Why Electrolux aims to go 'blue'
For a surprising number of multinationals operating in Europe, the question of their worldwide pension fund arrangements is less one of streamlining an existing structure and deciding where pan-European pension plans might fit into the equation, than actually figuring out what pension plans the corporation has in place globally and what to do with them.
And when that multinational has some 81,000 staff located in 50 plus countries this is no mean feat – as Hans Eklund, director of benefits at Electrolux, the Swedish electrical appliances giant, well knows. He joined in the middle of 2002, having occupied a similar role with Swedish telecoms company, Ericsson.
His Stockholm-based, but internationally focused role was newly created within Electrolux, and as Eklund explains, his first year in the job has involved trying to put a more centralistic overview on the company’s benefits and pensions arrangements.
“During the 1980s and 1990s, Electrolux acquired a number of corporations around the world, and while the group has been divesting some of those acquisitions in recent years, there has never really been a focused view on employee benefits on a global scale.
“What I am now doing is putting together a policy that will describe in general terms the Electrolux ‘view’ on employee benefits and pensions.”
Part of this programme, he says, was to create an internal pensions board at the end of last year. The board consists at present of four members – one from HR, accounting, treasury and another of the company’s sector heads. “My role within this is to work as the co-ordinator – preparing meetings and arranging protocol and so on.
“One benefit of introducing this pensions board is that we now have a formalised reporting structure from the countries where we have a pension ‘fund’ in place. These now report on a monthly basis to our treasury department. However, the board is just up and running really and we are still deciding what can and should be delegated to me and what areas within the group need to be improved by the pensions board etc.”
The next step, says Eklund, is for Electrolux to conduct a ‘benefit audit’ in 14 of its core operating countries. “These are spread all over the world and make up the vast number of our employees, and there can be three or four factories in some of these countries. On top of these we have our three main countries, Sweden, UK and the US, where we already have a good level of knowledge.”
In the US, Electrolux runs two major DB plans with additional 401k schemes, while in the UK the company has a traditional definde benefit (DB) plan, on a two-thirds of final pay basis.
In Sweden, the group runs an ITP plan – DB in its nature but with the possibility for higher earners to opt out and move to a DC scheme. In Switzerland, the pension plan is the state second pillar equivalent. “When we’ve finished the survey that will make 17 countries where we have full knowledge of what is happening, and this represents some 75,000 of our 81,000 employees. That’s good coverage and it’s what we are focusing on initially.”
Electrolux appointed Mercer HR Consulting to help it with the review, with a further remit to produce an action plan as to how the firm might organise its pensions and benefits in the future.
Once the initial survey is finished, Eklund says Electrolux will then move on to the second stage: looking at the benefits arrangements for employees in the additional 40 plus countries where they have a presence, although, as Eklund points out, while important, these remaining markets only represent some 6,000 of the group’s employees.
“We will probably look at these countries in a local context, setting up meetings on the ground and talking to people. After that Mercer will feed this information into a global database.”
One of the main aims of such a programme, Eklund explains, is to ensure the company does not have individual pension commitments that it is unaware of, or that are not properly funded: “These could be executive promises and executive schemes and we need to find out what has been agreed and how this should be dealt with going forward.
“We are trying to centralise things without making things too bureaucratic, because there’s always the trade off that if you centralise things too much then nothing will happen.”
With this in mind, Eklund says another strand of the approach is to discuss benefits in countries where the structure may not be so clear and see where local operations can save money.
But he is clear that in terms of introducing any new pension provision the company will look at DC as the first option. “This will depend, of course, on local requirements, but we say that in general we would try to go for the DC option wherever possible.
Areas where Eklund believes cost savings may be possible include both group risk insurance pooling and fund management. “We could achieve savings by becoming a larger customer to insurance companies and investment banks.
“For example, we have four pooling networks for risk benefits that have operated to date on what I would call a convenience basis. Part of the investigation will look at how this could be rationalised to maybe two networks.
“The review will hopefully show us whether things are fine or whether we have to do something, which is good because the board of AB Electrolux has shown interest here – particularly on the question of pension funds.”
One reason for this interest, of course, is the pension plan underfunding that is causing concern for many corporations today.
Regarding this, Eklund says the group’s treasury is currently re-evaluating the investment principles for the group’s pension schemes: “I guess that within the next six months there might be a proposal to the board on investment policy. There are guidelines in place now but we are refining these. Then starts the big job of getting proper funding levels and looking at how should we invest for the future?”
Another area Electrolux is due to look at is whether the introduction of a global custodian might help in the rationalisation process.
“The accounting rules changes and the downturn in markets have raised the need for awareness about what can happen to corporations on the pensions side and what they have in different countries. We need to know who’s at risk with any pension funding and what we can do about it.”
And he explains that while the investment side of things is handled by the group treasury, the cross over nature with pensions and benefits means that increasingly accountancy and HR are working together along with other departments in the corporation.
“This is happening with IAS19 calculations for example, so that we have a strategy for next year when the Swedish accounting rules change and then the next year when the international standards change.
“Once that’s done then we can really start to do the work in co-ordinating policy on benefits, pensions and investments and start to look at different areas like harmonisation and making sure all our legal requirements are fully up to date.”
To this end, Eklund says he is developing a series of checklists in order that the firm can tick each box as it moves through its total benefits cover.
The fund, he says, could operatea sliding scale of benefits and pensions standards from blue (best practice) to red, green and then yellow. Under the guidelines, Eklund says, he would then be able to see why a particular arm of the company was not up to the blue standard and seek to remedy this.
After that, the benefits chief says he will then look at ways of bringing the group’s various companies and different sectors together in each country, before seeing whether a European strategy can also be pursued.
On the expat side of things, Eklund says Electrolux has around 200 mobile employees, which the firm tries to keep in the home country plan where possible: “I guess they cost more than 200 other employees and you do try to save money where you can, but it is complicated in what you can do. Essentially, we try to manage this in the best way possible and ensure that no benefits are lost.”
He believes that initiatives such as the Skandia case that the ECJ has ruled on and the IORP, international pension arrangement concept, will undoubtedly help on this issue in the long-term.
Summarising the real focus of his work though, Eklund flags up two major themes: “The important thing for us in terms of pensions and benefits is to know what we have and to communicate this properly so that we can behave as a big customer and buyer of services.