Iceland’s Ministry of Finance and Economic Affairs has signed an agreement with 11 nursing homes and two pension funds, transferring certain pension liabilities for the nursing homes’ employees to the state.
The two funds are Lifeyrissjodur starfsmanna rikisins (LSR) – the pension fund for state employees – and Lifeyrissjodur hjukrunarfraedinga (LH) – the pension fund for nurses.
The nursing homes’ employees belong to one or the other of these schemes.
The liabilities include contribution increases to pensions that have been accrued in the past year but left unpaid.
The agreement was made because some of the non-profit organisations that run the nursing homes had run into financial problems.
A ministry spokeswoman said: “In general terms, those financial difficulties could be related to the financial crisis six years ago and its effect on Iceland’s economy.
“Taking over the liabilities of the nursing homes ensures they are able to continue to provide service to their clients.”
The liabilities relate to members of Division B of LSR, and of LH as a whole (LSR also runs a fully funded scheme, Division A, and an individual scheme, Division S).
Both Division B and LH are defined benefit schemes and constitute a mixed system partly based on funding from accumulated contributions, and partly from supplemental contributions from public sources.
The rights of fund members in these arrangements are based on their working life and the relative proportion of full-time work.
Both these arrangements were closed to new members at the end of 1996.
The liabilities transferred to the government amount to nearly ISK6bn (€40m).
About half this amount has already been recognised as a liability on the government’s balance sheet, as the state already guarantees the pension fund liabilities in Division B of LSR, and in LH.
As at 31 December 2013, the combined net assets for all LSR divisions came to ISK485bn, and for LH, ISK26bn.
While the government has agreed to assume responsibility for existing liabilities, the nursing homes as employers have committed to paying their share of the liabilities, as well as paying extra pension contributions on behalf of staff members working at the homes affected, to avoid the accumulation of new debt.