GERMANY - Arcandor, the firm behind German high street retail giant Karstadt, may eventually see its defined benefit pension obligations placed in the hands of Germany's lifeboat fund for pensions, as the firm today announced it had filed insolvency papers.
Although Arcandor officials were unavailable for comment at the time of publication, the firm has opened insolvency proceedings by filing papers at Essen district court for three of its high street chains, and may be required to pass the management of its pensions obligations to the Pensions-Sicherungs-Verein (PSV) following the collapse of some of the company.
The group's company accounts filed last year suggest the firm had pensions obligations of up to €3.3bn by 30 September 2008, and assets of approximately €2.1bn.
PSV is the cooperative insurance association of German employers first set up to insure the pension liabilities of insolvent companies, and is now a reworked version requiring annual levy payments. The earlier PSV was previously funded by employers on a Pay-As-You-Go (PAYG) system.
Thomas Jasper, principal at Towers Perrin Germany, explained that the PSV is responsible for taking on the pensions assets and obligations of any collapsed company and ensuring members get a payout at retirement, to a certain limit.
"The PSV takes on the vested obligations, subject to a limit to each person of about €7,500 a month in West Germany and €6,400 in East Germany. It takes the obligations as they are, but will not take on the future accruals," said Jasper.
"Insolvency is one pre-condition [to its inclusion], but the PSV take the obligations and the assets, even though there is no experience so far of how to trade the CTA assets.
"It then pays out to people at retirement. The vested obligation stays with the PSV until retirement, and the PSV uses a consortium of insurers to look after it."
While the focus at this stage is likely to be on Arcandor, Jasper warned other companies will likely feel the effect as a result of such a large insolvency because their commitments to the rescue fund are likely to have to increase.
"An important issue with the PSV is companies pay levies which cover the damage of the obligations over the year," said Jasper. "These are set relative to a company's pension obligations. That levy is calculated from this year's insolvencies, so the levy is likely to be higher to cover this year."
The PSV levy rate for 2008 was lower than in previous years, and came in at 0.18%, compared with 0.3% in 2007, 0.31% in 2006.
Very little information is available on the Arcandor pension plan, but detail provided by CapitaIQ, the financial information collation service, suggests the firm has a contractual trust arrangement (CTA) with €3.37bn in defined benefit obligations, alongside projected defined benefit obligations of €2.96bn and total plan assets of €2.12bn.
Its asset allocation was split at the end of September 2008 as 41.3% in equities, 18.5% in real estate and 40.2% in "other plan assets".
As a side issue to this development, a consortium of real estate investors - and potentially other pension funds as a result - could be hit by the collapse of the Karstadt chain owned by Arcandor.
Whitehall, which is a property fund of Goldman Sachs, owns the majority of the Karstadt department store properties across Germany alongside RREEF Alternative Investments, the Borletti Group, the Generali Group and Pirelli RE, following a deal signed in July last year. (For more information, see an earlier story from sister publication, IPE Real Estate: Consortium completes German HighStreet purchase)
Officials at PSV were also unavailable for comment at the time of publication.