Sponsor threatens pensions withdrawal at LDI pioneer
NETHERLANDS - Super de Boer, the employer sponsor behind the Super de Boer pension fund, will withdraw its support from the scheme from 1 January 2010 under the current terms, unless all parties involved can agree a funding recovery plan that the employer is happy with.
A statement issued by the pension fund this morning confirmed a short-term recovery plan was submitted to De Nederlandsche Bank (DNB) by 1 April as required, after the pension fund saw its cover ratio drop from 100% at the end of December 2008 to 86% now.
In order to submit the plan, the pension fund put forward a series of proposals which would raise its funding status to 105% of liabilities within five years.
However, the supermarket chain parent has told the pension fund it will not back the plan and will therefore cancel the existing arrangements with employees and put in place new agreements with employees unless a deal can be reached.
Dick Kamp, director of the Super de Boer pension fund, said he was unable to reveal the contents of the recovery plans as the pension fund is still talking to SdB to trying and resolve the dispute, but stressed officials are doing all they can to ensure the fund's independent role is maintained and achieve a "careful and balanced assessment of the interests of all parties involved in the pension fund".
While there is still a "difference of opinion" over the measures so far proposed to plug the scheme's funding gap, all participants of the SdB pension fund will be contacted over the coming week.
"The sponsor has withdrawn from the contract, but we are still talking. And just to make sure that we do not create too much unrest between employer and employees we will do whatever we have to do to solve the pension problem," said Kamp.
The €400m SdB fund was effectively the pioneer of liability-driven investments (LDI) in pensions when it introduced the concept in 2005.
That said, this strategy was also its downfall in 2008 as interest rates fell further than fixed income investments could compensate for, and investments in the scheme's returns portfolio took a negative turn, according to Kamp.
"What happened last year means any LDI strategy would have failed. If you have an LDI mandate, you have an interest rate risk gap, so within that gap we are still prone to whatever happens," he said.
"Normally the portfolio would meet its requirements. When interest rates go down, you need a positive performance in all portfolios, but there was a big minus. The fixed income matching portfolios have not performed well because of the credit spread against government bonds and income structures. And what we have seen within the returns portfolio is the equities we invested in have dropped [in value] considerably," continued Kamp.
Despite the impact of recent market turbulence on the scheme's funding, officials are looking to avoid any portfolio rebalancing, even though its asset allocation - through market movements - is now approximately 70% fixed income along with 20% equity with 10% alternatives in the returns portfolio.
This compares with a target matching allocation of 60%, through which 70% of liabilities are matched with swaps and cash, while the targeted allocation for the returns portfolio is 40%, of which 30% is equities and 10% is in alternatives.
Administration of the SdB fund is currently outsourced to TKP, to serve 5,000 active members, 15,000 deferred members and 1,600 pensioners.
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