Globally, defined-benefit retirement plans are becoming a thing of the past and defined-contribution plans more widely accepted as the preferred alternative, a trend that could spur inquiries from international employer clients.

Just 6% of multinational employers say defined-benefit plans are the best way to provide pension benefits to employees, while 90% intend to use a defined-contribution plan as the primary form of retirement benefits, according to a recent PricewaterhouseCoopers (PwC) survey of multinational companies. Seventy-one percent intend to freeze defined-benefit accruals for all workers, the survey also found.

“The benefits world is changing. Large multinational corporations are looking for something new,” Isaac Buchen, a principal at PwC, said in a recent webinar on the survey results.

“The vast majority of employers said what we are seeing and doing now is not what we expect to see in the future. We expect to see a lot more defined-contribution provisions and a lot fewer defined-benefit provisions,” added Liz Mack, a PwC manager.

Benefit advisers prospecting these employers will need to have a clear understanding of the benefits of defined-contribution retirement plans and be prepared to answer inquiries from current clients looking to switch their current DB plan to a DC plan.

“What’s interesting is how pervasive this has become,” Buchen commented. “A guaranteed retirement benefit is no longer viewed as a sacred cow.”

In fact, 88% of multinational corporations said they are concerned about adverse effects of legacy pension liabilities. About 45% of respondents intend to shift their defined-benefit plan liabilities to a third party, such as an external insurance company.

“Major multinationals are resoundingly rejecting the open-ended financial risks of defined-benefit,” the survey report states.

Still in the game

However, they’re not leaving the retirement game completely. “Employers still believe they have a critical role to play in the provision of retirement benefits, but they’re unsure what exactly that role should be,” Buchen explained.

They also feel it remains “important for employers to help employees make informed decisions about their retirement savings,” he adds. “Employers are spending more time and resources on helping employees make these informed decisions. That’s what we’re calling this new paternalism.”

With that in mind, benefit brokers can advise their clients to not totally give up on retirement benefits, but instead look for innovative and effective ways to educate their employees on retirement planning.

“Retirement benefits are still seen as a whole part in keeping the people we want and maintaining our reputation as an employer,” Mack said.

For retention and recruiting purposes, companies try to provide roughly the same retirement contribution that their competitors offer. In general, the “type and level of benefits are driven by competitors,” Mack confirmed.

For benefit brokers, that means it’s good to find benchmarking data to discuss with clients.

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