GLOBAL - Multi-national firms offering mobile employees some form of international pension arrangements to mobile workers effectively have to rein in the promises HR departments may make when travelling from one location to another, suggest an official at mining giant Rio Tinto.

Barbara When, global practice leader of benefits at Rio Tinto, told delegates at the MultiPensions conference in London today the huge complexity of delivering pensions to mobile employees means close control must be kept of promises made to employees by HR executives.

More specifically, she noted given the incredible research required to deliver just one pension in the chosen location of the individual or through an international pension plan, it is vital to establish a central governance framework as early as possible requiring all benefits packages be signed off.

"You must go from good governance in general to the good governance of all individual arrangements. If you don't, HR will make things up and do whatever is required to get them from place A to place B, including agreeing to what [people] want," said Whent.

"You have to communicate with HR and find out what [people] have, as individual arrangements don't come to light until three posts down the line when they produce a letter saying they were promised ‘x'. Good governance is absolutely key. We have set up our global HR committee which says this individual arrangements have to come through that committee,"she added.

The complexity of regular enquiries at Rio Tinto's benefits department, said Whent, can, for example, require a pension package be created for an Australian man who lives in the US and is in the US plan, but is being transferred to Peru and is likely to retire in Peru. He has an Australian plan too but wants a Peruvian pension and everything transferred into the local scheme but doing so requires substantial support from external services to explain what the legal and tax ramifications might be, and whether it can be facilitated.

Given the wide and varied locations Rio's staff work and the detailed analysis required, each new precedent case has to be used as a precedent for future cases and agreements, to establish some form of continuity and consistency, continued Whent.

"It is very clear we cannot be an expert in all of those countries. But because this is such a complex area, you do need to control it centrally. The key themes are legislation, tax in various different countries, social security, but not just pension benefits but post-retirement benefits such as medical too,

Given the complexity of delivering individual pension arrangements, the ideal solution would be to present all employees with an international pension plan, regardless of where they work.
Working out where to domicile the plan and how to provide access to all would be complex enough.

However, Whent stressed good governance and knowledge of each individual's legal status and circumstances is again essential as some countries' tax and legislative rules can invalidate an individual's access to a universal plan.

"A nice solution would be an international pension plan. We do have an international pension plan, and it is a great idea. But it runs into so many problems," said Whent.

"We had to do all the research, where you base it, etc. Yet we have just run into a complete brick wall with (US) S409A of the Internal Revenue Code and this is playing havoc with our international pension. We are trying to do something which is very tax-efficient, but that is very difficult," she warned.

"Eventually, said Whent, you have to "swallow it and just say we are going to have to pay the tax on this".

"it works for people moving from place to place, but not for general short-term secondments," she said.

"People might move to the US for 2-3 years and want to make their family green card holders so children can work, for example. But we think that the green card might negate the US/UK tax treaties.

"So you need to make sure you look at controlling whether you document everything or run by precedent. And you must make sure the governance around policy is very strong and somebody centrally has the mandate to operate it," she added.

If you have any comments you would like to add to this or any other story, contact Julie Henderson on + 44 (0)20 7261 4602 or email julie.henderson@ipe.com

Topics