12. Global Employee Benefits Flashcards
A study identified 21 common HR problems that might be encountered by a multinational corporation. The problems were clustered under distinct areas of concern, and the study focused on which 5 specific areas?
- Labor relation issues involving the restructuring of workplace operations
- Discrimination involving a request by a Muslim employee to pray 3x/d
- Privacy involving video monitoring in the workplace
- Wrongful charges involving critical blog comments posted publicly by an EE
- Requests for equal pay & benefits by members of a virtual team, each operating in different countries but doing equivalent work.
A study identified common HR problems that might be encountered by multinational corporation. Discuss the major conclusions of the study:
One executive emphasized the importance of a company advancing its corporate culture rather than the legal reqs.
An HR leader observed that the local country culture was also a crucial part of the equation.
A general conclusion was that even knowing the law in each country still leaves open the question as to what degree a multinational corporation will seek to assert a common culture across nat’l boundaries, and to what degree it will embrace local cultural values & assumptions.
When a corporation structures an offer to incentivize an EE to accept an international transfer position, what are 4 major factors that will influence the nature of the offer?
- Duration and permanent/temp?
- Location, some more appealing than others
- Immigration, residency. How easy/difficult is it to get the EE into the desired jurisdiction to work?
- Tax treatment of the comp package. Key: prevent double taxation to EE
In addition to duration, location, immigration and taxation, what are some lesser factors that might influence the way an EE views an int’l assignment?
- EE age
- Previous international assignment experience
- School-age children of the EE
- Spouse/partner of EE, their career and opportunities for them in the host jurisdiction
Briefly describe 4 common organizational structures that are used for int’l assignments
- Foreign ER
- ER with secondment
- Dual employment
- Special service company
Details:
1. In this structure, EE is simply made an EE of the host jurisdiction ER and is no longer an EE of the home jurisdiction ER.
2. In this structure, EE is kept as an EE of the home jurisdiction ER and merely “seconded” from one to the other. Much like loaning the EE to the host.
3. In this situation, the EE is an EE of both home & host jurisdiction ERs. The two orgs agree upon some type of split regarding the EE’s comp.
4. In this structure, the EE is made an EE of a special services co (usually located in a tax haven jurisdiction), which seconds the EE to the host ER.
Explain the primary disadvantage/problem with each of the following org structures that are used for int’l assignments:
1. Foreign ER
2. Dual emp
3. Special services co
- EE typically cannot continue participation in home jurisdiction Ben plans; generally their wages will no longer be covered by the home jurisdiction’s SS system (for accruing coverage)
- Admin difficulties, can be hard to achieve. Entails more risk bc int’l taxing authorities have become more proficient at evaluating the use of these arrangements and look to recoup lost revenue.
- Extra costs associated in creation of the special org to handle ex/impats.
What 7 important terms should be included in an agrmt for int’l assignment of EE?
- Term: how long does assignment last 📆
- Position title & duties ❓
- Terms; under what rules can EE be terminated? ⁉️
- Restrictive covenants - may not be enforceable in same manner from place to place ⁉️
- Choice of law. Which law will apply to disputes? 🗺️
- Written acceptance by EE 🧍
- Compensation package 🤨
List the additional comp bens that might be involved when an EE takes an int’l assignment? (9)
- Tax equalization or tax protection
—>Equalization: an EE would pay tax equal to the same home jurisdiction tax they’d have paid, had they remained in their home
—>Protection: To reimburse EE only in the event they pay higher taxes as a result of the int’l assignment - COL allowance, to comp EE if they have a higher COL than they had in the US
- Housing differential allowance
- Relo bonus
- Moving expenses
- Reimbursement of expenses related to sale/rental of principal residence
- Dependent education allowance
- Automobile allowance
- Home leave allowance comps cost for EE (&/or fam) to return to the US for visits
Define a Section 3121(l) agreement
In the US, if an EE transfers to an affiliate host jurisdiction ER, the US ER can file a Ss.3121(l) agreement with the IRS that allows the EE to continue paying payroll taxes into the US system. IRS Permits this bc the affiliate in the host jurisdiction is considered to be merely an extension of the US ER. However, the US ER may not want to utilize the Ss.3121(l) agreement, and EE will work for a separate host jurisdiction ER that has its own social insurance contribution program.
Define: social security totalization agrmt
SS totalization agrments provide relief from dual social security coverage & taxation under both systems and integrates/synchronizes the benefits earned under more than one system. Generally, the EE will be taxed only by the jurisdiction where their services are performed.
The US hc system is unique in a number of ways in comparison to the systems in other countries. Summarize 5 differences
- No universal access to medical care
- Med benefit service pricing hasn’t been subject to legal ceilings or regulated pricing controls
- Significant layer of caused caused by inordinate malpractice insurance premiums
- Labor law is flexible, relative to that of other countries. ER is generally able to unilaterally adjust plan provisions in order to reduce bens or req EE to share a higher proportion of annual cost
- Few restrictions/deterrents re: the funding vehicle choices available for ER med plans
List 5 most popular measures used by multinational corps to control the rising cost of hc
- Tight local procurement of insurance
- Local self-insurance
- Multinational pooling
- Captive reinsurance
- Bulk purchasing across countries
Briefly describe the disadvantages associated with the 5 most popular measures of multinational health plan cost mitigation
- Tight local procurement of insurance? - eventually becomes relatively ineffective as markets stabilize & recurring adverse loss ratios mount
- Local self-insurance? - most corps lack the economies of scale (size) for effective SI because only a handful maintain int’l locs with 1k+ EE. Even when a co has the size & willingness, actual execution is impaired due to an often inadequate med service delivery infrastructure at the local level. FUrthermore, many cos that have actually tried SI have in fact exacerbated the fin perf of their plans, due to poor admin.
- Multinational pooling: Hasn’t resulted in upfront premium reductions that would be expected from lower premiums. Further, med plans are being systematically phased out of multinational pools
- Captive reinsurance? - Only a few global carriers front the risk locally with a robust med service delivery infrastructure that competes with leading local players. Second, low potential for favorable underwriting experience has to be tackled. Third, excessive transactional costs. 4, EE contrib considerations, including respective fiduciary controls & EE consent reqs.
- Bulk purchasing across countries? - Technique is discouraged by local labor, tax, and insurance laws that require locally admitted policies and adherence to local pricing norms. Further barriers are a scarcity of global providers with geographically widespread medical plan offerings.
Aside from the structural factors that are driving med costs for multinational corps, what exogenous factors preclude an ER’s ability to manage medical costs? (2)
- Acquired rights. Acquired rights labor laws exist in most int’l locs where multinationals operate. Essentially these laws make it difficult/impossible for a plan sponsor to amend existing plans in order to introduce cost-containment features, since these measures are seen as taking away benefits already earned by EEs. This effectively reduces the ER’s ability to fight annual medical trend thru plan design changes.
- Mounting regulatory reqs. Regs to ex/implicitly mandate ER-sponsored plans or to enhance medical plan coverage are rapidly emerging.
Why did the introduction of Medicare lead to explosive demand and cost acceleration in the US?
It introduced 3 things:
1. A fee-for-service reward structure for providers that generated incentives for unnecessary volumes of medical procedures
- Adoption of UCR rates, which essentially engendered uncontrolled wholesale price increases by providers
3/ A third-party payment system (the state), which essentially removed the consumer’s ability to “bargain for best value”.
The US as a nation is becoming less healthy, but living longer, on the back of advances in curative medicine.
List 8 drivers of worsening health in the US, and explain why they’re of great importance.
- Poor diet
- Physical inactivity
- Smoking
- Alcohol use
- Lack of health screening
- Poor stress mgmt
- Poor standard of care
- Lack of sleep
The factors matter bc they drive the incidence & impact of the 15 most common chronic conditions, which in turn account for 80% of the total COST for all chronic conditions worldwide.
A study identified 3 factors that will have a major impact on the medical care cost structure of multinational companies:
- The transformation of the world economy with a power shift to emerging markets
- Aging of the world pop’n
- Growth of lifestyle risk factors around the world
Countries around the world have taken a variety of policy approaches to DC ret plans. Based on differences in investment options & gov’t involvement, identify 5 different approaches:
- Open-architecture, broad-investment choices system. Admin provider offers large range of funds from which ER & EE select. Used in Anglo-Saxon countries
- Gov’t mandated or collectively bargained guaranteed-return system, in which insurance contracts provide set returns on participant savings (Germany, Belgium)
- Gov’t or state-approved provider system where EE have a degree of investment choice (Chile, NZ)
- Personal pension brokered markets in which participants use DC savings to purchase individual pensions thru brokers (Czech, Israel)
- State insurance market, participants make pmts into the state’s insured funds (Morocco, Pakistan)
Multinational corps may be tempted to develop, manage each country’s DC ret plan in isolation. What are 3 problems when a co attempts to manage a collection of disparate DC structures worldwide?
- Possibility that plans may not suit the enterprise’s overarching goals and culture
- Hazards may creep in if individual plans don’t provide the degree of governance needed by parent co
- Opps might be missed to improve efficiency & reduce costs by capitalizing on economies of scale
The Organisation for Economic Co-operation and Development (OECD) recently identified 4 key difficulties for firms that are attempting to make DC ret plans work effectively on a global scale:
- EEs lack confidence in their plans’ ability to provide for their ret needs
- Contribution levels are too low
- People struggle to choose appropriate investments
- Investment options may not be up to task. E.g., funds may provide insufficient protection & exhibit excessive volatility; ret income options may be unclear/inadequate
A recent study presented 10 best practice for global plan sponsors that cos can use to further both their own business objectives & the retirement readiness of their participants around the world:
- Articulate objectives of total rewards globally.
- Assess your company’s existing reward structures around the world.
- Seek ever-closer interaction bt benefit functions globally.
- Establish a clear, flexible governance structure.
- Thoroughly understand and adhere to regulation, compliance, and legislation.
- Decide on the degree to which the company employs a global investment philosophy.
- Seek efficiencies.
- Promote higher savings rates globally.
- Establish a specific plan for the transition from accumulation to decumulation.
- Create a strong EE comms program.
Most companies have goals for their DC ret plans that fall into 1 or more of 3 categories:
- Paternalism: the desire, or perhaps feeling of obligation, to help EEs prepare adequately for ret
- competitive benefits. In many. Markets a retirement plan is necessary to attract & retain workers
- Strategic workforce mgmt. Supporting EEs’ ability to ret when the time is right for both ER & EE is another key goal
For global companies that sponsor DC ret plans in diff countries, developing and applying a consistent investment philosophy across many markets can be challenging. What benefits might be achieved by applying the consistent investment philosophy?
- Mobile EEs
- Simplified, streamlined governance
- Cleaner communication among plan decision makers around the world
- Application of best practices across borders
- A logical framework to explain plan decisions
- A consistent approach to regional diversification
List 4 primary areas global companies that sponsor DC ret plans in a number of countries might seek economic efficiencies:
- Investment: plan sponsors might be able to reduce costs by negotiating global investment mgmt fees with large asset managers
- Cross-border plan structures. Pooling assets across borders is becoming increasingly feasible in certain regions. This may allow a corporation to use a single vehicle rather than a large number of separate DC plans.
- EE admin: SOme record keepers are starting to move towards cross-border efficiencies, in particular by developing pan-Euro capabilities that include multi language member platforms & call centers
- COmmunication. Using a single set of comms materials across markets would be tremendously convenient & efficient for plan sponsors
