1 / 41

WORKSHOP 28: POOLING OF PENSION FUND ASSETS

WORKSHOP 28: POOLING OF PENSION FUND ASSETS. 27 TH May, 2009 | 11:15 – 12:30. PN091250055. Corinne Merla (Belgium); Brian Buggy (Ireland); Wijnanda Rutten (The Netherlands); Philip Bennett (UK); Howard Pianko (USA).

jovan
Download Presentation

WORKSHOP 28: POOLING OF PENSION FUND ASSETS

An Image/Link below is provided (as is) to download presentation Download Policy: Content on the Website is provided to you AS IS for your information and personal use and may not be sold / licensed / shared on other websites without getting consent from its author. Content is provided to you AS IS for your information and personal use only. Download presentation by click this link. While downloading, if for some reason you are not able to download a presentation, the publisher may have deleted the file from their server. During download, if you can't get a presentation, the file might be deleted by the publisher.

E N D

Presentation Transcript

  1. WORKSHOP 28: POOLING OF PENSION FUND ASSETS 27TH May, 2009 | 11:15 – 12:30 PN091250055 Corinne Merla (Belgium); Brian Buggy (Ireland); Wijnanda Rutten (The Netherlands); Philip Bennett (UK); Howard Pianko (USA) Note: Our thanks to Jacques Elvinger of Elvinger Hoss & Prussen, Luxembourg, who has reviewed the summary of the Luxembourg law position in these slides

  2. Part 1: Introduction: Why Bother?

  3. Part 1: Introduction: Current Position Diagram 1 Multinational Employer Group Pension Fund 2 Pension Fund 1 Pension Fund 3 Custodian 1 Custodian 2 Custodian 3 Investment Manager 2.1 Investment Manager 1.1 Investment Manager 3.1 Investment Manager 1.2 Investment Manager 3.2 Investment Manager 2.2 Investment Manager 3.3 Investment Manager 2.3 Investment Manager 1.3

  4. Part 1: Introduction: Desired Position* Diagram 2 EU Employer Group Pension Fund 2 Pension Fund 1 Pension Fund 3 Custodian Pooling Vehicle Bond Sub-Fund Equity Sub-Fund Bond Manager 1 Bond Manager 2 Equity Manager 2 Equity Manager 1 Sub-Custodian 2 Sub-Custodian 1 *Assumes no U.S. plan participation

  5. Part 1: Introduction: U.S. Master Trust Structure Diagram 3 U.S. Employer U.S. Pension Fund 2 U.S. Pension Fund 1 U.S. Pension Fund 3 Master Trustee Investment Committee Master Trust Equity Sub-Fund Bond Sub-Fund Bond Manager 2 Bond Manager 1 Equity Manager 2 Equity Manager 1 Sub-Custodian 2 Sub-Custodian 1

  6. Part 1: Introduction: Desired Position with U.S. multinational overlay Diagram 4 U.S. Parent Company U.S. Company 1 U.S. Company 2 EU Company 2 EU Company 1 U.S. Pension Fund 2 U.S. Pension Fund 1 EU Pension Fund 2 EU Pension Fund 1 Investment Committee Master Trust Management Company Custodian/Master Custodian Pooling Vehicle Equity Sub-Fund Bond Sub-Fund Bond Manager 2 Equity Manager 2 Bond Manager 1 Equity Manager 1 Sub-Custodian 2 Sub-Custodian 1 * If the parent of the multinational employer group is a U.S. entity, the developing model addresses ERISA by structuring the pooling vehicle and the commingled sub-funds to comply with ERISA (a “safe harbor” approach). If the parent of the multinational employer group is a non-U.S. entity and a “safe harbor” approach is not adopted, the pooled vehicle and the commingled investment sub-funds could be subject to ERISA if 25% or more of their respective assets are attributable to U.S. benefit plans.

  7. Part 1: Introduction: Hoped-for efficiencies

  8. Part 1: Introduction: Hoped-for efficiencies (cont'd)

  9. Part 1: Introduction: But watch out for potential inefficiencies • Pooling may increase legal compliance responsibilities and risk due to overlay of different legal systems (e.g., E.U. IORP and U.S. ERISA); complicates administration of pooling vehicle and increases legal risk and cost • Possible disconnect between local country finance and HR functions and parent entity personnel responsible for pooling vehicle investment decisions • Concentration of assets within the pooling vehicle structure could decrease diversification and increase risk exposure in a turbulent economy • Not a “holy grail”; can’t freely apply overfunding in one plan to offset liability in another

  10. Part 2: Introduction to types of pooling vehicles

  11. Types of pooling vehicles

  12. Types of pooling vehicles (cont'd)

  13. Types of pooling vehicles (cont'd) Note 1: The PFPV has not, in practice, been used for a cross-border pension fund asset pooling and so is not considered further (because of problems with tax transparency in relation to non-UK investments and non-UK tax authorities.

  14. Types of pooling vehicles (cont'd) Note 2: A US master trust may only hold assets of certain US retirement arrangements (i.e. code section 401(a) tax qualified plans, IRAs and governmental plans) to benefit from US tax exemptions

  15. Part 3: Legal and tax constraints

  16. Legal and tax constraints: overview • Can the pension fund invest in the pooling vehicle? • Restrictions on marketing the pooling vehicle to the pension fund • Constraints imposed by the legal structure of the pooling vehicle • Constraints imposed by the regulatory regime of the country of establishment of the pooling vehicle • Tax hurdles • Legal risk

  17. Constraint 1: Can the pension fund invest in the pooling vehicle? EU Multinational EU Pension Fund 2 EU PensionFund 1 U.S. Pension Fund* Trust or Master Trust* Investment Committee Units (see Note 1) Other assets Other assets Units (see Note 1) EU established pooling vehicle Custodian/Master Custodian Bond Sub-Fund Equity Sub-Fund Bond Manager 1 Bond Manager 2 Equity Manager 1 Equity Manager 2 Sub-Custodian 1 Sub-Custodian 2 Note 1: The pooling vehicle can issue 2 or more different classes of units linked to different sub-funds established by the pooling vehicle to allow each investing pension fund to choose an asset allocation suitable to its investment strategies. *Note 2: ERISA does not prohibit cross-border investing, however, if a U.S. plan participates in this structure and a “safe-harbor” ERISA compliant structure is not adopted, separate analysis would be necessary to determine whether 25% or more of the assets in the pooling vehicle (and each sub-fund) comes from one or more U.S. benefit plans.

  18. Constraint 1: Can the pension fund invest in the pooling vehicle? (cont'd) * A Qualifying Investor Fund where the minimum investment is €250,000 and the investor has assets of €25,000,000.

  19. Constraint 1: Can the pension fund invest in the pooling vehicle? (cont'd) Note 1: Watch out for Article 18(1)(c) of the IORP Directive (which applies to EU established pension funds): “assets shall be predominantly invested on regulated markets” Note 2: EU established pension funds will need to comply with Article 18 of the IORP Directive as implemented in the EU country in question

  20. Constraint 1: Can the pension fund invest in the pooling vehicle? (cont'd) Note 1: Watch out for Article 18(1)(c) of the IORP Directive (which applies to EU established pension funds): “assets shall be predominantly invested on regulated markets” Note 2: EU established pension funds will need to comply with Article 18 of the IORP Directive as implemented in the EU country in question

  21. Constraint 1: Can the pension fund invest in the pooling vehicle? (cont'd)

  22. Constraint 1: Can the pension fund invest in the pooling vehicle? Due process to follow before investing:

  23. Constraint 1: Can the pension fund invest in the pooling vehicle? (cont'd) Due process to follow before investing:

  24. Constraint 2: Restrictions on marketing the pooling vehicle to the pension fund

  25. Constraint 2: Restrictions on marketing the pooling vehicle to the pension fund (cont'd) Note: The general rule is that country of location of pension fund sets the rules on marketing restrictions to that pension fund.

  26. Constraint 3: Constraints imposed by the legal structure of the pooling vehicle

  27. Constraint 3: Constraints imposed by the legal structure of the pooling vehicle (cont'd)

  28. Constraint 3: Constraints imposed by the legal structure of the pooling vehicle (cont'd)

  29. Constraint 3: Constraints imposed by the legal structure of the pooling vehicle (cont'd) *Securities and other laws also can be applicable Note 1: A US master trust may only hold assets of certain US retirement arrangements (i.e. code section 401(a) tax qualified plans, IRAs and governmental plans) to benefit from US tax exemptions

  30. Constraint 4: Constraints imposed by the regulatory regime of the country of establishment of the pooling vehicle *Changes to structure require prior approval, e.g. Investment Managers

  31. Constraint 4: Constraints imposed by the regulatory regime of the country of establishment of the pooling vehicle (cont'd)

  32. Constraint 5: Tax hurdles: Country of establishment of pooling vehicle

  33. Constraint 5: Tax hurdles: Country of establishment of pooling vehicle (cont'd) Note 1: If the pooling vehicle is established as a SIF, exemption will also apply if investors are all pension funds (whether or not in the same group).

  34. Constraint 5: Tax hurdles: Country of establishment of pooling vehicle (cont'd)

  35. Constraint 5: Tax hurdles: Country of establishment of pooling vehicle (cont'd)

  36. Constraint 5: Tax hurdles (cont'd)The existing position Taxes in country of investor? PensionFund 2 PensionFund 1 Taxes in country of investment? Equities Equities Belgium Ireland The Netherlands UK US Belgium Ireland The Netherlands UK US

  37. Constraint 5: Tax hurdles (cont'd)The position on investment pooling Taxes in country of investor? PensionFund 1 PensionFund 2 Units Units Taxes in country of pooling vehicle? Pooling vehicle Taxes in country of investment? Equities Belgium Ireland The Netherlands UK US

  38. Constraint 6: Legal risk

  39. Constraint 6: Legal risk (cont'd)The existing position PensionFund 2 PensionFund 1 Equities Equities Belgium Ireland The Netherlands UK US Belgium Ireland UK US The Netherlands

  40. Constraint 6: Legal risk (cont'd)The position on investment pooling Legal risk: Country of investor EU PensionFund 2 EU PensionFund 1 Units Units Pooling vehicle Legal risk: country of establishment of pooling vehicle Equities Legal risk: country of location of investment Belgium Ireland TheNetherlands UK US

  41. Conclusions • Cross-border pension fund asset pooling has happened (e.g. Unilever Group Pension Funds) • Easier to achieve than cross-border pension fund asset and liability pooling (at least for legacy pension funds) • So long as pooled assets are sufficiently large, efficiencies are available • Possible to achieve improvements in governance for the participating group pension funds through better concentration of available expertise within the sponsoring employer group • Additional compliance and administration to the extent plans subject to other legal systems (e.g. U.S. and ERISA) are to be included in the global pooling structure

More Related