IMI rides the switchback
The Irish Management Institute is in the business of developing management skills and promoting the cause of good management in Ireland. But managing the pensions expectations of its staff has not been a trouble-free ride, Jim Byrne, financial controller of the IMI will admit, from both the defined benefit (DB) and defined contribution (DC) perspectives.
“About a decade ago we had a very generous DB scheme on a 30/45ths basis, with high levels of life cover and income discontinuance, but it was costing some 30% of payroll,” he says. In 1992, when the institute hit a rocky time financially and was faced with redundancies and significant staff losses, a new DC scheme was introduced for newcomers to the IMI. This had an employer contribution rate of 15% for pensions and another 8% for health benefits on top.
While the plan ran satisfactorily for a few years, a number of members were concerned that even with the IMI’s contribution and their own additional voluntary contribution top ups they would still end up with inadequate pensions at the retirement age of 60, says Byrne. “We argued and discussed the issue and then in September 1997, we gave the DC scheme members an option of surrendering their DC plan and obtain the DB scheme benefits.” Though the basic formula was on the same basis of two thirds final salary, state pension benefits entitlements were integrated, bonuses were no longer pensionable, and members had to pay a 6% contribution rate. “Most, but not all of the members made the switch back under the once and for all offer,” says Byrne.
In the main, it was the younger staff members who stayed on the DC basis as they reckoned they would obtain more from this scheme when they left the IMI, as they were likely to do at some point, than they would from the actuarial calculation of benefits on leaving the DB plan. “Since then we have had no problems on the DC side,” he adds. “Members are generally between the ages of 22 and 30. They have a choice of low, medium and high-risk portfolios and all have opted for the high risk, which is practically all equity.” Around 25% of the staff are in the DC plan.
Byrne took a pretty robust stance on the investment management of the DB scheme. Taking a very long-term view, he insisted that all the investments be placed in international equities. This was a brave step to take then, he now admits, but it was one that paid off brilliantly. “We have had superb returns over the last few years, which has meant a contribution holiday and a return to the IMI of some Ir£3m of surplus.” He adds: “This has resulted in everyone in the DB scheme being funded fully to their retirement date, so we have no ongoing liabilities on an annual basis. Because we got our timing right on the investment side, we now have a happy staff, who feel sure about their benefits.” Since then the DB plan has pulled back from its almost all equity strategy to a 60% equity and 40% fixed income split, he says.
The IMI scheme has 95 members, with round Ir£30m in the DB fund and Ir£4m in the DC plan. The managers are KBC Asset Management and the advisers are Mercer.