Managing Defined Benefit Risk



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Mercer connects the desire of employees for a secure financial future with the employer’s need to create a high-performing workforce.

THE CHALLENGES OF CREATING A RETIREMENT-READY WORKFORCE

In a defined contribution world, the responsibility of generating a lifetime retirement income has switched from employers to employees and retirees. Given improvements in life expectancies, the money needs to last a long time. Market volatility complicates the challenge of managing savings in retirement. Faced with a vast array of relatively complex financial decisions to make, individuals are doing a poor job of managing retirement risks and are not saving enough. Consequently, the decision to exit the workforce is being delayed. 

 

For employers, the trend from defined benefit to defined contribution has been driven by increasing financial and legal risks to the organization. However, in recent years, Mercer has witnessed an important change in the retirement discussion amongst leading employers. They are taking a broader view of retirement-related risks as the financial crisis has made clear the unintended consequences of a wholesale shift to defined contribution. Workforce management-related risks are now becoming apparent, and so HR is re-establishing itself in the retirement decision-making process. For example, unforeseen costs are emerging as employers pay a high price to retire employees who otherwise cannot afford to leave. So called “build organizations” are seeing speed of promotions slow dramatically as choke points emerge with older workers who would have retired in a defined benefit world.

 

For employers to create a retirement-ready workforce, it is time to rise to the income challenge. At Mercer, we believe that a change in focus toward outcome-oriented goals for employers and employees alike can fundamentally alter the retirement conversation and deliver better results for all. 

 

 

 

THE MERCER AND STANFORD CENTER ON LONGEVITY ARTICLE SERIES

 

Insights on addressing the issue of retirement income adequacy

 


CORPORATE RETIREMENT PROGRAMS – WHAT'S THE POINT?

 

Why employers should focus on outcome–oriented goals for themselves and their employees

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Thanks to our unique talent and benefit insights, our Mercer experts know that a client’s DC plan is a strategic tool to drive workforce and financial performance.

HOW MERCER CAN HELP

Thanks to our unique talent and benefit insights, our Mercer experts know that a client’s defined contribution plan is a strategic tool to drive workforce and financial performance. They connect the desire of a client’s employees for a secure financial future with the employer’s need to create a high-performing workforce, thereby creating the right outcomes to deliver business success. 

Our experts work with plan sponsors to achieve a number of goals including:
 

  • Measuring the impact of retirement programs on workforce renewal.
  • Minimizing fiduciary exposure and administrative complexities.
  • Understanding their workforce’s retirement savings dynamics and identifying ways to better influence participants’ decision-making.
  • Making good choices easier for individuals (or indeed, making good choices for them) - e.g., use features such as auto-enrollment and auto-escalation to turn passive savers into active contributors.
  • Enabling an “all of wealth” approach to retirement readiness.
  • Using specific target income levels as the key success measure for retirement plans.
  • Facilitating and executing decisions at spend-down, using corporate knowledge, scale, and buying power to achieve better results.

    

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Mercer experts provide leading-edge thinking to help our clients address their challenges.

KEY ARTICLES

Securing Retirement Outcomes for the Employee
This Mercer Point of View explores the rationale for employers to take an active role in addressing the retirement income challenge, and proposes practical steps toward designing and implementing a strategy.
 

The Mercer and Stanford Center on Longevity Article Series
Insights on addressing the issue of retirement income adequacy.

 

Corporate Retirement Programs – What’s the Point? 
Why employers should focus on outcome-oriented goals for themselves and their employees. 
 

Mercer Workplace Survey
Access the Executive Summary of this US research.

Younger Employees Are Urged to Save for Retirement
Your pension may not be the first thing on your mind, but it is never too soon to ask whether you are saving enough.

 

MERCER'S RETIREMENT DESIGN FOR THE FUTURE

Mercer presents a fresh approach to retirement design and suggests solutions that could enable the sustainability of global retirement systems.


 

RETIREMENT AGES MORE GOLDEN FOR SOME

Geography does play a role in determining at what age employees can take a permanent break from their jobs


/content/dam/mercer/1000x282/Gradient Versions/img-FL000132b-gradient-1000x282.jpg

The Melbourne Mercer Global Pension Index compares retirement income systems in 20 countries representing more than 55% of the world’s population.

MELBOURNE MERCER GLOBAL PENSION INDEX

 

The Melbourne Mercer Global Pension Index compares retirement income systems in 20 countries representing more than 55% of the world’s population. The Index rates these systems based on their adequacy (accounts for 40% of the overall score), sustainability (35%), and integrity (25%). This comes at a time when pension systems worldwide are under increasing pressure due to rising life expectancy, increased governmental debt, uncertain economic conditions, and a global shift to defined contribution plans.

 

“This research, through collaboration among Mercer consultants worldwide, the Victorian Government, and the Australian Centre for Financial Studies, benchmarks each country’s retirement income system, highlights shortcomings, and lists potential actions for improvement.” said Dr. David Knox, a Mercer Senior Partner and author of the study.

 

“Worldwide, many of the challenges relating to aging populations are similar, irrespective of each country’s social, political, historical, or economic influences,” he notes. “Many of the desirable policy reforms are also similar and relate to pension ages, retirement level funding, work longevity, and benefit design issues to reduce benefits leakage before retirement.”

 

Read more on the Melbourne Mercer Global Pension Index and see our infographics      

  

REBALANCING THE RETIREMENT COST-BENEFIT SCALE

 

The primary focus on expense rather than talent management is understandable but it is creating a race to the bottom that may have unintended consequences

CONTACT US ABOUT OUR RETIREMENT SERVICES

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What we do

Mercer connects the desire of employees for a secure financial future with the employer’s need to create a high-performing workforce.

THE CHALLENGES OF CREATING A RETIREMENT-READY WORKFORCE

In a defined contribution world, the responsibility of generating a lifetime retirement income has switched from employers to employees and retirees. Given improvements in life expectancies, the money needs to last a long time. Market volatility complicates the challenge of managing savings in retirement. Faced with a vast array of relatively complex financial decisions to make, individuals are doing a poor job of managing retirement risks and are not saving enough. Consequently, the decision to exit the workforce is being delayed. 

 

For employers, the trend from defined benefit to defined contribution has been driven by increasing financial and legal risks to the organization. However, in recent years, Mercer has witnessed an important change in the retirement discussion amongst leading employers. They are taking a broader view of retirement-related risks as the financial crisis has made clear the unintended consequences of a wholesale shift to defined contribution. Workforce management-related risks are now becoming apparent, and so HR is re-establishing itself in the retirement decision-making process. For example, unforeseen costs are emerging as employers pay a high price to retire employees who otherwise cannot afford to leave. So called “build organizations” are seeing speed of promotions slow dramatically as choke points emerge with older workers who would have retired in a defined benefit world.

 

For employers to create a retirement-ready workforce, it is time to rise to the income challenge. At Mercer, we believe that a change in focus toward outcome-oriented goals for employers and employees alike can fundamentally alter the retirement conversation and deliver better results for all. 

 

 

 

THE MERCER AND STANFORD CENTER ON LONGEVITY ARTICLE SERIES

 

Insights on addressing the issue of retirement income adequacy

 


CORPORATE RETIREMENT PROGRAMS – WHAT'S THE POINT?

 

Why employers should focus on outcome–oriented goals for themselves and their employees

How Mercer can help

Thanks to our unique talent and benefit insights, our Mercer experts know that a client’s DC plan is a strategic tool to drive workforce and financial performance.

HOW MERCER CAN HELP

Thanks to our unique talent and benefit insights, our Mercer experts know that a client’s defined contribution plan is a strategic tool to drive workforce and financial performance. They connect the desire of a client’s employees for a secure financial future with the employer’s need to create a high-performing workforce, thereby creating the right outcomes to deliver business success. 

Our experts work with plan sponsors to achieve a number of goals including:
 

  • Measuring the impact of retirement programs on workforce renewal.
  • Minimizing fiduciary exposure and administrative complexities.
  • Understanding their workforce’s retirement savings dynamics and identifying ways to better influence participants’ decision-making.
  • Making good choices easier for individuals (or indeed, making good choices for them) - e.g., use features such as auto-enrollment and auto-escalation to turn passive savers into active contributors.
  • Enabling an “all of wealth” approach to retirement readiness.
  • Using specific target income levels as the key success measure for retirement plans.
  • Facilitating and executing decisions at spend-down, using corporate knowledge, scale, and buying power to achieve better results.

    

Our Thought Leadership

Mercer experts provide leading-edge thinking to help our clients address their challenges.

KEY ARTICLES

Securing Retirement Outcomes for the Employee
This Mercer Point of View explores the rationale for employers to take an active role in addressing the retirement income challenge, and proposes practical steps toward designing and implementing a strategy.
 

The Mercer and Stanford Center on Longevity Article Series
Insights on addressing the issue of retirement income adequacy.

 

Corporate Retirement Programs – What’s the Point? 
Why employers should focus on outcome-oriented goals for themselves and their employees. 
 

Mercer Workplace Survey
Access the Executive Summary of this US research.

Younger Employees Are Urged to Save for Retirement
Your pension may not be the first thing on your mind, but it is never too soon to ask whether you are saving enough.

 

MERCER'S RETIREMENT DESIGN FOR THE FUTURE

Mercer presents a fresh approach to retirement design and suggests solutions that could enable the sustainability of global retirement systems.


 

RETIREMENT AGES MORE GOLDEN FOR SOME

Geography does play a role in determining at what age employees can take a permanent break from their jobs


Melbourne Mercer Global Pension Index

The Melbourne Mercer Global Pension Index compares retirement income systems in 20 countries representing more than 55% of the world’s population.

MELBOURNE MERCER GLOBAL PENSION INDEX

 

The Melbourne Mercer Global Pension Index compares retirement income systems in 20 countries representing more than 55% of the world’s population. The Index rates these systems based on their adequacy (accounts for 40% of the overall score), sustainability (35%), and integrity (25%). This comes at a time when pension systems worldwide are under increasing pressure due to rising life expectancy, increased governmental debt, uncertain economic conditions, and a global shift to defined contribution plans.

 

“This research, through collaboration among Mercer consultants worldwide, the Victorian Government, and the Australian Centre for Financial Studies, benchmarks each country’s retirement income system, highlights shortcomings, and lists potential actions for improvement.” said Dr. David Knox, a Mercer Senior Partner and author of the study.

 

“Worldwide, many of the challenges relating to aging populations are similar, irrespective of each country’s social, political, historical, or economic influences,” he notes. “Many of the desirable policy reforms are also similar and relate to pension ages, retirement level funding, work longevity, and benefit design issues to reduce benefits leakage before retirement.”

 

Read more on the Melbourne Mercer Global Pension Index and see our infographics      

  

REBALANCING THE RETIREMENT COST-BENEFIT SCALE

 

The primary focus on expense rather than talent management is understandable but it is creating a race to the bottom that may have unintended consequences

CONTACT OUR TEAM

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CONTACTS

    • United States
    • Amy Reynolds
    • Partner Richmond Email +1 804 344 2639
    • UK
    • Paul Macro
    • Partner Leeds Email +44 113 394 7783
    • Europe
    • Tony Pugh
    • Senior Partner London Email +44 20 7178 6918
    • Canada
    • Neil Lloyd
    • Partner Vancouver Email +1 604 609 3136
    • Pacific
    • Dr. David Knox
    • Senior Partner Melbourne Email +61 3 9623 5464
    • Global
    • Fergal McGuinness
    • Senior Partner Zurich Email +41 44 200 45 28