Pension Risk Management for Multinationals
Pension risk management is usually performed from the perspective of the pension plan, which is not necessarily aligned with the (interests of the) underlying corporate sponsor. At times, objectives are shared by both the plan and the corporate sponsor.
One common goals is to provide employees with a reliable source of income after retirement. But there can also be conflicting interests. These conflicts may arise because of differences in regulation (local pension regulations vs. accounting standards) or risk appetite (the corporate sponsor can be confronted by multiple plans with a compounded effect). Below, we list a number of challenges that multinationals may encounter while handling their corporate pension risk management:
- Exposure to multiple complex pension regulation frame works
- Complex governance structure where direct influence is limited due to the independent nature of Trustee boards
- Difficulty measuring aggregated corporate risk exposure due to data and scenario model inconsistencies and non-linear relationships (e.g. diversification effects)
- Assessment and exploration of international diversification components (such as currency and legislation) that are often overlooked