Dresdner Bank in €1.8bn pension CTA move
GERMANY – Dresdner Bank has joined dozens of other multinationals by outsourcing pension liabilities so that they are funded by a contractual trust arrangement (CTA).
The bank, part of insurance giant Allianz, confirmed that it would create a CTA for €1.8bn in pension liabilities which stem from 43,000 current and former employees as well as retirees at start of next year.
Dresdner said it would finance the CTA entirely through existing liquidity. Its Allianz Dresdner Pension Consult will advise on the move.
A spokesman said that there were no immediate plans to draw up an asset-liability study. He said that based on existing models, the asset allocation for the CTA was 80% fixed income and 20% equity and alternative investments, like private equity.
The CTA’s asset management will also be handled by Allianz Global Investors.
According to the bank’s annual report for 2004, Dresdner had €2bn in pension liabilities on its balance sheet at the end of December 2004. The expected return on assets to cover the pension liabilities stood at 4.9% for 2004 – virtually unchanged from 2003.
Dresdner is just the latest among a multitude of German multi-national firms to finance its pension liabilities via a CTA. Since last spring, the funds have been established at the media company Bertelsmann, the engineering group MAN, the energy giant E.ON, the chemical giant BASF and the consumer chemicals firm Henkel.
The switch to CTAs has been driven by international accounting standards, which tend to regard pension liabilities funded by book reserves as unfunded. As they require a great deal of liquidity, CTAs are more common among multinationals instead of small to midsize companies.
Prior to Dresdner’s CTA announcement, Deutsche Asset Management estimated that the German CTA market would total at least €15bn in 2006.
ADPC adds that following multi-nationals, German companies listed on the MDax – the mid-cap range – will likely begin establishing CTAs.