In many established markets, defined contribution (DC) pension plans have substantially replaced defined benefits (DB) plans, driven by concerns about funding and accounting volatility, regulatory changes, globalization and the rapid economic growth in emerging markets.

Faced with an increasingly global workforce, many multinational companies seek either to establish new defined contribution plans or to assess the quality of existing plans outside their home countries. Soon, they discover while the concept of a defined contribution plan is fairly straightforward, local regulations and market practices vary considerably, necessitating differences in plan design and administration.

Service providers have developed products meeting the needs of each market, and most do not currently operate in multiple markets, making it difficult to replicate the home-country plan across other regions. Despite these challenges, it is possible and even desirable to set global standards and best practices for an organization's DC plans—particularly with respect to investments, an area that has seen increased scrutiny and litigation in recent years.

A key difference between regions is who has the authority to make investment decisions for the defined contribution plan and what their responsibilities are. In some countries, like the United States, the representatives of a plan sponsor normally make all decisions regarding investment policy and plan design. In others, such as the United Kingdom, a mix of trustee representatives from the employer, membership and independent parties is mandated. The level of influence the plan sponsor has on investment matters also varies by country.

ESTABLISHING GLOBAL INVESTMENT STANDARDS FOR YOUR PENSION PLAN

Setting clear investment guidelines and performance objectives is always advisable, including defining:

• The individuals and organizations responsible for the management of the plan's assets and their responsibilities.
• Plan objectives, including identifying the broad types of investments to be offered.
• Selection and retention criteria for investment fund managers.
• Broad investment guidelines for each type of fund offered, including an appropriate benchmark index and peer group for comparison.
• Policies for proxy voting, brokerage commissions and other investment-related expenses.
• Guidelines for manager communications.
• How changes to policy guidelines are to be addressed.

These standards will obviously vary somewhat by country. However, establishing a consistent approach to plan management will help to create a solid framework for making or reviewing investment programs' design decisions.

CHOOSING AN INVESTMENT FUND PROGRAM DESIGN

In building and maintaining a sound investment program, a number of funds are usually offered, such as:

Core Pension Funds: Most plans offer an array of diversified funds for members who wish to create their own portfolios. Core offerings vary considerably, but best-practice selections include: