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Rise of 'global nomads' causes problems for employee benefits strategy, Mercer study shows

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While the number of employees on international assignments has remained relatively stable over recent years, the percentage of ‘global nomads’ (employees who move from country to country on multiple assignments) and long-term expatriates has increased, causing challenges for employers when it comes to providing expatriate benefits, according to a global study by consultancy, Mercer.

Mercer's research finds provision of expatriate benefits remains a key priority for multinational companies: 85% of survey respondents have specific procedures in place to monitor the success of expatriate benefit programmes.

But employers are eager to ensure that their expat benefits programmes not only support business and HR strategies but also meet their assignees' needs.

Mercer's 2011/2012 Benefits Survey for Expatriates and Internationally Mobile Employees provides an overview of expatriate policies within large multinational companies. It covers 288 multinational firms worldwide that, all together, employ 119,000 expatriates (up from 94,000 in the 2008/2009 survey).

According to the report, the need to develop global leadership talent and the growth of new business ventures abroad have prompted a rise in global mobility. The number of global nomads has risen from 6% to 10% of the expatriate population of survey respondents, while the percentage of short-term expatriates (those assigned to a project for less than a year) has fallen from 17% to 11%. Long-term expatriates as a percentage of the total assignee population increased from 21% to 40% between the 2008/2009 and 2011/2012 surveys.

Mark Price, principal in Mercer's international consulting group, said: "Seasoned professionals who can bring solid international experience and a depth of knowledge across a number of operating environments are vital to companies looking to create or expand ventures abroad and gain a competitive advantage. We are seeing that multinationals are expecting their talent pool to have varied geographical experience as a prerequisite to climbing the top rungs of the career ladder."

The most common retirement approach for all internationally mobile employees is to maintain cover in home country plans, based on the assumption that assignees are more likely to retire in their home countries. Some 63% of traditional and long-term expatriates are maintained in their home country retirement plans.

"The benefits of keeping expatriates in their home country retirement plan is alignment with employee expectation as they remain in a plan that is known prior to the assignment, and avoidance of benefit fragmentation, as benefits continue to accrue under a single plan," said Price. "However, while this is suitable for short-term and traditional assignees, problems can occur applying these plans to global nomads," he continued.

"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."

One solution is to establish an international retirement plan, providing a single solution across assignments and the potential for a common scheme design. The survey results show that only 12% of companies have established international retirement plans to ensure continuity of benefits. Such plans, often offshore, 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.

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%) and "a combination of home/host-country plan meets needs" (30%). But a significant number (17%) of respondents are unaware of the potential benefits of establishing an international retirement plan or have never considered this as an option.

Nearly all respondents currently provide private medical insurance for their globally mobile workforce (98%) compared to only 57% in 2005. Medical benefits and the quality and standards of medical healthcare vary significantly from country to country, so the main challenge for companies is to provide expatriates with a broadly equitable system of healthcare while managing costs. Other factors that may be driving uptake of international medical plans include an increase in local health insurance compliance and also the increasing demand by employees for medical benefits to be in place prior to the commencement of the assignment.

Price said: "An international medical plan provides equality among expatriates and reduces administration effort and time resource constraints. But challenges remain, particularly around costs. Some 53% of respondents have experienced increases of 6% or more in their international medical plan premiums at their last renewal and 20% of companies have seen their premium increases by between 11%-15%.

"Complexity in administering multi-country plans can increase the cost of providing medical benefits. Furthermore, the 'hot destinations' for expatriates happen to be countries with some of the highest medical inflation in the world, such as the Middle East, India, China and Latin America. So it is not surprising that the global trend towards high premium increases is particularly prevalent in international medical plans," he continued.

According to the survey, traditional cost-containment options remain popular, with a large proportion of respondents adopting the use of cost-sharing approaches such as employee deductibles (up 8% from 2008/2009), co-insurance and annual benefits limits.