GERMANY - Media giant Bertelsmann has emerged as the latest German multi-national to remove its pensions liabilities from the balance sheet and finance them via an external fund.
According to Verena Volpert, executive vice president of Bertelsmann’s treasury and finance department, the firm plans to set up a contractural trust arrangement (CTA) by early September to finance €900m of its €1.9bn in total pension liabilities.
Under a CTA, pension liabilities in the form of book reserves (Direktzusage) are removed from the balance sheet and consolidated into a legal arrangement backed by liquid assets. While expensive to build, CTAs are regarded by international rating agencies as an effective way of fully funding pension liabilities.
In switching to a CTA, Bertelsmann follows such German multi-nationals as Deutsche Bank, the technology group Siemens and the airline Deutsche Lufthansa.
Volpert said Bertelsmann, like other companies that employ a CTA, was motivated by the increasing need to “fund the liabilities from assets instead of cash flow”.
Bertelsmann has not yet decided which financial service firm would be involved in setting up the CTA. Who will provide Depotbank, or clearing and settlement services, also remains an open question.
“What is clear is that before the end of the year, we plan on transferring €400m in pensions liabilities to the CTA,” Volpert told IPE in a telephone interview.
Volpert also said Bertelsmann was currently debating the merits of consolidating its pension investments in so-called master funds. She added that along with the strategic asset allocation, this issue would be decided in September.
A master fund would enable Bertelsmann to have back-office administration of its institutional funds centralised within one provider. The benefits are greater efficiency and transparency.
Asked why Bertelsmann was not employing a Pensionsfonds, Germany’s near-equivalent to the Anglo-Saxon pension fund, to fund its liabilities, Volpert said this solution was currently less attractive than a CTA from a cost perspective and due to the limitations under German tax law.
German companies like Bertelsmann have so far shied away from transferring their pension assets to Pensionsfonds, as this would require the building of huge capital reserves. The government is considering remedying this as part of Germany’s expected transposition of the EU pensions directive in late September.