The Netherlands could face a raft of pension mergers following the implementation of a new law, reports our Dutch sister publication IPN.
However, the proposed amendment to the Dutch Pension Act, which will allow mergers between company pension funds, is unnecessarily complicated, according to Arjan van de Griend, a pension lawyer at the consultancy Watson Wyatt.
The pension associations Opf and VB, in a letter of 15 October, expressed agreement with the proposed legislation and urged swift implementation. According to the associations, the proposed legislation will meet with strong interest from company pension funds.
"The Opf has organised two meetings in October or November 2009, at which, notably, more than 90 company pension funds will be present for the purpose of informing themselves about the multi OPF," the pension associations wrote in a letter.
The legislative amendment, which the social affairs minister, Piet Hein Donner, sent last month to the Lower House of the Dutch Parliament, will allow company pension funds to merge into a so-called multi-OPF without the creation of a single legal and financial entity.
But De Griend believes the conditions that the minister has imposed will make the multi-OPF unattractive.
He is not in favour of the requirement to segregate assets, the purpose of which is to prevent asset dilution in the case of a fund with greater assets than its merger partners. He believes it should remain possible to merge the assets within a multi-OPF to obtain economies of scale, especially if the companies concerned aim for greater integration. "It is well possible to bring the coverage ratios in line with one another before the merger, for example if an employer makes a contribution," said Van de Griend.
Differences in the composition of the member population can also be solved, according to Van de Griend, as he continued: "There are numerous guarantees to prevent unfair solidarity, through the composition of the board with employer and employee representatives. The participation committees, such as participant councils, also have a role in the merger process. They will not allow a merger in which a portion of assets is surrendered."
Van de Griend also believes that too much emphasis is being placed on the maintenance of participation in the pension agreement.
"Determining the content of the pension agreement remains almost exclusively the domain of the social partners. Board members are mostly focused on operational issues," he commented.
He also expressed surprise at opinions suggesting representation of all companies and groups will create a natural brake on the number of company pension funds entering in a single multi-OPF. He sees no need for such a brake.
"Why should it be a problem if multi-OPFs become big? This will just make them more efficient," said Van de Griend said.
He argues against having each and every stakeholder interest group represented in the board. "This will become unworkable. Employer and employees should be able to appoint trustees on the basis of their expertise. Discussions regarding the content of the pension agreement are a matter for the social partners," he continued.
Van de Griend also disagrees with a requirement stating company pension funds must be at least five years old before they enter a multi-OPF. Younger funds, recent pension agreements and directly-insured pension arrangements will therefore not be able to enter the construct.
He also doubts that this restriction, based on the delimitation of functions between pension funds and insurers, is really necessary. "Employers will have good reasons if they want to leave an insurer. Aside from the price, these are mainly the quality of the service and the financial results. If these are good then a multi-OPF will be no threat."
According to Van de Griend, smaller pension funds need the multi-OPF construct because the small scale of their management organisation is seen to make them feel vulnerable, while they also have problems in filling board positions.
"It is essentially good that the multi-OPF will now be possible, but the framework could be better," added Van de Griend.