Austrian companies will be 'unburdened' by new IAS19 rules

AUSTRIA - Neither the scraping of the 'corridor' nor the use of a net interest approach under the revised IAS19 regulations will burden Austrian companies much, according to Christian Krischanitz, managing director at actuarial consultancy arithmetica.

Krischanitz, in contrast to some of his peers, sees the IAS19 revision on the net interest rate as a "sensible and pragmatic approach".

This net interest rate, which will be used to discount plan assets instead of the expected return, means individual company plans will now become "more easily comparable and also more easily calculable", he said.

Krischanitz pointed out that, in Austria, the net interest rate, or Rechnungszins, has historically been very close to the expected return, as Austrian pension funds traditionally are not heavily invested in equities.

Further, only 29% of the defined benefit obligations (DBO) of Austria's top 39 listed companies - the so-called ATX-Prime - is currently outsourced to pension funds.

"This figure has been relatively stable over the last years, as we did not see many transfers to Pensionskassen," Krischanitz said.

In total, the actuary estimated that Austrian companies were still holding €20bn-30bn in DBO on their balance sheets, making them the second-largest pension provider after the state, as the total volume of assets in Pensionskassen and the occupational insurance vehicles BKV (betriebliche Kollektivversicherung) only amounts to €18bn.

Those book reserves suffered heavily last year, as the discount rates had to be cut by 50 basis points on average, leading to actuarial losses of €161m after only €14m in 2009.

This is the second-largest actuarial loss reported in the top listed segment after 2005, when a reduction in interest rates led to a loss of almost €1bn. But back then, the ATX-Prime still comprised 45 companies.

As for the use of the 'corridor', or the possibility not to show some of the actuarial losses and gains, this has not been made much use of by Austrian top-listed companies.

In 2010, the corridor only amounted to €164m out of a total DBO of €5.9bn.

"The abolition of the 'corridor' will lead to higher volatility, and accounts will become less easy to control," Krischanitz said, adding that all this was "nothing threatening".