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The Global Nomad's Retirement Puzzle

The flattening of the business world has given rise to an international cadre of global nomads, or expatriates who constantly roam the planet on assignment for their companies. While the benefits of such a lifestyle can be plentiful to both employer and employee, viable options for retirement programs for these nomads have been limited, until now.

Thursday, August 16, 2012
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Some call them "global nomads." Others say they belong to an "international cadre." Either way, they are expatriate employees who spend a decent chunk of time (three to five years or longer) on multiple international assignments, typically moving from country to country in the process.

According a recent survey from Mercer, drivers such as developing global leadership talent and the growth of new business ventures abroad have fueled a rise in global mobility. At the same time, companies establishing retirement benefit plans for their longer-term, mobile global nomads, who may wish to retire outside the United States, face challenges to implementation while trying to keep those valuable employees happy.

Mercer's 2011-2012 Benefits Survey for Expatriates and Internationally Mobile Employees found the number of "global nomads" increased by two-thirds since 2008-2009.

While the number of employees on international assignments has remained relatively stable over recent years, says J.P. Provost, a senior partner in Mercer's international consulting business, the rising percentage of global nomads and long-term expatriates has meant the provision of expatriate benefits is a key priority for multinational companies ? 85 percent of survey respondents have specific procedures in place to monitor the success of expatriate benefit programs.

"Employers are eager to ensure that their expatriate benefits programs not only support business and HR strategies, but also meet their assignees' needs," Provost says.

When it comes to providing retirement plan benefits, Provost says, the most common approach for internationally mobile employees is to maintain coverage in home-country plans, based on the assumption that assignees are more likely to retire in their home countries. Some 63 percent of traditional and long-term expatriates are maintained in their home-country retirement plans, according to the Mercer survey, which polled some 288 multinational companies around the world.

The benefits of keeping expatriates in their home-country retirement plan are alignment with employee expectations as they remain in a plan that is known prior to the assignment, and avoidance of "benefit fragmentation" because benefits continue to accrue under a single plan, Provost explains.

However, he adds, while this is suitable for short-term and traditional assignees, problems can occur applying these plans to global nomads. For example, employers can run into problems when it is no longer possible, for a variety of reasons, to maintain assignees in the home-country plan. In these circumstances, many employers look for alternative, more flexible solutions.

Provost says an increasingly popular solution is to establish an international retirement plan, providing a single solution across assignments and the potential for a common design. Currently, Mercer's survey results showed that only 12 percent of companies have established international retirement plans to ensure continuity of benefits.

Such plans are used across a variety of expatriate types. They are most common where there is no pension plan in a particular country or membership in a host-country pension plan would adversely impact the employee. Offshore plans may not address all concerns, such as taxation or facilitating exclusion from host-country pension arrangements, depending on the jurisdictions concerned, but do go some way to allowing for continued pension-plan membership under a single arrangement while employees are on various assignments.

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"While 12 percent appears low," Provost says, "it is indicative of the market and we're actually seeing an increase in the use of such vehicles outside Asia Pacific. They are very effective in providing consistent coverage for mobile populations and in jurisdictions where no appropriate plans exist."

The survey also found that the most common reasons respondents gave for choosing not to implement an international retirement plan were: insufficient numbers of employees to justify the costs (38 percent) and a combination of home/host-country plans not meeting needs (30 percent). But a significant number of respondents (17 percent) are unaware of the potential benefits of establishing an international retirement plan or have never considered this as an option.

Another survey, the Towers Watson/Worldwide ERC 2012 Global Talent Mobility Study, found that although the majority of multinationals anticipate major global-mobility challenges over the next two to three years, nearly half of multinationals expect to increase traditional international assignments over the same period. Plus, while companies in all regions anticipate increased cross-border moves, on average, U.S.-headquartered multinationals anticipate transferring more employees internationally, compared to those headquartered in Europe or Asia.

The most-frequent reason cited for international assignments was business expansion overseas, named by 87 percent of multinationals. The second-most cited impetus was knowledge transfer (65 percent), followed by career development (47 percent).

Steve Kueffner, a partner in Towers Watson's Detroit office, says some -- but not all -- employers are moving to international pension plans when it comes to their "global cadre" of employees.

"The treatment would differ depending on how many such employees a company might have on assignment," he says. "Companies with more than a handful would use some type of international pension vehicle, allowing the long-service employee to accrue the type of retirement benefit they would accrue if they stayed in one country."

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