The changing environment for mobile employees has obliged multinational companies to drastically revise former benefits policies.
Howard Foster, senior consultant for international benefits at Aon Consulting, comments: “Previously, the idea of mobile employees merely meant workers sent out from a company’s central headquarters to a subsidiary, who were normally committed to the firm for the duration of their career, and would maybe stay abroad a few years before returning.
“This is no longer the case,” he adds. “It is now a two-way process, with employees from subsidiaries shifting to the central office and vice versa, and nowadays there is rarely such a thing as a career for life, or a worker who sees his life career with the same firm.” Foster says the principal movement in mobile employee provision today is towards DC plans, because of their flexibility and the uncertainty which DB arrangements brings to such complex modern pensions issues.
“Offshore arrangements are also popular, offering employees unbroken accrual of retirement benefits, which would be difficult otherwise.”
He adds: “What we do have though are multilateral agreements, such as those in the UK and Holland, where pension plans from abroad are treated within the same tax regimes as domestic schemes, as long as they are not offshore arrangements and are domiciled at the providers’ company base. This would appear to be the way to go, because the whole issue of cross-border pensions arrangements always fall back on taxation, and this is such a thorny problem for Europe at the moment.”
Paul Morris, principal at Watson Wyatt, says there is no overall approach to the treatment of mobile employees by multinationals, but that typically companies are looking at different types of workers, such as trainees or executives, and seeking to suit any pensions vehicle to their differing needs and provisions. “We offer services with a matrix approach, weighing up reward packages, salaries and reallocation settlements against the local provision an employer would normally offer.
“After three to five years though what we are seeing is companies looking to a complete switch of schemes for expatriate workers, because they feel that after this sort of timespan the employee is not likely to go back to their home country. Tax questions are obviously very relevant, and the level of social security on offer in another country also becomes important if an employee is not to lose out on benefits.
“There are no overall trends though, for instance in the UK employers still tend to keep ex-patriates within the domestic plan. But then again other multinationals will move to the host country arrangement as quickly as possible and just top up the pension provision to bolster any shortfalls, such as accrued rights, within some kind of umbrella pensions’ plan.”
Morris says multinationals are certainly seeking to implement easily manageable mobile employee packages and are not in the business of penny pinching for such a crucial aspect of their human resources.
“The cost of such a scheme may be more costly than what they paid before, but the crux element is that any plan is flexible and satisfactory to attract the right employees.
“Multinationals are taking a bit of a leap of faith with these kind of structures, because the benefits do not equate to anything that has gone before, so they are very much clean slate packages in general and tailored to specific needs.”
Morris adds that clients are certainly looking towards the European ‘holy grail’ of a pan European pensions vehicle, but that he doesn’t believe such an arrangement will come in the short term.