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Two tier governance for Dutch pensions – Mercer

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  • Two tier governance for Dutch pensions – Mercer

NETHERLANDS - Dutch pension legislation should favour a two-tier model of pension governance including a supervisory council (raad van toezicht), writes Jan-Daan Recourt, pension lawyer at Mercer in Amsterdam, for our Dutch sister publication IPN.

Recourt's comments follow the announcement of the Dutch minister for social affairs, Piet-Hein Donner, last May, when he recommended a reform of the current "plethora" of participation and management bodies for Dutch pension funds.

Donner's goal, outlined at the time, was to "minimise the administrative burden and the overlap of functions and responsibilities, and the related duplication of bodies, and to guarantee effective internal supervision".

"In this alternative structure, the current four bodies - the board of trustees, the accountability body, the participant council and internal supervision agency (often in the form of a visitation committee) - will be replaced by two," wrote Recourt. These would be a professional board of trustees of at least two qualified and independent members who are independent of the sponsoring company, and a supervisory council consisting of representatives of employer, past and present participants and pensioners.

"The board of trustees has an executive function in this alternative management structure and would not concern itself with the content of the pension agreement," wrote Recourt, adding that this is in alignment both with the intention of the Dutch Pension Act and the structure adopted by most pension funds.

"The content of the pension agreement will be decided by social partners in the collective labour agreement, which will lead to considerable reduction in the procedures and processes within the pension fund and will clarify the task of the pension fund," Recourt continued.

According to Mercer, the supervision council has more or less the same responsibilities as the current accountability body and participants council, and in addition has the authority to appoint and dismiss the board of trustees or individual trustees.

"The level of knowledge that is required in practice of the participants' council is, in my opinion, also sufficient for the supervisory council as a body," added Recourt. "The professional board of trustees must, after all, seek advice from and be accountable to the supervision council, and must offer extensive explanation and documentation in support of this. It is obvious, furthermore, that the council has the right to consult experts."

Recourt added that the new board of trustees, though reduced in size, would at all times be completely independent and professional. The supervisory council in this set-up would absorb the advisory responsibilities of the participants' council as well as the tasks of the accountability council.

This would allow the abolition of participants' and accountability bodies, along with a reduction in trustees. The internal supervision function would also rest with the supervisory council: "Separate internal supervision is no longer necessary since the management consists of independent experts," Recourt wrote.

He also added that this model is also well suited to the multi-OPF concept that will allow company pension funds to merge.

 

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