For Belgacom governance is key
Belgacom, the largest pension fund in Belgium, is structured as a DB fund for 31,621 employees, it promises its members 75% of final salary with benefits linked to inflation.
The benefits covered under the scheme include social security pensions, a special early retirement programme (PTS), disability pension, and, from the beginning of October this year, a survival pension for active statutory staff.
By the end of 2001, the scheme was 71% funded, compared to 22% in 1995, when it was a PAYG plan, which Belgacom puts down to an accelerated funding plan as well as favourable investment returns. Funding is based on dynamic financing methods and not on a static basis. If you were to take Belgacom’s funded status on a static basis at the end 2001 it would amount to 156%.
Belgacom conducts regular dynamic asset liability modelling studies, which are updated every two years, combined with a continuous integration of risks on a corporate level (value at risk, downside risk).
The pension fund decision making process, which has been structured as a separate legal entity to BGC, has been structured along three kinds of fiduciary roles: the governing role; the managing role; and the operating role.
The governing role incorporates four board members representing the shareholders (the Belgian government and Belgian, US, Singapore and Danish telcos); three members representing the executive committee of Belgacom; and three representing the unions. Their collective responsibilities include establishing goals and policies, understanding the aims of all stakeholders, as well as making decisions on strategic and global tactical asset allocation.
The managing role incorporates a director general and executive committee. The director general is not a director of the board and has no voting rights but has responsibility for the implementation of policies and execution of board decisions, co-ordination of day-to-day management and organisational effectiveness, managing the managers and optimising allocation of risk budget, as well as coaching the staff.
The executive committee comprises a chairman, two board directors as well as the director general. It is collectively responsible for the preparation and proposal of strategic and tactical asset allocation and manager structure. It also facilitates any discussions/input/education to the directors.
The operating role is handled by the staff – a team of 10 people. Their responsibilities span the monitoring of managers’ performances, processes, styles, risk/return profiles, and costs; asset liability modelling and actuarial valuations; co-ordinating finance of benefits at a group level; managing the annual accounts, administration of pension payments and corporate housekeeping; and compliance and risk monitoring.
Belgacom believes in the clear separation of duties. The responsibilities between plan sponsor and pension fund are clearly described in a separate management agreement. It also believes in delegation of responsibilities, regarding authorised signatures and day-to-day management issues.
All documents, be they minutes, presentations, or actuarial reports are prepared in French, Dutch and English, and are sent to the members two weeks prior to their meeting conforming to the fund’s internal policy.
The fund benefits from an independent external auditor, separate from the plan sponsor’s own auditor, and at least two internal audit assignments annually.
The pension fund board is assisted by an external ‘investment committee’ on investment issues.
The fund separates the management of assets from the custody arrangements, using different providers through a separate global custody arrangement. Belgacom sticks rigidly to this system, so that not even the parents or affiliated companies of any of their investment managers can ever act as global custodian or subcustodian.The fund also conducts a socially responsible investment policy (SRI), with a memorandum on ‘best SRI practices’ sent to all managers requiring positive engagement and annual reporting on how it is implemented.
A ‘code of conduct’ is to be signed by all staff members at Belgacom and will be implemented before the end of 2002. A ‘compliance manual’ has been drafted with all internal policies and processes including operating memorandum towards investment managers and custodians. The scheme has also set up an information helpdesk, with a ‘green number’ for all personnel with any questions related to pensions and pre-retirement.