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United States
New York , 5 October 2009

• One-third of respondents offer at least one of the autopilot features of enrollment, rebalancing or escalation
• Participation rates high, but remain below target
• DC plan sponsors across the globe have moved away from paternalism, now see their role as that of a “facilitator” and encourage employee responsibility in saving for retirement
• Seeking cost management and risk mitigation, many multinational companies plan to globally centralize DC plan operations

A new 33-country survey by Mercer of organizations that sponsor defined contribution (DC) retirement plans reveals widespread adoption of automatic enrollment and other relatively new “automatic” features designed to boost employee enrollment and limit the number of decisions employees need to make. The plans surveyed represent more than $440 billion in plan assets.

One-third of the employers surveyed offer automatic enrollment, one-third automatic contribution escalation and over one-fifth automatic rebalancing features. Among the close to 80 percent of companies that have a default investment option, lifecycle funds are the most common default instrument, used by 67 percent of those respondents.

The progression of auto-enrollment features is varied across regions. The US and Latin America are leading the implementation of these features, with Asia-Pacific, Europe and the UK lagging in this area. Mercer expects auto-pilot features to become the norm in most countries over time.

The quick adoption of “automatic” DC plan features may be in response to participation rates that, while high, are well below plan sponsor targets. The majority of survey respondents are seeking strong participation by their employees with 74 percent setting target participation rates of 80 percent to 100 percent. However, just half have actually achieved a participation rate of 80 percent or more.

“’Automatic’ plan features have become prevalent in some countries and are spreading quickly to other countries to combat employee inertia and to fulfill plan sponsors’ desires to further increase participation rates” said Barbara Marder, a worldwide partner who heads Mercer’s global DC consulting and the retirement international consulting businesses.

DC plan sponsors across the globe have moved away from paternalism, and now see their role as that of a “facilitator” for employees to save for retirement (55 percent of respondents). Employers vary in their reasons for sponsoring DC plans. Overall, 76 percent of respondents indicate their top reason for sponsoring a DC plan is to remain competitive in terms of attracting and retaining employees, 56 percent want to encourage employee responsibility and 53 percent want to provide adequate benefits at retirement.

The UK marginally ranks reductions in overall cost and volatility higher as a reason for establishing DC plans than encouraging employee responsibility and providing employees with an adequate benefit at retirement. Asia-Pacific ranks compliance with legislative requirements above encouraging employee responsibility. (See Figure 1.)

Figure 1. Most common reasons for establishing DC plan

DC plans appear to have matured since Mercer last measured this in 2002. More than half the plans surveyed (57 percent) have been in place for at least 10 years.

Investment options

Over 72 percent of sponsors offer 15 or fewer funds to participants. The most prevalent investment options are balanced funds (offered by 61 percent of respondents), lifecycle funds (57 percent) and fixed-interest gilt/bond funds (51 percent). Interestingly, only a third of respondents plan to change their investment options or structure over the next two years. Of those planning changes, the most common change is expected to be an increase in the number of options offered, followed by an introduction of lifestyle or target date funds.

Only 12 percent of the plans surveyed currently offer participants responsible investment options, such as socially responsible investment or environmental/green funds. Of those that have a global corporate social responsibility (CSR) strategy, only 29 percent already reflect or are considering reflecting this strategy in the management of their DC plans. “This speaks to potential gaps in how companies are communicating and implementing strategies around social responsibility,” said Jane Ambachtsheer, who leads Mercer’s global responsible investment business.

Companies are generally active in monitoring and managing their fund line-up and investment managers, with 58 percent reviewing the range and number of fund options each year. Over 73 percent review investment performance at least semi-annually but only 42 percent review an investment manager’s qualitative factors over the same time period.

Contributions to the plan

Two-thirds of respondents require a minimum level of employee contribution in order to qualify for a core company contribution. In addition, 69 percent require members to make an additional contribution in order to get the employer match.

It is common across the globe to limit the company match to 6 percent (30 percent of respondents). Matching contributions among the plan sponsors surveyed range from 1 percent to more than 10 percent, with the most common matches 3 percent and 4 percent of pay (21 percent and 18 percent, respectively).

Multinational companies move toward greater centralization

Surveyed multinational companies cite member communication and market/investment volatility as the primary risks associated with their global DC plans. While there appears to be some movement by multinationals towards more centralized DC plan management, corporate headquarters are selective in their areas of involvement. Plan design tends to be most often centralized, with headquarters at 71 percent of multinationals playing an active role in setting the plan’s contribution rate.

Nearly half (44 percent) of the multinationals surveyed stated that their DC plans are managed and overseen by either global committee(s) or individuals in the corporate head office. Another 13 percent centralize DC plan management/oversight at the regional level.

More than one-third of the multinationals are planning to move towards greater centralization of DC plan oversight in the next one to two years. Of the companies that plan to do so, 48 percent cite risk management as one of their top two priorities, 44 percent cite economies of scale and 39 percent note a desire for consistency in benefit design across geographies.

The future of DC plans

The majority of companies who responded to the survey see their role as “facilitators” in providing retirement security. They have closed their DB plan to new employees and are providing these employees market-competitive, but perhaps not fully “adequate,” DC plans along with education to enable them to make adequate provision for themselves. These employers are encouraging employees to take more responsibility for their retirement savings.

“However, we don’t believe that all employees are ready to be ‘on their own,’” said Ms. Marder. “For years, employees have looked to their employers and to the government to provide financial security in retirement, and few are equipped to take on the responsibility. Some governments around the world have, or are planning to, reduce social security benefits and extend retirement ages. If two of the three legs of the three-legged retirement stool are simultaneously shortened (government- and employer-based support), the third leg (employee savings) is bound to be unsteady.”

Notes for Editors

The last Mercer global defined contribution survey, released in 2002, reviewed DC plan provision in 10 countries representing retirement funds in excess of $270 billion. The new Mercer 2009 Global DC Survey, illustrating the globalization of DC plans in the intervening period, covers 33 countries in 12 languages across Continental Europe and the UK (452 respondents), Asia Pacific (146), Latin America (146), the US (621) and Canada (230), with estimated aggregate fund assets in excess of $440 billion.

The web-based survey was conducted in June 2009, with more than 1,500 responses received (including over 300 from multinational companies). Respondents included publicly traded companies or their subsidiaries (53 percent), private companies (27 percent) and not-for-profit organizations (10 percent). The survey represents over 6 million participants, primarily in voluntary pension plans (75 percent). Survey results are available on Mercer’s website at http://www.mercer.com/globalDCsurvey.

About Mercer

Mercer is a leading global provider of consulting, outsourcing and investment services. Mercer works with clients to solve their most complex benefit and human capital issues, designing and helping manage health, retirement and other benefits. It is a leader in benefit outsourcing. Mercer’s investment services include investment consulting and multi-manager investment management. Mercer’s 18,000 employees are based in more than 40 countries. The company is a wholly owned subsidiary of Marsh & McLennan Companies, Inc., which lists its stock (ticker symbol: MMC) on the New York, Chicago and London stock exchanges.

For more information, visit www.mercer.com.

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