Dutch pension fund forced to pay double benefits due to statement 'complexity'
NETHERLANDS - The €250m industry-wide Shoe & Leather Wares pension fund has been ordered by a Dutch court to pay life-long annual benefits of €40,000 to a pensioner - nearly twice the amount the pensioner is entitled to - in part because the mandatory pension statements the scheme sends out are "impossible for an ordinary person to understand".
The ruling was expected to have a "huge impact", according to a lawyer at Holland Van Gijzen, with further similar cases possible.
Initially, the pension fund had informed the plan participant that he would, on retirement, be entitled to annual pension benefits of €22,000.
Shortly thereafter, the scheme notified the participant he was actually entitled to €40,000 annually, says pensions attorney Teun Huijg of Stibbe Attorneys.
The retiree-to-be called his pension scheme twice to confirm, and then to double-check, and both times received assurances that he was entitled to the higher amount.
From the employee's retirement in November 2007, the pension scheme made benefit payments to the higher amount and continued to do so for two and a half years.
After this time, the scheme realised its mistake and notified the retiree he was, in fact, only entitled to €22,000 and that his benefit payments would be adjusted accordingly.
The retiree objected and took his case to the district court of Heerlen.
On 27 July, district court judge APA Bisscheroux ruled in favor of the complainant, with Huijg insisting: "The judge did not rule rashly."
The retiree claimed he justifiably and in good faith relied on the scheme to award him the right amount of benefits. However, such good faith arguments are subject to stringent requirements.
"In this case, the district judge honored the claim," Huijg said. "One important consideration was the fact the pension fund is a professional player and should be expected to be able to calculate pension benefits correctly, while the retiree is a layperson and cannot easily be expected to understand the scheme's calculations were faulty."
Further, the retiree showed good faith by buying a house he could not possibly afford on the lower benefit payments, and by freely sharing information regarding his high benefits with former co-workers - something a fraudulent person would never do, the judge noted.
Current law states that pensioners and plan participants are not justified in accepting in good faith any information that is clearly and evidently incorrect to the layperson's eye, or that clearly and evidently cannot be correct on the basis of previously received information.
However, in this case, the only previous information the retiree had ever received - a pension benefits statement from 2004 - was found to be so unclear the judge said he could not understand it until at the hearing - and then only after the scheme supplied explanations.
The district judge concluded it was not reasonable to expect the retiree to see the scheme had miscalculated, and that the situation would not have occurred "had the scheme done its job properly". He ordered it to continue with higer benefit payments.
Reflecting on the ruling, Nicolette Opdam, pension partner at Holland Van Gijzen, said it was the first such public ruling since standardised pension statements were introduced several years ago.
She agreed with the verdict, telling IPE the impact of the finding would be "huge".
"The numbers on the pension benefit statement should be correct, and if they are incorrect, then that is the fault of the pension fund or the administrator," she said.
Opdam noted that a number of funds had initially attempted to add disclaimers to the form - which is centrally designed and therefore identical for every scheme member - that would have waived their liability if errors regarding the benefit calculations were made, but both the financial markets authority AFM and regulator De Nederlandsche Bank soon forbid such measures.
She explained that Dutch pension funds were always "responsible and liabile" for any mistakes, due to the professional nature of boards - contrasting this with the layman's grasp of pensions.
"The problem is the pension fund is the professional party, so they are supposed to do their work in a professional manner - that is their job," she said.
The Shoe & Leather Ware fund serves more than 125 companies and is responsible for the pensions of 1,700 active employee participants and 8,500 retirees.
The fund has €250m in assets and outsources asset management to Blue Sky Group, while its pensions administration is outsourced to AZL.