IAS19 could cause Dutch pensions 'breakdown' say employers
The introduction of new IAS19 accountancy rules could play havoc with Dutch companies and may even lead to a total breakdown of the Dutch pensions system as it is today, according to Jacques Schraven, chairman of the Confederation of Netherlands Industry and Employers (known as VNO-NCW).
The strict interpretation of IAS19, which has to be implemented from January 1, 2005, relates to the specific role of company pension funds and pension contribution liabilities and could result in severe negative repercussions for the operating results of the companies involved.
Pension liabilities mentioned in the year-end accounts could exceed real remittances to the pension funds by several hundred percent.
As most accountants are currently wary of legal claims, post Enron et al, it is expected that the rules will be implemented to the letter. This could directly lead to unrealistic and high pension fund liabilities within companies, according to Schraven.
An article in the VNO-magazine Forum, warns that this could mean the end of the Dutch pension system as a whole. Schraven argues that there will be a growing trend under Dutch companies to force a total breakdown in the existing system as companies try to assure they do not have large financial risks caused by their pension liabilities in future.
Gerard Heeres, chairman of the ad-hoc Pension and Reporting Commission of VNO-NCW, adds: “the increased pension liabilities will have negative effects on the assets of a company. This will directly influence the credit position of companies at banks.”
According to Martin Noordzij, senior advisor economic affairs of VNO-NCW, the new IAS19 rules will force companies to account for their pension liabilities as if they were on a defined contribution basis.
However, more than 90% of all pension agreements in the Netherlands are defined benefit plans, but still IAS19 addresses it as defined contribution.
Noordzij, however, has a solution, which is a purely Dutch quandry. In a paragraph of IAS19 it is mentioned that there are rules for pension fund liabilities. One of these rules states that it should be a set amount of yearly contributions, which than can be transferred to the operating results. In the view of VNO-NCW you should interpret ‘set contribution or liability’ as an agreed upon contribution, which is related to the total number of employees and total salary costs, including inflation correction, etc.
Dutch Junior Minister of Social Affairs, Mark Rutte, has already said that he will support Dutch companies in addressing these issues. Rutte will present his views in the coming weeks.