As John Lewis, director, total rewards for the pharmaceutical company tells it, the DC plan is structured to meet the workforce’s needs as well as the relatively high rate of turnover within the industry. “It suits our demographic. We have a relatively young workforce and relatively short service. So our view is that DC is far more appropriate for our demographic,” notes Lewis.
Lewis says the decision by AstraZeneca to get into DC plans earlier(in the 1990s)rather than later has been beneficial for the company. “It means we don’t get involved in any of the issues around cost variability, unfunded liabilities…it’s a much more straightforward design.” He says administrative costs would not be different if the company were to have a defined benefit plan. “We’re not in it for cost savings,” he stresses. “The main point for us is that it suits the employees’ needs far better.”
The DC plan is essentially set up in two parts. “The company contributes five per cent of an employee’s earnings and that includes base pay and bonus,” he explains. Additionally, employees can contribute their own money to a separate voluntary DC plan which the company will match at 50 cents on the dollar up to another six per cent of earnings. That means employees get a maximum three per cent match on their additional contributions. The match that comes from AstraZeneca can be divided in the following way: the first one per cent goes into flexible dollar accounts, which can be for healthcare or something else, and the remaining two per cent goes into the DC plan.
He explains that the one per cent put away in the flexible accounts can be redirected once per year at the time the annual flex benefits re-enrollment takes place. “It provides extra dollars for the employees to use to purchase additional benefits or to purchase healthcare spending dollars.”
But Lewis says even though the first one per cent is directed into the flexible spending account, it doesn’t necessarily have to go towards healthcare benefits. That’s because one of the choices given to employees for the use of their flex dollars is to put them back into the retirement savings plan. “The baseline plan is for competitive reasons and the voluntary plan is there to encourage our employees to contribute to their retirement savings,” he adds.
AstraZeneca offers its employees supplemental health plans by assigning “flex dollars”(the same ones given as a match towards retirement)to each employee. Employees are then able to use those dollars or credits towards one of four options. Lewis explains that the flex plan is not dissimilar to other companies which may offer such options. However, the difference is in the types of options one gets for their dollar. For example, he notes that the most comprehensive plans offered to employees are usually the ones that cost the most and therefore force employees to top-up the amount they have in their flex plan accounts. In AstraZeneca’s case, the opposite is true. The most comprehensive health option with the most coverage is the one that can be bought without having to add additional credits or dollars to it. “It increases [our] costs, but well within reasonable limits,” says Lewis. He adds that most of the employees are in this option. “It allows employees to have this [plan] without spending out of pocket.” AstraZeneca essentially picks up the entire tab for the plan, says Lewis. This type of plan has utility as “useful dollars” for the company and is money well spent, he says.
The company also offers its employees a number of wellness programs such as fitness and yoga. Unfortunately, the one thing employees of AstraZeneca cannot get at a discount is medication. Lewis says that because the manufacturing and selling of prescription drugs is highly regulated, there can be no cheaper arrangements for its employees.
As far as plan governance goes, Lewis says AstraZeneca is currently analyzing the capital accumulation plan(CAP)guidelines and what they will mean to the DC plan. “Out initial rough analysis would reveal that it [the guidelines] would make very little overall difference to the way we conduct our plan because we are already compliant with the vast majority of that document.”
Having said that, Lewis adds there are one or two areas where AstraZeneca can boost its governance. “The governance document would perhaps lead us to believe we do not do a robust enough job around selecting and monitoring fund managers.” He adds that even though the company does have methods in place for monitoring, an initial look at the guidelines indicates that more could be done to strengthen that area.
The current method for selecting fund managers is through the help of consultants. “I think it’s just tightening up the visible nature of the selection process,” says Lewis.
Lewis thinks the CAP guidelines are a positive step forward for pension plans. “I think the guidelines are excellent, but of course I would say that because we are essentially following them.”
Joel Kranc is associate editor of BENEFITS CANADA. email@example.com