PME backtracks on plan to cut benefits
NETHERLANDS - PME, the €18.7bn industry-wide pension fund for metal workers, has decided it will not cut pensioner benefits as part of its proposals to improve the underfunded pension plan but it will freeze benefits paid and the contributions required for the next five years.
A statement issued by the fund today said the maximum pension contribution to be paid over the five-year recovery term will rise from 22% to 23% per annum, however, benefit increments will be halted elsewhere in a bid to share the burden of the recovery plan equally between employers, employees and those who have already retired.
An earlier comment from officials at the firm had suggested it was willing to cut pensioner benefits in payment if necessary, as the fund had a cover ratio of 90% by the end of 2008 - under the regulatory minimum funding level of 105% - and liabilities of €20.6bn. (See earlier IPE article: PME mulls pensions cut in 2010)
Officials said this strategy should pull the scheme's funding level back up to the "required minimum" within five years, and it is then possible the pensions payments will rise again and indexation will be restored as the cover ratio increases.
More specifically, PME anticipates the fund will be 114%-funded by 1 January 2020 if contributions remain at the maximum level for that entire period and the funding level must increase eventually to match the new target funding.
It expects to achieve this by setting an asset allocation strategy of 57% in fixed income, 20% in equities, 9% in real estate and 14% in alternative investments.
The pension fund's board is hoping it can avoid the draconian measure of cutting benefits and has agreed to give the recovery plan until at least 2012 to prove its effectiveness.
All members of the fund will now receive a letter before 30 June 2009, when the changes take effect, and a series of meetings are being organised across the Netherlands for the second half for the year.
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