BELGIUM – The Belgian Association of Pension Funds (BAPF) is lobbying the government to introduce a dynamic minimum funding requirement (DMFR) for pension schemes under its new legislation.

Responding to the 3.25% ‘average’ guaranteed return rate adopted by parliament in the Vandenbroucke law on sector-wide pension plans, Karel Stroobants, president of the executive committee of the BAPF, notes that economic legislation has to follow the same principle.
“Today if a fund guarantees a return, the economic legislation is translating this automatically into an annual guarantee and combining this with the requirement of being 100% funded at all times.
“ This could mean that a fund is restricted in its ‘long view’ on investments.”

Stroobants points out that with the average pension fund returns for 2000 coming out at around zero, the fund would have to give a guarantee of 3.25% under the new Belgian pensions legislation, which would mean at present that plan sponsors would have to find an extra 3.25%.

The BAPF is asking the government to introduce the DMFR approach alongside its average return concept: “This would mean that a fund should be funded in a range around 100% based on its statement of investment principles (SIP) and the calculations of the expected returns,” says Stroobants.

He explains that this would give a bandwidth of plus or minus 25% depending on the risks taken by the fund.
He adds: “This concept should also solve the problem of the ownership of any over-funding. In such a model the over-funding below the bandwidth would belong to the fund and no individual could claim rights on it.”
On the flip side, he notes that an employer would not have to immediately remedy any funding shortfall.
A cash injection to the scheme would, for example, only be needed if the plan does not perform within one standard deviation of the expected returns, he says.

Stroobants ends: “ Discussions are ongoing with the authorities and we believe that they are heading in the right direction.”