Client
Aon partnered with a large employer to mitigate their defined benefit superannuation plan cost risks.
Challenge
The client was facing ever increasing defined benefit plan costs, which were volatile and unsustainable. The main issues they had were:
- exposure to significant financing cost risks driven by volatile investment markets plus evolving plan experience
- declining and ageing membership of the defined benefit section of the plan, which had already been closed to new entrants
- inequitable drain of resources towards the legacy arrangements for a minority of the workforce
- operational compliance risks of the complex legacy arrangements with exposures for their finance, HR and payroll functions
- high fixed recurring compliance costs for the ongoing plan relating to accounting, administration, trusteeship plus significant management time commitment
- risks of future legislative and accounting changes increasing ongoing costs further.
Solution
Aon partnered with the client to:
- manage and implement a successful change project for the plan
- execute a de-risking approach to the underlying defined benefit investments to mitigate market risks
- deliver a risk managed strategy to decommission the defined benefit plan
- design and implement a special and unique benefits package with a market competitive, attractive and sustainable defined contribution structure for future service
- provide education seminars and targeted change communications across different media to positively engage the workforce.
Results
After Aon’s advice and support, the client achieved:
- multi-million dollar savings – from previously having defined benefit costs peaking at around 25% of payroll plus sizeable funding restoration lump sum contributions, to a fixed Superannuation Guarantee approach harmonised across all staff, and the removal of over $100,000 of recurring compliance costs
- a defined benefit surplus of over $1 million became accessible to the employer to finance future defined contribution obligations
- an increase in employee engagement and perceived value-add of the employer’s retirement benefit and related insurances.
