CNA combines three into one
The pension plan for employees of Spain’s Central Nuclear de Almaraz, AIE, is the only one connected to the Santander XXV pension fund, and had 530 members and beneficiaries and an asset base of €11.6m.
The scheme resulted from an agreement to transform three collective insurance funds – capitalised pension provision, life and accident (including complete permanent disability) – into a single occupational pension plan, with a defined contribution element for retirement provision and defined benefit for permanent invalidity and death, including accidental. The contribution rate is split 70%– 30% between employer/plan sponsor and employee/ member respectively.
Initial negotiations between employees and employer centred on hypothetical contribution calculations which led to the company revising the framework it had proposed for the new fund.
A Comision Promotara (promotion commission) was then set up and the revised framework was unanimously approved by the employees’ representatives, with the asset management company and depositary banks appointed. The scheme began operating in December 2000. In the management and depositary bank selection process, there was a ‘beauty parade’ of the 12 companies invited to tender, with those that received the most votes being chosen.
The selection criteria included examination of the team, historical results, volumes and numbers, commissions and costs, availability of funds and payments and settlements. The scheme also looked at the services available to members, beneficiaries and the control committee, including access to the asset manager’s IT applications to check member contributions and liabilities as well as the state of investment portfolios, operations, commissions and costs.
Finally, the fund considered any additional banking services that a provider could offer.
The selected asset manager, having analysed the fund’s demographic situation, market conditions and expectations, operating environment and members’ preferences, proposed a portfolio split of 60% equities and 40% fixed income with tactical asset allocation allowing a 15% swing either way. Geographically, it proposed 70% in European equities, 25% in US and 5% in Japanese whilst for fixed income, it envisaged 85% European, 15% US.
The committee of control fixed the strategy at 50% equities, 50% fixed income with a 5% bond either way, but accepted the geographic split as proposed. The management company argued successfully, however, for a 10% fluctuation.
The control committee then decided to appoint an external consultant to monitor the investment management of the fund’s assets. The consultant was initially engaged in the analysis of different portfolio compositions, the selection and distribution of assets and reference indices. This led to new proposals to regulate the structure, investment principles and periodic profitability objectives of the fund with a new strategy implemented in July 2002. This comprised 30% equities, 70% fixed income, with a 10% sway either way, and a geographic split giving European equities 70%, US 25% and Japanese 5%. The fixed income portfolio consists of 90% European and 10% cash. The fund’s results are to be reviewed quarterly.
The control committee then decided to restructure its own internal operations by approving a new set of regulations governing operations, meetings, the constitution and running of the work’s committee and the relationship with the management company and depository bank.
With the new structure in place, the fund was able to fully estimate probable liabilities, taking into account profitability and market volatility, something that has obliged it to reconsider anticipated contribution rates.
The fundamental objective of the control committee is to keep members and beneficiaries as fully informed as possible of the fund’s position. To begin with, it issued numerous explanatory booklets and set up specific notice boards in the two work centres, as well as publishing a newsletter. More recently, an internal web-based service has been established where workers can log on and keep up to date with the fund’s developments such as fund constitution updates and minutes of meetings between the control committee and fund management board and so on.