Hard-hit Océ scheme narrowly avoids rights cut
NETHERLANDS - The €741m pension fund of copier manufacturer Océ narrowly avoided being the first Dutch scheme to reduce pension rights, thanks to an additional contribution from its sponsoring company.
Following the scheme’s recovery plan, the company was supposed to plug two-thirds of the financial gap, after the scheme’s coverage ratio dropped to the critical level of 86.1%, which is too low to recover to the required minimum funding of 104.4% in 2013, according to the pension fund.
Based on these arrangements, all participants had to forgo on 0.13% of their pension rights.
However, Hans Rexwinkel, the scheme’s chairman, has written to participants to inform them that the company had decided to raise its additional contribution to avoid cutting pension rights in 2010.
He added that the next decision on emergency measures would be taken on 30 June 2011.
Following the recovery plan - aimed at restoring the coverage ratio to 105% within five years - the pension fund increased contributions from 26.5% to the agreed maximum of 30%. It also decided to not grant any indexation before 2014.
At the end of 2009, the pension fund’s coverage ratio increased to almost 91% - including 3.9 percentage points for increased longevity - after an absolute low of 79.4% at the end of 2008, making it one of the hardest-hit schemes in the Netherlands.
In its annual report for 2009, the Océ scheme said it would place the asset management and risk management with an external professional party. It also plans to change its board structure, focusing on increasing expertise and improving risk management.
The announced adjustments are supported by the scheme’s visitation committee for internal supervision, which noted that the board had been caught out by the impact of decreasing long-term interest rates.
Meanwhile, the scheme has introduced a dynamic hedge of the interest risk on its liabilities, which was 47% at year-end.
The pension fund’s visitation committee also indicated the scheme’s problems had been amplified by differing perceptions of the contract for fiduciary management with Goldman Sachs Asset Management.
In practice, Goldman Sachs AM acted as an assets-only manager, rather than advising on strategic and balance management as well, as had been expected, the supervisory body said.
The Océ scheme reported overall returns on investments of 14.4% in 2009.
The equity component, returning 30.6%, fell slightly short of its benchmark due to active management, according to the pension fund.
It attributed the 7.2% return of its fixed income portfolio largely to its investments in corporate bonds.
The scheme’s property allocation also produced good results, returning 26.2% following the performance of its real estate investment trusts.
The pension fund also said it had left its strategic asset mix unchanged and that it intended to start rebalancing once its coverage ratio had risen to 115%.
It added that it terminated its global tactical asset allocation due to disappointing results and that it would gradually increase its passive management.
The scheme said it had stopped re-investing cash as a collateral from securities lending after it lost €3.7m following the collapse of investment bank Lehman Brothers.