Bridging the Atlantic
Gail Moss reports on a transatlantic collaboration project between four pension associations to form a joint response on accounting standards proposals
Four pension associations in Europe and the US have issued a joint response to the International Accounting Standards Board (IASB) exposure draft proposing changes to pension accounting rules in IAS19, which affect the assessment of pension liabilities.
While there is no agreement that further collaborations will take place, this joint approach could well herald more co-operation between associations globally in responding to efforts by standard-setters to harmonise rules.
Last September, the European Association of Paritarian Institutions of Social Protection (AEIP) and the European Federation for Retirement Provision (EFRP), together with their North American counterparts, the US National Co-ordinating Committee for Multiemployer Plans (NCCMP) and the American Benefits Council (ABC), wrote a joint letter to IASB chairman David Tweedie summarising the main objections to the proposed amendments to IAS19.
In addition to this, the AEIP and the two US organisations submitted a more detailed joint common position.
The EFRP also sent a more elaborate response illustrating the diversity of opinion (and circumstance) across the EU, for which a lot of work had already been done before the IASB exposure draft was effectively put out to consultation.
The pension associations have levelled two main criticisms at the proposed changes.
First, they do not agree with the immediate recognition of all changes in the present value of the defined benefit (DB) obligation, and in the fair value of the plan assets when they occur. They contend that this is incompatible with the long-term nature of pension obligations, unnecessary in achieving transparency, and in conflict with social policy objectives.
Secondly, the groups assert that the proposal requiring multi-employer plans to disclose additional information needs to restrict that information to what is reasonably obtainable and unlikely to mislead the reader.
The joint submission comes after several years of informal co-operation between the pension groups.
AEIP representatives first met their NCCMP counterparts through the International Labour Management Alliance (ILMA) in 2007. At AEIP’s conference in Dublin a protocol of co-operation was signed by the AEIP and ILMA.
After the conference, the NCCMP was then invited to join the AEIP General Assembly. On that occasion, both organisations realised they had shared objectives as associations.
Since then, they have communicated regularly, and in 2009 signed a tripartite protocol, alongside the Multi-Employer Benefit Plan Council of Canada, committing to the exchange of viewpoints and experiences. They also organise an annual conference.
Independently, AEIP and EFRP representatives met their ABC counterparts for the first time at a Lisbon conference held by the IBIS Academy in May this year. It was agreed that the three organisations would work together to develop a common position on the IASB exposure draft.
Meanwhile, the NCCMP and ABC had already co-operated in responding to other issues in North America.
“Accounting changes introduced in 2002 have forced many DB plans to close,” says Randy DeFrehn, executive director, NCCMP. “By accelerating the funding and disclosure requirements, many plan sponsors simply abandoned their defined benefit plans.”
“Clearly, the groups respect the independence of accounting standards boards, and they value the transparency and disclosure of pension financial data,” says Ken Porter, actuarial and international benefits consultant, ABC. “However, the groups did find common ground in their concern that the standards be promulgated in a way that would simultaneously support the long-term nature of pension programmes, while also providing useful and easily obtainable information for investors.”
The recent letters to the IASB were drafted very quickly, between June and the beginning of September - effectively two months, given that a month was lost because of holidays. Separate sections of the letters were allocated to each of the individual organisations to write, and were redrafted via e-mail and conference calls, some including IASB staff members.
All discussions were in English, which the Europeans generally speak fluently.
“In any case, technical jargon is universal,” says Francesco Briganti, director, AEIP. “We all read the same documents in our working lives, so even people who don’t speak English very often are familiar with the expressions.”
The EFRP had already started preparing its own submission, so while it participated in the letter summarising the organisations’ common positions on specific points, it had no input in the second, more detailed, letter.
Effective liaison between the four organisations was obviously an important part of the drafting process, so from the start, the emphasis was on pragmatism rather than adhering to any hierarchical etiquette.
“The best people to represent us with the American organisations are those who can collect the best information, so the most appropriate people were the Finns,” says Briganti. “Of the 27 members in 22 countries whom we represent, it is the Finnish who have generally had most contact with the US. They have a pension system which is very investment-based, and were going to US events even before joining the AEIP.”
It was quite easy to arrive at a common position on the main points of the IASB draft, particularly since the intent of the parties was to concentrate on the core arguments of shared concern rather than tiny details.
But will taking a common position make their opposition to some of the IAS19 changes more effective than doing so individually?
“We know that global decisions on the rest of the financial sector are taken at G20 level, so that’s the only way to respond,” says Briganti. “We would not succeed at either European or US level - acting together is the only chance for this to work.”
“The governments of individual countries have ceded regulatory responsibility for accounting to the accounting boards,” says Porter. “For the first time, we are seeing a significant proportion of regulation carried out, not at national or regional level, but on a global scale.”
And he underlines the potential conflict between the vested interests involved.
“All the parties to this letter are concerned with preserving retirement income, whereas the stated objective of the accounting profession is to provide information, primarily to protect the interests of investors,” he says.
There could be other benefits too from this joint endeavour. The AEIP is currently applying to join the International Labour Organisation (ILO) as an advisory member. It had wanted to do this for some time but one of the requirements is that members have to be international, and not just continental, organisations. Forging association with its North American counterparts - albeit on a one-off basis - is one way of establishing its international credentials.
The next goal in this informal working relationship has been to achieve a common position between the AEIP and the NCCMP on the European Commission’s Green Paper on pension policy.
Georg Fischer, head of the pensions unit in the European Commission, had already suggested earlier this year that it would be good for the Americans and Europeans to respond together on certain of the proposals.
Looking to the future, Porter says there could also be cross-fertilisation between Europe and the US on other issues related to employee benefits and involving cross-border regulation.
However, Chris Verhaegen, secretary general, EFRP, says that international co-operation between associations is not really a new development. For example, the EFRP also has a long-standing working relationship with the International Federation of Pension Administrators (FIAP) in Chile.
“But we are very open to every form of international co-operation and try to pick up opportunities as they arise, as is the case with the IAS19 issue,” says Verhaegen.
She does not, however, see the joint response to the exposure draft as a milestone towards further common lobbying action.
“Although we have worked together with other pension associations on this specific IAS19 consultation, at this point in time, we are not actively pursuing transatlantic or international co-operation, since the respective agendas are not really the same,” she says. “We have a challenging European level legislative agenda following the financial crisis, and we also have to be prepared for an overall review of the IORP Directive.”
She says that alongside this industry-specific agenda, the EU-level economic governance process has also started, while pensions have to be dealt with as a relevant item in budget and debt debates. Agenda 2020 is also putting pensions on the “high priority” list for policy action.
“And, unlike in the banking or insurance industries, there is no competition between EU-based IORPs and those across the Atlantic,” Verhaegen says. “If that were the case, there could be an issue about whether the regulatory frameworks should be equivalent to each other. To date, we are not aware of EU pension funds that would like to become providers to US-based plan sponsors for their US pension schemes.”
By contrast, she says, it is quite a different story as regards the financial instruments that pension funds invest in.
“In that area, there is a need to co-ordinate legislative initiatives between the US - and Canada - and the EU, to ensure there is equivalent access and protection to investors from both sides of the Atlantic,” she says. “So the EFRP is closely monitoring the legislative initiatives on financial instruments, ie, the AIFM Directive but we don’t consider it to be part of our ‘core business’ to work on transatlantic relations in this particular area.”