Alecta faces new accounts rules underfunding challenge
SWEDEN - Alecta, the largest manager of occupational pension assets in the Nordic region, could become underfunded when new national accounting rules are introduced next year.
The Swedish equivalent of International Accounting Standard 19 (IAS19), Redovisningsradets rekommendation 29 (RR 29), which comes into forces on 1 January 2004 will require companies to assess the market value of pension fund assets on their balance sheets.
Bjorn Nilsson, former director of international affairs at Alecta and now a consultant at partners at pension consultants Hewitt in Stockholm, estimates that this could mean that the collective solvency margin could fall to 90% or lower. The margin is currently 112%.
“Probably Alecta is underfunded by some 10% if you evaluate by applying the RR 29 standard,” says Nilsson.
The situation has arisen because the Swedish accounting standards board decided after a year of debate that the SEK 280bn Swedis Krona (30.6 billion euros) Alecta pension assets should be treated as a defined benefit (DB) plan for accounting purposes. This is in spite of the fact that Alecta is a mutual insurer
Nilsson said the 27,000 client companies that belong to the fund would also face problems, since each company must assess separately its share of pension fund assets administered by Alecta
“They need figures to evaluate their part of the Alecta assets, and it is a difficult task to provide these figures,” he said.
In October, the Alecta board improved the collective solvency margin, which had fallen below 100%, by changes to the balance sheet and an increase in premiums. A spokesman for Alecta said it was investigating the impact of RR 29 but that it was too early to say whether it would create problems.