U.S. Leads International Business Community in Migration from DB Plans to DC Plans
PURCHASE, NY, December 12, 2006 -- Most pension experts believe that multinational companies will forge new territory by designing and implementing pragmatic solutions for the management of global pension arrangements rather than rely on government initiatives to streamline pension issues, according to the first-ever worldwide survey of pension experts. AEGON, one of the world’s largest life insurance and pension companies, and LIMRA International, a global research firm, conducted the Delphi study Bridging Pension Plans Worldwide. More than 100 pension experts worldwide participated in the study to provide executives responsible for global retirement plan management with insights into the retirement industry’s future.
Specifically, 70% of respondents worldwide believe that multinational corporations with large, offshore manufacturing operations are most likely to implement a global pension solution. Of the U.S.-based pension experts surveyed, a vast majority (81%) agreed with the overall response.
"This ground-breaking study underscores the need for multinational companies to formulate a global pension plan strategy as a competitive advantage, with an eye toward streamlining administration and controlling fees. In fact, administrative capabilities were cited by 44% of U.S. pension experts as the primary driver to develop and manage a transnational pension network. Similarly, U.S. experts on the study’s panel expect that global networks can reduce administrative costs by 6% to10%," explained Mark Mullin, executive vice president, AEGON USA, Inc. and CEO, Diversified Investment Advisors, Inc. "However, disparate tax laws and budget constraints were cited by the U.S. experts as barriers to developing a global pension arrangement."
"For providers responding to this global strategic approach, it is key to link local business imperatives together and translate this into global power. Pension plan providers can play a role in a global account management approach by leveraging local delivery capabilities that remain crucial to unlocking economies of scale in this multi-domestic pension world," said Merijn Boender, executive vice president, AEGON Pension Network - Americas. "For example, providers can help plan sponsors remove defined benefit plan liabilities off the corporate balance sheet, at once or over time."
In another key finding, Bridging Pension Plans Worldwide revealed that there is broad consensus among the experts that over the next five years, there will be a marked shift in the investment risk from employer to employee, emphasizing the migration from defined benefit plans toward defined contribution plans. A majority (77%) of experts located worldwide agreed. However, U.S. panelists were less bullish with only 58% indicating that employees will bear more of the risk within their pension plans within the next five years.
"This disparity between U.S. views and those of other pension experts worldwide can be attributed to the fact that the shift from defined benefit plans to defined contribution plans has been underway for some time here. U.S. companies are ahead of the curve on this matter as 401k plans have been a staple of corporate retirement plans for the last 20 years," noted Boender.
The Diversified Investment Advisors, Inc. Report on Retirement Plans – 2006, showed that employee participation in 401k plans continues to increase in the U.S. with 57% of 401k plan sponsors reporting participation rates of at least 70%, underscoring the new standard of defined contribution plans highlighted by Bridging Pension Plans Worldwide.
Other key findings of Bridging Pension Plans Worldwide include:
- 69% of U.S. panelists do not see socially responsible investment practices as a priority for multinational firms. This finding is in direct contrast to the majority of panelists (75% or more) representing Europe and other parts of the world who agree to the contrary.
- Asset pooling was cited by 40% of U.S. pension experts as the single greatest benefit of cross-border pension solutions. Reporting systems and liability management were each cited by 28% of the U.S. experts surveyed, as well.
- 60% of U.S. panelists agree that the management of global pension plan costs influences the choice of countries where multinational firms operate their business.
"Ultimately, this global study brings to light just how fundamental pension plans are to strategic business planning around the world. Whether it’s the need to attract and retain a viable workforce with an attractive benefits package, or the mandate to lower operating expenses, or a decision about where to locate operations, the experts agree that decisions about how to develop and administer a pension plan is central to the global business mindset today," said Boender.
About Bridging Pension Plans Worldwide
AEGON’s study presents the global market insight of high-level pension experts in 16 countries around the world. The 115 experts include representatives of 44 multinational firms and 31 consultants or financial professionals who personally advise 1,700 multinational corporations with plans covering 18 million employees worldwide with approximately $1.3 trillion in total assets under management. Survey participants represented trade associations, research organizations, consulting firms, and members of the media. The study was conducted in the third quarter of 2006 as a Delphi survey, which seeks to build consensus among respondents by conducting several rounds of interviews. The AEGON study is the first worldwide Delphi study on pension plans of multinational firms. A summary report of the Bridging Pension Plans Worldwide study is available on www.aegonpensionnetwork.com.
About AEGON Pension Network
AEGON is one of the world’s largest life insurance and pension companies, headquartered in The Hague, the Netherlands. The group, with 27,000 employees worldwide, operates in three main markets—the United States, the Netherlands and the United Kingdom. AEGON also has a presence in Canada, China, the Czech Republic, Hungary, Poland, Slovakia, Spain and Taiwan. The AEGON Pension Network is the first international network dedicated to pension solutions for multinational companies. The AEGON Pension Network has a global footprint supported by experienced international pension and employee risk benefit providers located across Europe, North America and Asia.
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