Deutsche Bahn considering pension trust
GERMANY - Deutsche Bahn, the operator of Germany's national railway, is considering creating an external fund - known as a contractual trust arrangement - to finance new managers' pension liabilities.
"We are exploring this as a possibility to finance the pensions of future management hires," said Wolfgang Bohner, director of financial strategy at Deutsche Bahn, confirming information received by IPE.
But Bohner said if it were created, the CTA would not finance the €1.48bn in pension liabilities currently on the company balance sheet. Those liabilities are funded via book reserves - the traditional method used by German firms.
News of a possible CTA at Deutsche Bahn comes a day after the Germany's governing coalition agreed to partially privatise the firm by 2009.
According to an agreement between the ruling Social Democrats and Conservatives, Deutsche Bahn will be privatised without its rail network, which will remain in the hands of the government.
CTAs have been created by numerous quoted German firms, including more than 20 on Germany's blue-chip Dax index, where Deutsche Bahn would likely find itself following an IPO.
A key reason for the proliferation of CTAs among the firms has been their adoption International Accounting Standards (IAS). IAS generally treats pension liabilities covered by book reserves as unfunded.
Rating agencies also have rewarded firms with externally-funded liabilities with better debt ratings. Deutsche Bahn currently has a double ‘A' rating from Moody's and Standard & Poor's.
Deutsche Bahn's €1.4bn in pension liabilities stem from only part of the 229,000 people it employs. Many are still civil servants and are therefore covered by a separate government plan.
Separately, German private bank BHF-Bank said it had opened its CTA to pension business outside of the bank. According to BHF-Bank, this means that small to midsize firms that still finance liabilities via book reserves could outsource those liabilities to its vehicle.
BHF-Bank said one key advantage of its CTA was its ability to insure pension payments above €7350. Moreover, by going with its CTA, the firms could avoid costs of "more than €100,000" related to another external solution for their liabilities, it said.
As reported by IPE last January, BHF-Bank launched its CTA to fund €165m in liabilities. Asset management for the vehicle is handled by Frankfurt Trust, a unit of the bank.