DUBLIN - Ireland's pensions regulator is getting the power to relax minimum funding standards for local pension plans, but on a case-by-case basis only, starting next month.
As a result, pension plans may now be given up to 10 years, from the current 31/2 years, to make up a funding deficit, said Mary Hutch, head of information and training at the Pension Board.
"But only a deficit that is the direct consequence of the downturn in the market will be considered," said Ms. Hutch.
Pension plans with deficits that are the result of a contribution holiday by the plan sponsor or deficits that stem from specific investment strategies that tanked are unlikely to qualify for special treatment.
The Pension Board began discussions with representatives from Ireland's pensions industry late last year to relax funding rules (Pensions & Investments, Dec. 9). Parliament gave the regulator the power to do so through the Social Welfare Bill, which will become law in early April.
Local actuaries and pension plan officials welcomed the relaxation of the funding timetable but are still not satisfied. They want to see a more radical overhaul of the way the country's pension plans are valued, according to John Feely, chairman of the Irish Association of Pension Funds, Dublin.
He hopes to see substantial progress within the next 12 months in changing the funding rules.
"We are still of the view that the funding standard needs to be amended and should be changed to look at pension plans as on-going entities rather than valuing them according to their wind-up (termination) value," he said.
The Pension Board will review the existing funding requirements, but change is unlikely within the next year, said Ms. Hutch.
Irish law uses one of the most stringent pension funding requirements in Europe, and there is concern that it will be another nail in the coffin of defined benefit plans if it isn't revamped, said Anne Kershaw, joint head of retirement practice at Mercer Human Resource Consulting, Dublin.
Irish pension plans now are valued on a termination basis, with the liabilities measured using a bond-based benchmark. But as Irish pension plans typically invest 60% or more of plan assets in equities, there is a substantial mismatch between the existing assets and the assets required by law to match the liabilities, said Ms. Kershaw.
Many pension plans that are relatively well-funded on a going-concern basis could be underfunded when valued on a termination basis.
"I would be amazed if more than half of Irish pension plans weren't under water according to the current funding test," she said.
"There will be a not insignificant number of schemes that are underfunded to the level of 80% or less, " she added.