decision-making structure struggled to respond quickly and effectively.”

Roughly half of respondents indicated that better or timelier information is needed across various plan management activities (design, funding, investment, etc.), with 30% planning changes to their reporting structures. “If information is a key factor in achieving better risk management, then investment in resources, tools and processes is necessary,” said Ms. Stokoe. “In fact, failing to do this increases risk, as gaps in information represent risk that has not yet been assessed or monitored.”

Benefit plans create organizational risk
Asked about the extent to which their benefit plans affect key aspects of their business, 93% of respondents said the plans pose a potential risk to the organization’s business strategy. Eighty-one percent said the plans pose a financial risk to the company and 93% said they are a potential source of reputational risk.

While most organizations recognize the potential impact of benefit plans, more work is needed to understand the actual level of risk organizations face and to mitigate that risk. Sixty percent of the employers surveyed say they need more information about their risk exposure. Nearly half are considering action to strengthen global committees and more than three quarters are considering changes to policies or reporting processes to improve the effectiveness of their global governance. Areas for attention to achieve governance objectives include:

• Decision-making structures: Only 23% of respondents currently have a global committee in place (and 3% a regional committee structure), with 43% considering establishing one. In 29% of cases, ultimate responsibility currently sits with one or two individuals. While the human resources (HR) function is well represented, the finance function is involved in less than half of those cases.
• Global policy: The use of written policies to give clear direction for local decision-making is limited to a few areas of plan management: accounting (44%); benefit design (36%); and funding (32%). Only 24% of respondents have established directional policy for the investment of plan assets.
• DC focus: A “hands off” approach to benefit plan administration, member communication and vendor management prevails. While 92% of respondents sponsor defined contribution (DC) retirement plans in some or all geographies, most decision-making on these critical DC issues remains with local management or fiduciary boards, with little involvement from the corporate head office.

The effectiveness of benefit plan management structures is no longer a concern only for the HR or finance functions, which clearly have a stake in the game, given the financial and strategic materiality of the plans. Respondents to Mercer’s survey confirmed the growing interest of other stakeholders: 20% reported increasing involvement by boards of directors; 23% reported increasing shareholder scrutiny; and 30% reported growing involvement of employees.

Expanding global attention to risk
Survey results indicate that the range of activity that receives global attention should also be expanded. “Most organizations focus on plan design and funding decisions, but few devote the same attention to investment policy and monitoring,” said Ms. Stokoe. “An integrated approach is needed to effectively manage risk. Equally, for organizations with DC retirement plans and non-retirement benefit plans, operational and communication risks require active management. Current policy and oversight suggest that these risks are not yet fully appreciated – to the detriment of workforce planning and employee relations.”

“In order to make needed changes, organizations should develop a compelling business case that articulates the risks and proposed mitigating actions. This will support the education and awareness-building required to gain executive and local-level support for action and commitment to the longer-term efforts,” said Ms. Stokoe. “Mercer’s Benefits Governance Pillars for Multinationals offering helps organizations build a resilient governance structure supported by a robust risk management framework. This will help to minimize risk, driving value and ensuring the continued achievement of business objectives.”

About the survey
Headquarters representatives of 114 multinational organizations from a wide range of industry groups and operating in an average of 46 countries participated in Mercer’s Global Governance of Benefit Plans Survey 2009/10. Mercer fielded the survey from October 2009 through January 2010. Responses cover retirement benefit plans, health care and medical plans and insured risk plans. Forty of the respondents have fewer than 10,000 employees; 74 have 10,000 or more. A report on the survey results is available to journalists upon request.

More information about Mercer’s Benefits Governance Pillars for Multinationals offering is available at www.mercer.com/governance.

About Mercer
Mercer is a leading global provider of consulting, outsourcing and investment services. Mercer works with clients to solve their most complex benefit and human capital issues, designing and helping manage health, retirement and other benefits. It is a leader in benefit outsourcing. Mercer’s investment services include investment consulting and multi-manager investment management. Mercer’s 18,000 employees are based in more than 40 countries. The company is a wholly owned subsidiary of Marsh & McLennan Companies, Inc., which lists its stock (ticker symbol: MMC) on the New York, Chicago and London stock exchanges. For more information, visit www.mercer.com.