Pension experts think that the new Dutch pension governance legislation is complicated. But on balance they agree that it will significantly improve the representation of all stakeholders, according to Leen Preesman

After several years of consultation, the Dutch Parliament finally approved the government’s pension fund governance proposals in summer 2013 to secure better participants’ rights, improved internal supervision and board expertise, as well as streamlining of tasks and bodies. Funds have a year to comply with the legislation.

In the new PFG Act pensioners are to be represented on the board of all pension funds and a pension fund can opt for one of five board models. Furthermore, the current participants council and accountability body will merge into one body – the ‘accountability council’ (VO).

A ‘standard board’ consists of representatives of employer and workers in a 50-50 representation, including pensioners making up no more than a quarter.

A permanent supervisory board (RvT) – mandatory for industry-wide pension funds – will not only supervise but also assist the scheme’s board. It is to report to both the stakeholders and the supervisor (DNB) if the board does not function properly. Company pension funds can also have their internal supervision conducted by a visitation committee for the time being, but must establish a RvT within three years.

The RvT will have the right to appoint and fire board members.

The new accountability council has a right of advice as well as a limited right of appeal for decisions with a bearing on a pension fund’s continued existence such as a decision to wind up the scheme and changes in legal structure, mergers or divisions. It has a similar competence with regard to concluding, changing or terminating a contract for pension provision.

Both the supervisory board and the VO have the right to instigate an inquiry at a corporate court. Employers can be represented on a VO, as well as non-union representatives of workers. A total of 500 participants, or 1% of a pension fund’s population, can trigger elections.

In addition to the standard model pension funds can opt for three varieties of a one-tier board, with the members of the supervisory board of the visitation committee becoming the supervisory element of the board.

The third one-tier option is an ‘upside down’ mixed model in which external professional board members act as executives, while representatives of stakeholders operate as non-executive, supervisory board members.

As a further option pension funds can opt for a board of independent experts. In this case, as well as in the mixed model, the accountability task is to be carried out by a new stakeholder body (BO) with extended rights of approval. The stakeholders body’s composition is similar to an equally represented board.  

The new PFG Act supersedes the previously adopted initiative legislation Koşer Kaja Blok (KKB), which had come into force as of 1 July. The initiative allowed for proportional non-capped representation of pensioners on pension funds’ boards.

“The law is very difficult to read,” says René Maatman, partner at law firm De Brauw Blackstone Westbroek and leader of its pension advice practice. “It is impossible to explain to someone in an elevator.”

In his opinion a single one-tier board model would have sufficed, next to the alternatives of equal representation and an independent board. “The one-tier option allows the social partners to be on the board, without being in executive roles,” he noted.

“The government has made things complicated by leaving the choice for all five board models to the pension funds,” adds Eric Bergamin, a pensions lawyer. Nevertheless he indicates that he is very pleased with the one-tier options, “as they offer a clear structure and are simple to set up”.

In Bergamin’s opinion the developments leading to the PFG Act were far from perfect. “Two extensive rounds of consultations, three terms of discussions in Parliament and dozens of amendments don’t bode well for the future,” he said. “The state secretary doesn’t seem to master the issues very well.”

However Bergamin also makes clear that the multitude of options also enable tailor-made governance – and on balance, the new legislation secures improved representation for all stakeholders. “The PFG Act offers much better governance than the KKB legislation initiative, which merely focuses on the representation of pensioners.”

David van As, director of the €37bn pension fund for the building sector (BpfBOUW) confirms that the new PFG Act improved the balance on a pension fund’s board. However, he predicted that the selection of adequately educated pensioners for board positions would pose quite a challenge. “In order to meet the scheme’s requirements, the board should be allowed to screen the candidates list,” he says. “The final assessment could be done by the supervisor, DNB.”

Van As welcomes the late addition to the legislation that the employers can also take up a seat in the VO. “It is very good to involve them. Employers often look at things from a different perspective. And after all, they pay two thirds of the contributions and are an important link in the communication to the active participants.”

He warns against too detailed rules for VO elections. “If we were to invite all our 400,000 deferred members to vote by letter, it would cost us hundreds of thousands of euros.
Therefore the design of the election process should be left with the board.”

The director of BOUW, who also describes the five board models as “complicated”, says his pension fund has already opted for the ‘equal representation plus’ model. “Our new board is to consist of six participants’ representatives including pensioners, six employers’ members and two external experts on asset management and risk management,” he says.
Van As further indicates that BOUW was happy to continue with its RvT, “as we have good experience with this kind of internal supervision”. However, he stresses that RvT should first have ample consultations with a board before reporting any board dysfunction to the DNB.

Sander Baars, partner at pensions adviser Montae and leader of its governance team, makes clear that mandatory reporting to DNB might have an adverse effect. “As the RvT has also been tasked with advising and assisting the board this could raise the threshold for notifying the supervisor,” he suggests.

Baars notes that many pension funds have already improved their current governance model by, for example, decreasing the number of members, establishing their own trustee support bureau and hiring external experts. He stresses that the new PFG Act allows for a tailor-made approach. “Pension funds can also opt for an independent chairman, set a competence level for trustees and decide on the minimum amount of time trustees must devote to their role.  

“In order to pick the right board model, pension funds should first formulate their principles and mission and then determine how governance can contribute to their objectives,” says Baars. Maatman underlines the importance of principles as well as of clear objectives.
“They will guide a board to the right destination and offer a benchmark for the external supervisors.” Moreover this approach supports a balanced weighing of various interests when it comes to distributing pains, rather than gains, he suggested.

In Maatman’s opinion, the stakeholders’ body of a pension fund governed by an independent board has a quasi-governing role. “This could undermine the competence of the supervisory board,” he explained. “You can’t have three captains on a ship.” According to Maatman, the PFG Bill could have been simplified by introducing a stakeholder body, albeit with non-governing competence, for all board models.