BRUSSELS, Belgium - Officials of Belgacom, the state telecommunications company, hope to fund their 100 billion Belgian franc ($3.13 billion) pension debt in the next eight years.
The Belgian government agreed late last month to permit Belgacom to create the pension plan to clear the way for a partial privatization of the telephone company later this year. Creation of the plan will set a precedent as the first public-sector pension plan in Belgium.
The asset allocation study will be commissioned shortly for the plan, which is only 20% funded, with a total of 125 billion francs in pension obligations. An asset mix approximating the 50-50 split between stocks and bonds typical of private-sector Belgian pension funds is likely, said Wilfried de Pauw, a consultant to Belgacom and former head of its finance department.
But the politically connected Belgian insurance industry is lobbying heavily to require part of the assets to be invested in insurance vehicles.
"It's important for public and semipublic companies (to be invested in insurance vehicles) because then there's a contract," said a money manager at a Belgian bank. Otherwise, assets could be vulnerable to government interference if they are invested with discretionary management, he said.
Initially, probably about 40% of the assets will be invested in Belgian bonds and managed internally, while up to 10% will be invested in real estate, said Philip Neyt, a consultant to the company. The company proposes splitting the balance between insurance companies and banks. Contracts would be open to non-Belgian firms as well, as required by European Union rules, Mr. Neyt said.
Legislation is expected to impose certain investment constraints, including requirements for investing in Belgium and limits on asset classes. The asset mix will have to be based on those limitations.
The government is seeking to find a strategic partner to take up to a 49% stake in the company. An announcement is expected later this year, but any stock-market sale likely won't occur until 1996, said a Belgacom official.
The Belgacom pension plan will shift workers from pay-as-you-go status to an advance-funded plan. Belgacom has been responsible since 1930 for the pension liabilities, so the agreement should have a minimal impact on the company's privatization. The pension liabilities now amount to 125 billion Belgian francs on a projected obligation basis and 80 billion francs on an accumulated benefit obligation basis. Belgacom has received actuarial advice from Sedgwick Noble Lowndes' Brussels office.
Mr. de Pauw said company officials want to fully fund the company's past-service liabilities by 2002 at the latest. Now, about 26 billion francs have been set aside in reserve to cover pension obligations. Those assets are invested entirely in short-term government debt and managed by the Ministry of Finance.
Belgacom has assumed the entire past-service liability for post-1986 pension accruals, as required by Belgian law. Funding the nearly 100 billion franc unfunded liability will require an annual cash flow of 10 billion to 11 billion francs, on top of annual benefit payments of 7 billion francs, said Mr. Neyt. Those projections are based on a 7% interest rate assumption.
Some experts believe such an aggressive funding rate may be overly optimistic, given the expected cash drains on the company. State monopolies over basic telecommunications services in the European Union expire by 1998, opening a new era of competition. Belgacom is a relatively small player in the EU, and will have to overhaul its technology and trim costs to be competitive.
Belgacom and the government had to get the pension issue out of the way in order to proceed with the privatization. At 100 billion francs, the unfunded liability is nearly the size of the company's total sales last year, and more than half of estimates of the company's total capitalization of 160 billion to 180 billion francs.
In 1992, Belgacom paid retirement benefits the equivalent of 26% of total payroll, up from 16% in 1982. Without advance funding, that figure could jump to 55% by 2010, according to sources.
While Belgacom officials wanted to set up their own pension fund, government officials wanted to a create a single pension fund for all state-owned enterprises. But the three other state-owned companies - the Belgian railway, post office and airports authority - said they would not be able to make contributions to a common pension fund, and the proposal was rejected by the Belgian cabinet.
Belgacom officials started setting aside reserves in 1991, amounting to 26 billion francs now. In September 1993, Belgacom's board voted to create a pension plan, but the proposal was vetoed by the government. The issue went to Belgium's high court, which ruled earlier this year that Belgacom must set aside pension reserves but couldn't create a plan without government consent.
Finally, a proposal to create a new plan was endorsed by the cabinet last month.
The Belgacom plan won't be the only public-sector pension plan for long, however. The Flemish government, one of three regional governments in Belgium, is developing a pension plan, which may be adopted in coming weeks. And Mr. de Pauw thinks the provincial government in Antwerp likely will follow suit.