LUXEMBOURG -- Multinational companies are looking to Luxembourg to help solve the headache of providing funded pension plans for their expatriate employees. Luxembourg lawmakers have approved the use of two investment vehicles designed for mobile employees and last month the Unilever group was the first company to launch one of these schemes.
Unilever's Luxembourg-based defined contribution plan is designed for staff who move around the company's international operations and do not have an appropriate home-country pension plan, said Loek Helderman, senior corporate pensions manager at Unilever in London.
At this stage the scheme is relatively small and is unlikely to have more than about 25 members within its first year. Luxembourg regulations require it to have accumulated assets worth E5 million ($4.8 million) within its first 10 years.
Philippe Leonard, director for insurance and pension fund consulting at PricewaterhouseCoopers in Luxembourg, said he was working with other multinational firms he wouldn't identify to set up similar schemes, and had received some interest from firms in the Netherlands, Germany and France.
IBM Corp. has expressed an interest in the concept, said Ikram Shakir, managing director of Barnett Waddingham SA, consulting actuaries in Luxembourg. IBM officials did not return calls by press time.
The Unilever scheme was set up as an Association d'Epargne Pension, or ASSEP. This structure allows the plan to offer beneficiaries either lump sums or annuities at retirement.
Unilever decided to set up the scheme after a survey of expatriate staff showed their needs had changed in the past few years. In the past, most expatriate employees would return to their home countries to retire, receiving a pension from that fund. Nowadays many of the company's expatriates do not have a home country in which they wish to settle for the long term, said Mr. Helderman.
He would not name the two money managers that have been appointed to handle the assets of the fund or the custodian.
A company setting up an ASSEP has to appoint a local Luxembourg bank as a custodian, and the plan assets have to be held directly by the plan, said David Pettitt, senior manager of the International Pensions Practice at PwC, London.
The Luxembourg location of the scheme offers plan sponsors a minor tax advantage, he added. Investment returns in an ASSEP are potentially taxable, but the scheme is arranged so that any tax payable is set off against the liabilities of the plan. Luxembourg's multiple tax treaties also enable plan administrators to reclaim withholding tax payable in other countries.
PricewaterhouseCoopers assisted Unilever in setting up the ASSEP and plans to launch a road show this summer to introduce it to American companies.
Many U.S. plan sponsors provide pension plans for international expatriate staff, but in many cases these schemes are not funded because there are no tax advantages to doing so, said Barry Blecher, a principal for PwC in New York.
Vesting requirements also can be problematic for employees who move among countries. If a vesting period is two years and an employee moves three times in six years, he can end up with nothing to show in terms of pension benefits, he said.
Multinational companies are likely to come under increasing pressure from staff to fund these pension arrangements and give more stability to their international employees, he added.
Luxembourg also offers a Societe d'Epargne Pension Capital Variable, or SEPCAV, as an alternative to an ASSEP. Under a SEPCAV plan, members are shareholders and can take the benefit only as a lump sum.
Barnett Waddingham's Mr. Shakir has applied to set up a unitized multiemployer SEPCAV that would allow small and midsized employers to "rent" a Luxembourg-based plan. Launching an ASSEP or a SEPCAV can be very expensive for small companies, he said.
There has been considerable interest from companies based in the Middle East and Dubai, in particular, for a multiemployer SEPCAV, he said.
