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Int’l pension plans help overseas workers prep for retirement

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While it may be glamorous to work abroad, things can get less-than-exciting when it comes to planning for retirement

That’s especially the case for companies trying to recruit and retain high-level employees. 

One emerging answer to the question is the international pension plan

According to a recent survey by the consultant giant Mercer, employers are beginning to recognize that more flexibility in retirement saving can better provide for the needs of expatriate or “nomad” employees who spend most of their time pursuing a chain of foreign assignments. 

A separate survey by Towers Watson found the number of companies using these plans grew by about 10 percent in 2013, to 438. 

While they’re multinationals, that’s still a small number, to be sure. In fact, Mercer’s survey found that some 65 percent of multinational companies planned to stay with existing home or host-country pension “provisions.” And only 12 percent of those surveyed by Mercer had launched an IPP, and usually only because there was no other viable option. Seventeen percent said they hadn’t yet considered IPPs or weren’t even aware of their benefits. 

Yet, according to the experts, that’s changing. 

For starters, countries overseas often don’t offer a supplementary retirement plan such as Social Security, or such plans may be difficult for U.S. employees to take advantage of.

According to Paul Beaton, senior associate in the international consulting group at Mercer, an IPP is “important in countries where there’s no domestic market for pension plans…or no robust regulatory framework in which pensions can operate.” 

Africa, the Middle East, and Central and South America can all present such challenges, he said. Those regions happen to represent some of the fastest-growing overseas markets for U.S. employers. 

In most of the Middle East, there is simply no pension market. Instead, the region is “dominated by service benefits or termination indemnities — benefits that are paid at separation,” said Beaton. 

But unless it’s really rich, a severance benefit doesn’t typically measure up as a retirement plan. 

In other countries, notably those in Africa and Central and South America, the issue is that “they simply don’t have the infrastructure, product, providers, (a strong) supervisory regulatory body,” Beaton said. 

Michael Broomhead, international consultant at Towers Watson, said that while some large global companies have been dealing with the issue on one way or another for years, those who are just now “becoming more global …  are increasingly coming across this challenge.” 

“Most companies want to solve that loss of benefit,” said Broomhead.

That’s why the number of IPPs is only expected to grow. “Companies are increasingly global in their operation. (Looking at the data for the top 100 companies and their employees over the last 10 years,) 15 percent more employees are now located outside the home country than they were 10-12 years ago,” Broomhead said.

“These employees,” he continued, “are typically critical to operations, performing vital roles in international locations — developing new operations, (handling company expansions). They’re really important people, so it’s important that companies have something in place that recognizes those individuals’ contributions. It’s a recognition, a responsibility that the company must provide benefit and accrual for these people.” 

An IPP can smooth over benefit gaps that arise from the absence of a plan within a certain jurisdiction or from a string of foreign assignments that come with different (or no) coverage. 

Not only can it allow an employee to contribute at a steadier, more consistent pace, but it can be easier for the employer, too — easier to run and to administer a single plan than a handful, and more attractive to valuable employees no matter where the next assignment takes them. 

Mercer found that even just a few employees can make the effort worthwhile, “both in terms of retaining the individuals and providing a simpler ‘single point’ pension plan.” 

There are several issues to consider for companies setting up an IPP. According to Beaton, the four “pillars” are: “Country and cost, implementation, the restrictions of the country, and provider level and complexity of plan.” 

Companies should consider not just plan setup costs, he said, but also ongoing administration expenses.

The amount of time a plan takes to set up is also important: “these plans, depending on complexity (and other factors), can take from three to six months to set up.” 

Compliance is also critical, and part of that is consideration of the membership profile.

Explained Beaton, “Certain citizens from certain countries aren’t allowed to join IPP plans (because of) local country restrictions and provider restrictions.” 

For instance, some countries regard IPPs as double-dipping, if they provide a form of Social Security into which expatriate employees pay while working in the country, if locals working for the company would get a country’s pension benefit while also participating in the IPP, or if employees receive one of the severance benefits mentioned earlier. 

One other important factor to consider, Beaton said, is the level of sophistication of the proposed membership of the IPP. “Are (employees who will be participants) familiar with making investment decisions, financial decisions? Do they know how much they want to save and into which funds?” 

Employees who don’t have that understanding will often fail to enroll. 

Companies should also ensure that they review whatever plan they’ve chosen on a regular basis. “A lot of these plans never get reviewed regularly,” Beaton said.