Developing a common vision
German industrial giant Bosch is a corporation with a legacy to look after in the field of employee benefits and pensions.
As Bernhard Wiesner, head of corporate pensions, explains, Bosch was one of the first companies in Germany to introduce eight hours shifts for employees – cutting long work patterns, while at the same time keeping the machines running by adopting a rolling shift programme.
Bosch was also one of the first employers in Germany to offer a supplementary pension plan, directly after the first world war. Wiesner explains that this was a desire to offer a social framework for employees.
“Our founder Robert Bosch was always trying be ahead of the trend in Germany and that is also something that is really valid all over the world in that we have pensions that are tailor made to Bosch associates.”
As a corporation Bosch has several hundred companies worldwide and Wiesner says that the firm’s pension arrangements locally will depend on national frameworks, for example whether executives in a given country will have separate pension plans or if there are different schemes for white and blue-collar employees.
“There can be two or three pension plans within one company.
“If you look at Portugal, for example, we have eight different companies with different histories and in general every company is running their own plan. There is room for to develop synergies here, both for our associates and for the company.
“The philosophy goes back to Robert Bosch again, because what we are trying to do is in the best tradition of our founder in that we look after our associates’ (employees) needs.”
As a rule, Wiesner says, Bosch will benchmark their pension plans against local market practice, which, he says, means that the firm can continually compare and evaluate what it has. “This is important because if the local market changes then we need to be able to react in what we do these days and that includes pensions and benefits.”
However, Wiesner points out that the company now also has to look at the bigger picture and ensure that its global needs are met too in terms of cost and security.
He gives the example of the company’s endeavours in remoulding its German pension provision. “In the last two years we have looked at what has been happening in terms of sector fund pension arrangements in Germany, which we support in principle, but we decided that at Bosch we had our own way of looking at pensions and wanted to retain this with a sense of the tradition of the company.”
To this end, he says that Bosch is actively exploring ways to transfer German book reserve commitments into a funded pension vehicle over the long term.
The move would be via the German Pensionsfond structure introduced as a new funding vehicle under the Riester pension reforms, although Bosch says it has yet to see enough efficiency under German law to actually do so.
Wiesner notes that Bosch is only one of two German corporations, Deutsche Telekom being the other, that set up a Pensionsfond for employees under the new legislation. The use of the Pensionfond as a funding vehicle for the group’s balance sheet pension provision would be a potentially significant shift for any German corporation.
“We would like to use our pensionsfond for this purpose but the problem at the moment is that the vehicle is insufficient to do this. We need the pensionsfond vehicle to be more efficient.”
One difficult issue with the new vehicle, says Wiesner, is the question of guarantee of contributions. The other, he says, is that there is as yet no possibility for employers to contribute above the four percent ceiling for individual employees.
“Also the BAFin practice to demand the use of an interest rate of 3.25%, and probably from 2004 2.75%, in the case of transferring pensions to the new Pensionfonds is counter productive. This prohibits such a transfer. We should adopt international practices and use fair market interest rates like under IFRS practices.”
Wiesner points out that the company is currently under no pressure to fund its book reserve commitment, but says this is part of a longer-term pensions view of the company. “The magnitude of the pensions liability is growing in all German companies like ourselves and we have to think about the long-term view. We are discussing this continually and we believe there is an absolute need for an efficient external vehicle for pension funding.”
He adds: “There are positive signs of movement in the right direction at the moment, but the legislation still has to be changed. We hope that in the next few months with the proposals and years this issue will be solved.”
The importance of Bosch’s reform attempt in Germany, says Wiesner is that it fits a blueprint put together by the company for the creation of a centralised “pension guideline”.
What this means in practice, he says, is that the company is introducing a new pension communication culture focused on clear reporting and analysis of pension plan and risk governance worldwide with a particular focus on DB areas such as the US and Japan where the firm tends to have final salary pensions guarantees to cover.
As Wiesner points out the world is getting smaller for companies like Bosch, particularly when they start to consider the impact that their global pension commitments can have on the group balance sheet.
“This issue was the driver really to say that we need a common vision for our global benefits and to act on our HR and benefits issues from a global perspective.
“When you add issues such as the demographic trend worldwide, then in the best tradition of responsibility we have to evaluate this situation.”
On a practical level, Wiesner acknowledges that there has already been a shift from defined benefit to hybrid or defined contribution pension plans within the group in the last five to 10 years.
But he believes the shift to hybrid/ DC plans also underscores a shift in company policy away from a paternalistic approach to a shared sense of responsibility between employer and employee.
“We would like to emphasise the joint responsibility for pensions between Bosch and its associates. If we can encourage employees to contribute towards their own pensions then they become more personally involved with their own retirement plans and with the company as a whole.
“The workforce will increasingly start understanding how to evaluate what money they have in their pension scheme when they start to contribute themselves for the first time.”
Not surprisingly, the issue of pooling both assets and advisory services has also come onto the drawing board, although Wiesner senses a slight schism between the rhetoric and the reality: “It is very evident in the field of mandates and employment of asset managers/ actuarial consultants that companies can and need to find important synergies. “However, it is easy to make this comment, but not so easy to actually make the change in reality, so that we aren’t using managers or advisers in areas that overlap or where we don’t actually need them.”
In terms of mandates themselves, he says Bosch is not about to start changing the mandates its affiliates already have in the market but that the company is going to ‘encourage’ its local operations to start looking for synergies wherever possible.
“We know that this is not the main focus right now, but we would be very happy if this started to happen.”
On the investment side, Wiesner concedes that it would certainly make sense to pool the assets and have them in one structure, but he points out that it is an ambitious task: “You have to convince all of the trustees in the UK, for example, that it is a good system, whereas they already have a good set-up there, as they in other places like Switzerland and Japan.”
He imagines that Europe would be the company’s focus in terms of pooling, along the lines of the oft-touted pan-European pensions plan.
“In Europe I can see that this might be possible and I’ve been impressed with the way that Luxembourg and Dublin have changed their legislation to make it as easy as possible for multinationals like us to look at putting pension arrangements there.
“Colleagues at another German multinational are setting up their first Luxembourg pension fund right now and it is impressive to see countries get their legislation in good shape like this.”
Nonetheless, he believes the tax barrier for cross-border pensions is still key and he sees little real progress for cross-border pensions without it.
For this reason he notes that while mobility is growing worldwide within the firm, particularly for specialists in technical fields and managers, for the moment employees stay with the local plan despite the inherent difficulties this can sometimes pose for the company.
He uses a German expression to explain this conundrum: “We have to bite the sour apple on this one! We know there are some concepts of offshore plans etc, but we actually would prefer to keep people in the home plan where they can better understand what is happening with their pension. This can pose difficulties in both administration and financing, but until we have something better then so be it.”