WARSAW, Poland -- Poland's nascent private pension funds are losing millions of dollars in fees because of computer problems at the government-run agency charged with transferring money from employers to the new funds.
The funds collect fees based on their assets, but only about 70% of the $1 billion collected by the Social Insurance Office, or ZUS, has been transferred to the mandatory private pension funds created this year as part of a sweeping reform package passed in 1998.
What's more, no one expects the computer system to be fully functional before mid to late 2000.
"This is a very serious problem. When we don't receive contributions we don't have any revenues," said Tom Orlik, vice president of finance and administration, Pioneer Pension Fund Co., Warsaw. "It is also serious because we are trying to establish trust with members. We are embarrassed. We represented the new system as a positive and there are all these problems."
Mr. Orlik estimates ZUS' faulty computer system has cost Pioneer $1 million in lost fees. Pioneer charges a 10% commission on member assets, and so far has received only 50% of the money it is expecting. Other funds charge commissions of between 6.5% and 9%.
ZUS officials declined to discuss the problem. "I can't comment on the problem," said Eva Borowczyk, director of integration and international affairs at ZUS. "There are problems with system that are reflected at ZUS."
But experts say the only problem is that ZUS installed a computer system a few days before the pension system went into effect March 1, and didn't keep the old one around for backup. In the new pension system, an amount equivalent to 36.58% of an employee's salary is transferred to ZUS with half of the amount being paid by the employer, and half by the worker. Of that, 11.2 percentage points go into the pay-as-you-go system, another 11.2 points go to the private fund and the remainder goes to the disability fund.
The new system was mandatory for those younger than 30, while those between 30 and 50 could decide whether they wanted to contribute to a new fund or keep all of their retirement savings in the pay-as-you-go system.
Even though ZUS is not managing all of the money, it is responsible for transferring the funds. The computer foul-up is not only affecting the private funds, but also the government-run system. Marek Gora, an economics professor who worked on the reform, said that when the public learned of the computer debacle, the compliance rate for channeling money into the pension system dropped to 93% from 99%, causing a $1 billion shortfall in the pay-as-you-go system. The government had to make up the difference in October.
There will be a gap next year as well, Mr. Gora said. "The computer system is still not ready yet."
The confusion at the government agency forced the head of ZUS, Stanislaw Alot, to resign under pressure in October. His replacement, Leslaw Gajek, resigned in November when he saw the extent of ZUS' problems, informed sources say. However, Polish Prime Minister Jerzy Buzek refused to accept Mr. Gajek's resignation and negotiations are continuing to persuade him to stay.
Experts say ZUS has promised to compensate fund members for any interest they will have lost because of to the computer foul-up. However, no mention has been made of compensating money managers for their losses.
"It is probably not going to be possible for us to get any type of compensation, but we are keeping detailed records so our members are compensated," said Mr. Orlik.
Compounding other issues
The chaos at ZUS is only compounding issues facing the majority of Poland's private pension funds, which soon are expected to begin a fight for survival. Three funds have attracted approximately 65% of the country's market. Experts say there is bound to be a shakeup in the market, which now has 21 funds.
"There are always market leaders, but I am really surprised at the scale of the domination of the top three funds," said Mr. Gora, who predicted consolidations will start early next year.
The reform ignited an advertising war, but in the end it seems as if the campaigns accomplished little. The pension funds run by large insurance agencies with established broker networks control the market. "Pension funds are basically an insurance product, and it requires a special skill to sell, and we have that skill," said Jerczy Stremlau, client services director, Nationale Nederlanden Polska Universal Pension Fund Society, Warsaw. The fund has 1.4 million clients, making it Poland's third largest. The largest fund is Commercial Union Powszechne Towarzystwo Emerytalne, Warsaw, with 2 million clients. Nationale has 30,000 brokers who sell pensions. Other funds counted on bank networks or financial expertise to draw in members, but those strategies were not successful.
For example, Pioneer hoped its status as part of an American mutual fund firm would draw in members, but that didn't happen. The fund hoped to attract 400,000 clients, Mr. Orlik said, but has captured only 130,000 members.