Defined benefit plan sponsors face a squeeze on funding status from two directions. For one, ongoing and renewed COVID-19 lockdowns worldwide will potentially reduce the value of investments of pension fund assets as stock markets could decline as a result of closed businesses. Second, pension funds aren’t keeping pace with contributions as workers are furloughed and contributions are reduced or delayed. Correspondingly, members of defined contribution plans face similar shortfalls in the funding of their own pension pots.
While multinational companies face the key question of how far they should go towards helping employees financially, governments worldwide have instituted various programs or measures to provide short-term relief. In this article, Milliman’s Danny Quant provides a global roundup of these measures in various countries.
An acquiring entity must accurately assess the advantages and disadvantages of a target company’s human capital to negotiate a good value. A thorough human capital due diligence process takes into account key talent capabilities, compensation, benefit plans, human resources (HR) policies, and more.
Milliman’s Radhika Philip and Danny Quant explore the due diligence process in their article “Human Capital Due Diligence in a Merger or Acquisition.” Their article focuses on three topics companies need to consider during the process related to key talent:
- Assessing contractual obligations
- Identifying key high-performing talent
- Designing retention and termination packages.
Two recent amendments to the Labour Protection Act in Thailand will affect companies’ retirement practices. One amendment provides for an increase in the severance payment for employees with more than 20 years of service. The other amendment established that an employee is entitled to retirement from age 60 and clarified that the severance payment is payable on retirement. Milliman’s Danny Quant and Mark Whatley provide perspective in this article.
Milliman was recently retained by a multinational company to provide actuarial services for its retirement programs in six countries. This article by Danny Quant highlights how Milliman’s solution turned the initial valuation contract into broader consulting opportunities.
Postemployment benefits need to be considered when employee transfers take place within large organizations. Several types of transfer agreements exist. In the article “Accounting impact of the movement of employees,” Milliman’s Danny Quant and Kumala Sanjaya relate details regarding several employee transfer agreements they have advised on in Indonesia.
Here is an excerpt:
In one case, where the agreement between the original company and the receiving company was for the transfer of benefits in relation to the entire working period (including the working period before transfer from the original company), the cost was borne by the receiving company. There was no cash transaction or recording of debt between the two companies. This type of transfer policy will directly impact on the profit and loss (P&L) of each company. With the release of the employees for the transfer, the original company will recognise income that is due to a release of reserves from the benefits it no longer needs to provide, while the receiving company will recognise an expense related to the recognition of the working periods prior to transfers in the original company.
In another case, the agreement between the two companies was that the liabilities of the employees before the transfer were still the responsibility of the original company. How are the obligations allocated between the two companies in this case? When in relation to postemployment benefits in accordance with Indonesian Labour Law No. 13/2003 (the amount of severance, gratuity, and compensation paid in Indonesia), the benefits granted rely heavily on years of service and the final salary when the benefits are due. This raised the question about the amount of salary that should be used for the calculation of the portion of liabilities to be borne by the original company. If the agreed policy is based on the original company only bearing the liability for postemployment remuneration related to years of service prior to transfer, and the liabilities are based on the calculation of the salary when the transfer occurs, there will be a cash transaction or recording of debt between the companies. The transactions that occur in the original company and the receiving company may be in the form of debt or receivables. The receiving company would record receivables, while the original company would record a debt in the financial statements in relation to the transfer.
In Indonesia, there are two types of retirement plans used to fund postemployment benefits: defined benefit pension plans (PPMPs) or defined contribution pension plans (PPIPs). These plans are usually referred to as hybrid plans when liabilities for postemployment benefits are calculated. In this article, Milliman’s Danny Quant and Amelia Enrika discuss the most effective way to calculate benefits between the offset method and the asset method.