HEERLEN, Netherlands - Stichting Pensioenfonds ABP, the Netherlands' biggest pension scheme, is talking with government and trade unions about the possibility of boosting contributions and cutting benefits.
The actions may be necessary because the plan's funding ratio fell below the strict new minimum enforced by the Dutch regulator Pensioen & Verzekeringskamer (PVK), Apeldoorn. It was announced in the quarterly report in January.
ABP officials said the fund's assets in 2002 fell to e135 billion ($144 billion) from e 147 billion. The funding ratio declined to 103% from 122%.
The revelation added fuel to the debate over the PVK's new rules, which have been under assault from the Dutch pension industry since they were introduced in October. The rules require pension schemes to maintain funding ratios of more than 105%, plus an additional buffer based on the composition of the investment portfolio. Schemes that fall below the minimum levels must submit reports to the PVK within three months that show how the plan will return to fully funded status in a maximum of one year.
Harmful to economy
The Dutch Pension Funds Association, The Hague, in December published research suggesting the rules not only did little to provide additional capital adequacy protection but were harmful to the Dutch economy and harmful to scheme members by encouraging companies to close occupational plans.
The association commissioned Guus Boender, chairman of actuarial consultancy Ortec, Rotterdam, to examine the effects of the PVK's rules.
His report found that in a worse-case scenario between 2004 and 2007, 1.2% would be added to the country's inflation rate, corporate profits would decline by 16% and up to 138,000 Dutch jobs would be lost as a result of the strict funding rules.
"The 105% funding ratio will lead to a worsening of the macroeconomic situation between 2004 and 2007, because premiums will have to rise (to cover the funding)," Mr. Boender said.
His report revealed private labor costs would increase by 5.4%, and public labor costs would rise by 7.8%.
The requirement that funds return to fully funded status within 12 months earned special criticism from the pension industry.
Although ABP officials declined to discuss the new rules, spokesman Michel Meijs said ABP "supports the discussions between the PVK and the Pension Funds Association," indicating it supports some form of change.
He said the scheme commissioned a new asset-liability study as a result of the new developments, which is due in April. He said the scheme's board of governors will present a plan to the regulator on how to return to the minimum funding level by summer 2003 after talking to participants about raising contributions or cutting benefits or both. Participant benefits are now increased annually to keep pace with inflation.
The scheme already raised the employee contribution level in December 2002, from 10.5% to 12.9%, Mr. Meijs said. This was the maximum increase allowable under the plan's articles of association.
PVK spokesman Loek van Daalen said the agency rejected the criticism of the new rules and suggested the research commissioned by the Dutch Pension Funds Association was flawed and based on unrealistic assumptions.
Like all Dutch pension plans, ABP's portfolio has been decimated by falling stock markets over the past few years. Last year, the PVK revealed that about a third of all Dutch pension schemes had fallen below the minimum funding ratio requirement.