NETHERLANDS - Almost one in four Dutch pension funds with mandatory membership did not pass a key investment performance test between 2004 to 2008 and could potentially lose sponsoring employers as a result, according to VB, the Dutch association of industry-wide schemes.

The findings of a study by the association means member companies or sponsoring employers of the 14 funds which failed the ‘z score' test are now allowed to join another scheme, set up a company pension fund or opt for an insurance solution.

Dutch law prescribes that companies within an industry join an industry-wide pension fund unless the industry-wide fund's so-called ‘z-score' test, which assesses the quality of investment management, is unsatisfactory.

Z-scores assess fund performance against a previously defined benchmark, chosen by the pension fund board and the benchmark portfolio specifies the investment mix to which the fund will adhere in the year ahead. Annual z-scores are used to calculate a rolling multi-year average over a period of five years, and this makes up the performance test. If a fund's performance test result is not up to scratch, employers are entitled to claim exemption from a compulsory membership of the fund in question.

The pension fund for hairdressers and the sugar-processing, the wood-processing and cleaning industry is among those which could see such activity.

However, it is anticipated that few companies will in fact leave their pension scheme as the dispensation is only temporary at least until the z-score improves, and that shift will have to be effected swiftly.

At the same time, a company may not extract its pension assets from the fund as long as the cover ratio is below 100%.

VB currently represents 80 industry-wide pension schemes but within those there are 19 funds which do not carry compulsory employer participation, such as Pensioenfonds PNO Media and SPF, the railway pension fund.

A spokeswoman for VB also explained three of the funds which should publish their z-score have yet to provide the figures.

VB officials have their doubts about the ability of the z-score test to assess the quality of investment management because should the pension fund board decide to changes its investment mix in the course of the year, the allocation will deviate from that of the benchmark portfolio.

As such, a fund will be greatly at risk of failing the z-score despite having pursued a prudent investment policy.

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