The Dutch Pension Fund
Governance
‘Not set in Stone’
Date: May 02 2015
Universiteit van Amsterdam Master’s in Business Studies
Student: Christiaan Visser Supervisor: Drs. E. Dirksen
Vocabulary
Accountability body – Verantwoordingsorgaan – VO Administration agreement – uitvoeringsovereenkomst Aged fund – vergrijsd fonds
Benefits – uitkering
Company pension fund – Ondernememingspensioenfonds – OPF Contributions – premies
Executive office – Bestuursbureau Former member – ‘slaper’
Funding ratio – dekkingsgraad
Industry-wide Pension Fund – Bedrijfstak Pensioenfonds – BPF Occupational association – beroepsvereniging
Occupational pension fund – Beroepspensioenfonds – BRF participant council – Deelnemersraad – DNR
Pension Fund Governance Reinforcement Act – Wet Versterking Bestuur Pensioenfondsen –
Wvbp
Pension Scheme – pensioenregeling Service Provider – Uitvoerder
VOCABULARY ... 2
1. INTRODUCTION ... 5
2. LITERATURE REVIEW ... 9
2.1PENSION FUND GOVERNANCE ... 9
2.2DUTCH PENSION FUND GOVERNANCE ... 10
2.3THE LAW:WET VERSTERKING BESTUUR PENSIOENFONDSEN ... 13
2.3.1 New board models and bodies ...14
2.3.2 The changes in bodies and their functions and powers ...16
2.3.3. Fund objectives and policy principles ...18
2.3.4 Risk management for pensionfunds ...19
2.3.5 Suitability, expertise and reliability ...20
2.4THE PENSION FUND CODE ... 21
2.4.1 Monitoring committee for the pension fund code ...23
2.5COMBINING THE WVBP AND THE CODE ... 24
3. METHOD ... 25
4. RESULTS ... 28
4.1BOARD MODELS ... 28
4.1.1 The fulfilment of the bodies ...29
4.1.2 The use of committees ...30
4.1.3 Method of working ...31
4.1.4 Voting Proportions ...32
4.2ACCOUNTABILITY ... 32
4.2.1 Accountability Body ...33
4.3.1 Executive Office ...37
4.3.2 Outsourcing ...38
4.4COMMUNICATION AND TRANSPARENCY ... 39
4.5SUITABILITY AND EXPERTISE ... 40
4.5.1 The skill to govern ...42
4.5.2 Evaluation ...42
4.5.3 The use of externals...43
4.5.4 Time commitments ...44
4.6DIVERSITY AND REPRESENTATION ... 45
4.6.1 Pensioners ...47
4.7INTERNAL SUPERVISION ... 48
4.8FUND OBJECTIVES ... 49
4.9EXTERNAL CONTROL ... 50
4.9.1 DNB ...50
4.9.2 Accountants and Actuaries ...52
4.10FUTURE ... 52
4.10.1 Europe ...53
4.10.2 The consolidation within the Dutch sector ...54
4.10.3 Role of trade unions ...55
5. DISCUSSION ... 57
6. CONCLUSION ... 61
LITERATURE ... 63
1. Introduction
“A man had a goose. That goose laid golden eggs…..” by Aesopus.
Already in 1955 Gradisson Jr. published an article in Harvard Business Journal how to govern a pension fund; the objectives of the fund, the risk taking character of the fund and the earning assumptions are central in his article (1955). After 60 years, including two decades of
financial crises, these questions are still central to pension fund governance. Scholars and practitioners are still coming up with best practices and advice.
In the 1990s discussion on pension fund management took off because of global underfunding of funds. This changed around the year 2000 to a discussion about control, strongly influenced by the corporate governance discussion after fraudulent behaviour of companies like Enron and the social impact pension funds are having on a local economy due to of their growing financial size and financial interference. Several initiatives were
developed, for instance the World Bank organized seminars in 2001 and 2003 and the OECD introduced governance principles on pension funds in 2005.
In the Netherlands the social impact of pension funds is apparent in the period after 2008 when pension funds were forced to reduce current pension payments and future claims on pensions because of their solvency position after the financial crisis of 2008. In the
Netherlands the total market value of pension assets diminished by 17%. In combination with new rules on discount rates the average funding ratio dropped 49% points (Dreu & Bikker 2012). This impact also inspired a younger generation to step in the discussion in view of the sustainability of the Dutch pension system and their own future pension.
In recent years the pressure on pension funds to tighten or change their governance has increased (Stewart & Yermo 2008; Clark & Urwin 2010). Globally all pension funds find a
growing demand for individual pension plans in response to a more individualistic society, an aging population that puts pressure on the intergenerational discussion and new international accounting rules forcing companies to change pension solutions for employees (Chen & Beetsma 2014; Binsbergen, van et al. 2014).
After the year 2000 the Dutch sector is experiencing a growth in assets, but especially a more consolidated market consisting of less but larger funds. Since 2000 there has been a growth of 270% in assets, in the last quarter of 2014 totalling €1.200 billion (DNB 2015a); on the other hand the number of funds has decreased with 63% to 365 at the end of 2014 (DNB 2015b). There also is an economic pressure on pension funds as they are gradually becoming pure financial institutes.
These issues resulted in the Dutch government to adopt a new law and code of conduct forcing pension fund boards to choose a prescribed board model. The goal of this law and code of conduct was threefold. Firstly, to enhance suitability and expertise of board members. Secondly, to reinforce the position of all stakeholders to the fund. Finally, to structure
functions and processes in the governance of a pension fund (Eerste Kamer 2015b). The code of conduct is focusing on more practical norms and objectives. The law and the code of conduct are the subjects of the thesis.
The law is unique in urging boards to critically look at themselves and as Leegwater and Siegman (2014) are stressing: this is a rare possibility for Dutch pension fund boards to look at the process of introducing fitting board model instead of just looking at the outcome. Dutch Parliament adopted the above-mentioned law in December 2012 and implementation became mandatory by July 1, 2014. So far there is little knowledge how these five board models were chosen and installed by the different Dutch pension funds. Also the impact of this law is not
yet researched. Stated by Amman and Zingg (2010) there is no ‘one size fits all’ solution for pension fund structure and governance.
This thesis aims at Dutch pension fund board members evaluating the process of choice and the impact of their chosen board model. Foreign boards can use these experiences in their process to build solid governance structures resistant to future economic conjunctural circumstances.
These experiences also add to the existing literature on pension fund governance. The thesis includes a Dutch view on pension funds governance literature that is dominated by Anglo-American experiences and data. Those funds are structured differently which results in regulatory regimes different from the Dutch system, stemming from different theoretical discussions. The thesis will address the theory on pension funds own governance. In governance literature pension fund governance is rather neglected but is a main topic for pension funds and its regulators to have on their agenda (Ambachtsheer et al. 2008;
Kakabadse et al. 2003; Stewart & Yermo 2008). The available literature is mainly focused on the important role of pension funds in monitoring corporate governance. More recently, pension funds are seen as a driving force for innovation in corporate governance because of their role as an institutional investor (e.g. Jensen & Meckling 1976; Sandberg 2013; Tilba & McNulty 2012; ICGN 2014; Schäfer & Arx 2014).
A best governance model or the best choice of board model is outside the scope of this thesis. This is the topic of many studies, but the literature seems inconclusive while there is too little data on the impact of the different choices. The search for ‘best-in-class’ is heavily discussed by several scholars (e.g. Clark & Urwin 2008; Waitzer & Sarro 2013) because several criteria can be used to measure effectiveness. Also outside the scope of the thesis are insurance companies that provide pension solutions; they have different requirements by law. The five
board models discussed in the thesis are mandatory by the special Law on Pension (Pensioenwet) and are explicit for pension funds.
In brief the main question the thesis tries to answer is the following:
Did the ‘Pension Fund Governance Reinforcement Act’ and Pension Fund Code achieve its goals?
To answer this main question there are four sub questions to be answered: 1. Which board models did the pension fund boards choose?
2. Is the expertise of stakeholders within the governance increased by the introduction of the law and the code?
3. Are all stakeholders now represented within the governance of the pension fund? 4. Is there a better structure of governance tasks and processes within the pension fund? The thesis is structured as follows: in the second chapter the theoretical framework is
explained and used concepts are clarified. Chapter three will illustrate the methodology used in the thesis, how the research is set up and executed. In chapter four the results are presented and analysed. The result of the research is discussed in chapter five. Chapter six will contain the answer on the main question and a conclusion will be drawn to finish the thesis.
2. Literature Review
In July 2008 the members of the Dutch Parliament Koşer-Kaya and Blok introduced a bill to enhance a balanced composition of pension fund boards and stronger participation of all stakeholders. The law had the objective to establish the position of pensioners in the board (Eerste Kamer 2015a). It was the trigger for acceleration of developments in the Dutch pension sector about governance and would result in 2013 in the law ‘Pension Fund Governance Reinforcement Act’ (Wet Versterking Bestuur Pensioenfondsen. hereinafter: Wvbp) and ‘the Pension Funds Code’ (Code Pensioenfondsen. hereinafter: The Code). Both will be explained and described, including concepts and principles used in the existing literature. This chapter will conclude with a list of items used in the research of the thesis.
2.1 Pension fund governance
After the financial crisis of 2008 the discussion on pension fund governance became a social discussion (Ammann & Zingg 2010) as governance was up to then focusing on the
performance of the pension funds. At the same time the funds were seen as slowly evolving institutions in contrast with the rest of the financial sector, relying on past processes and not dealing with the quickly changing and highly uncertain financial market (Clark & Urwin 2010).
According to Maatman (2005), pension fund governance is essential because
employers and participants commit part of their wealth and financial future to pension funds. The pension fund is to be managed by a board also responsible for the safeguard of the fund. These responsibilities should be clearly stated in statutes and other legal documents, i.e. providing beneficiaries of the funds access to relevant information about the fund. When the rights of these beneficiaries are violated, they should receive a redress (OECD 2009).
Having different stakeholders creates conflicts of interest embedded in pension funds. The commitment to the fund, for instance from former members (who do not contribute but have vested rights) versus active members, can differ. The same holds for the level of general pension expertise. Even more difficult are intergenerational conflicts that can result in a ‘you lose, I win’ situation on pension wealth. In that case the collective pension agreements and schemes will lose their sustainability and social acceptance (Galen et al. 2014).
According to the OECD (2009) good governance calls for a clear identification and separation of the operational and supervisory responsibilities of the pension fund. Pension fund governance regulates the supervision of the funds and the participation by the respective stakeholders (Maatman 2005). This is done with formal mechanisms within or outside the institution. With these mechanisms the board can make decisions and it can be held
accountable for these decisions by its stakeholders. This accountability can be realised if the board follows public and private standards (Franzen 2010). Some monitoring activities can be done in a body whose members are elected by all stakeholders. More external controls can be taken care of by independent professionals like actuaries and auditors specialised in
compliance with legislation. Another control mechanism is the supervision of the relevant authorities. The variety of this supervision will depend on the complexity of the funds and pension system as a whole (OECD 2009). Additional to these monitoring activities more serious problems with conflicts of interest can be tackled with a balanced representation of stakeholders in the board, higher levels of expertise and by the implementation of a code of conduct (Stewart & Yermo 2008).
2.2 Dutch pension fund governance
and covered by occupational pension schemes. These are formed by agreement between the so called ‘social partners’; the employer(s) and employees or their respective representatives. For instance in a collective labour agreement the first is represented by employer
organizations and the latter by trade unions. Thirdly, Dutch residents can conclude a voluntary individual pension arrangement with insurance companies or banks.
The focus in the thesis is on second pillar schemes. These schemes are executed by three types of pension funds, all separate legal entities from the employing company(-ies). The first type is the Industry-wide pension fund (Bedrijfstak Pensioenfonds, hereinafter BPF). This fund is organized for a specific sector and is mandatory for workers in this industry. Because of the amount of different employers joining these funds, each fund is governed by a board consisting of representatives of organizations of both the employers and the employees. The second type of pension fund is the Occupational pension fund (Beroepspensioenfonds, hereinafter BRF). These are organized for a specific group of professionals, such as the medical profession or physiotherapists. Representatives of the occupational associations (beroepsverenigingen) form the boards governing these funds. Thirdly there are funds associated with one company; Company pension funds (Ondernememingspensioenfonds, hereinafter OPF). The boards governing these funds are composed of representatives of both the employer and the employees (Chen & Beetsma 2013; Bikker 2013).
Different structures, of bodies, committees, experts, stakeholders underlying the management of the funds by the boards are described in the thesis.
For their day-to-day business, two major tasks can be distinguished for pension funds and their boards: administration of the employees’ pension rights and investment of assets. Funds can choose to perform the tasks in-house or to outsource them to service providers, by mandating them with an administration agreement. An internal or external executive office can be used for board support.
The board of a pension funds has the overall responsibility and is accountable. Internal supervision is provided for by arrangements depending on the chosen board model. External supervision is done by two supervisory authorities, the Dutch Central Bank (De
Nederlandsche Bank, hereinafter DNB) and the Authority for the Financial Market (Autoriteit Financiële Markten, hereinafter AFM). Both monitor the legislation on pension funds. DNB supervises governance and finance. The monitoring of the provision of information by funds to (former) employees is done by the AFM.
Finally there is a yearly audit on financial and actuary information executed by external accountants and actuaries. Both state in the annual report the correctness of the funds’ assets and liabilities. These statements are then offered to DNB and form the basis of their supervision.
Since the 1970’s pension fund governance structures were a topic in many debates, especially with the position of pensioners as stakeholder within their pension funds. During the late 1990’s the State Secretary of Social Affairs and Employment wanted pension funds to self-regulate their sector. In 2004 pension fund organisations published a first draft of governance principles. In a reaction to this draft the Secretary of State asked the labour organization STAR (Stichting van de Arbeid) for recommendations, in 2005 STAR published a report called: ‘Concept principles for good pension fund governance’ (Concept Principes voor goed pensioenfondsbestuur). With the new Pension Law of 2007 these principles of STAR were given legal force (Swinkels & Ziesemer 2012).
According to Clark and Urwin (2010), organizations respond to changes in the environment by learning or imitating operating procedures developed by other types of institutions. The development of pension fund governance can be related to the Dutch debate
companies did not make improvements with their governance a new committee was formed in 2003. In the same year The Dutch Corporate Governance code was published, trying to
increase transparency and accountability of Dutch corporate governance. The committee also wanted to improve the quality and integrity of the company’s management and supervisory board (Maatman 2005; Akkermans et al. 2007).
After the bill of Koşer-Kaya and Blok in 2008 the pension fund sector and other social institutions tried to block the bill because of issues like the limited specification of the desirable diversity (Vereniging van Bedrijfstakpensioenfondsen & Stichting voor
Ondernemingspensioenfondsen 2009). This lobby resulted in a new bill called ‘Pension Fund Governance Reinforcement Act’ and a Pension Fund Code formulated by the Pension
Federation and STAR.
2.3 The Law: Wet versterking bestuur pensioenfondsen
In August 2013 the Wvbp on the governance of pension funds came into force. The Code was finalised in September 2013. All pension funds should implement the Wvbp and Code by the 1st of July 2014. There are three objectives of the Wvbp (Eerste Kamer 2015b), coming close to the earlier stated solutions by Steward & Yermo (2008) to reduce conflict of interests. Firstly to improve the expertise of board members, fund managers and the internal regulators. This results in the new possibility within the Wvbp that the fund board only consists of professional and external experts. The Wvbp provides new and stricter requirements on the internal supervision. Secondly, the Wvbp intends to reinforce the position of all stakeholders. This means for instance that pensioners are obliged to delegate a member in the board. The third goal of the Wvbp is to streamline the various tasks and bodies within the pension fund.
This new legislation was seen within the sector as a chance to create a professional framework resistant to future uncertainties (Leegwater & Siegman 2014).
2.3.1 New board models and bodies
The Wvbp gives pension funds the choice of five models of governance: the parity1 board, a board consisting only of independent directors (the independent model) and three types of one-tier board structures (the mixed parity model, the mixed independent model and the mixed inverse model).
The pension funds boards are obliged to choose a new Board model, preferably in consultation with social partners for support and involvement of the various stakeholders. Within a model a Board can (in statutes, rules and codes) make choices. Board members and members of the different bodies should always take into account a well-balanced
responsibility to all stakeholders of the fund.
The parity board
The parity board will almost be the same as it was before. Employees and employers have their seat in the board. New is that pensioners should also be represented in the board. It must be ensured that the board composition in terms of both age and gender is sufficiently
representative of the stakeholder group at hand. A maximum of two board members, not representing the stakeholders, can be added to the board.
The independent board
The independent board only consists of external professional experts. The stakeholders of the fund (employer, employees and pensioners) are not represented in the independent board. The
choice for an independent board will have implications for the functions and powers of the other bodies of the pension fund. An independent and professional board has the advantage of the time and commitment of board members combined with the skills and expertise of
external professionals. The objective is to combine an active engagement with the fund with the right expertise. Also, an independent board model can be a solution to intergenerational conflicts and other conflicts of interest between the different stakeholders(Clark & Urwin 2010).
One-tier boards
The one-tier board is devised as a board structure that will enhance internal supervision by combining an executive part and a non-executive part within the board. This model was already available in the STAR recommendations on pension fund governance of 2005 (Maatman 2005).
With the Wvbp three models of one-tier boards, mixed boards, are introduced. These (mixed) models all have their internal supervision by non-executive board members. The day-to-day business is lead by executive board members. In the mixed parity board, the first type, the executive part has a parity structure. Among the non-executive members at least three members are not direct representatives of the stakeholders. The second type is called the mixed independent board. In this board at least two of the executive board members are external and at least three non-executive board members are not direct representatives of the stakeholders. The third one-tier board is the inverse mixed board. Here, the executive board members are independent of the stakeholders and the composition of the non-executive part has a parity structure.
2.3.2 The changes in bodies and their functions and powers
As already mentioned in paragraph 2.1 a pension fund has to distinguish different roles and responsibilities within its governance. The following categories can be classified: control, accountability, participation and internal monitoring. Role and responsibility for control are still with the board, despite which model is chosen. The participant council (Deelnemersraad, hereinafter DNR) and the accountability body (Verantwoordingsorgaan) are converted into an accountability body (Verantwoordingsorgaan ‘nieuwe stijl’, hereinafter VO) or a
stakeholders’ body (Belanghebbendenorgaan, hereinafter BO). The accountability and participation tasks and responsibilities are attributed in accordance with the chosen board model. If the choice is the independent model, with or without parity, there will be a
stakeholders body (BO). With the choice for one of the other models, the accountability body (VO) will be reformed to the ‘new style’ accountability body.
Stakeholders and accountability body
The board can be held accountable to all its stakeholders including beneficiaries,
governmental authorities and employers (OECD 2009). Within the accountability bodies the pension fund can balance the conflicting interests of the different stakeholders. On the other hand it also needs to balance between stakeholder representation and effective management (Clark & Urwin 2010). In the researches of Munell (2011) and Swinkels & Ziesemer (2012) there is no significant correlation between the funds funding status and stakeholders being represented in the board or not. Also the inflow of the premium is not influenced by the stakeholders (Munell et al. 2011). The goal of diversity should be that stakeholders feel more represented in their board, which could lead to new views and policies (Swinkels & Ziesemer 2012)
The stakeholders body has been permitted substantial powers. Some important board decisions will need approval instead of advice from this body. This regime is a result of the non-direct representation of the various stakeholders in the board. It means that the
stakeholders of the fund have no direct control over the management, but exercise their powers through this body.
As mentioned, if the choice is made for one of the dependent models a ‘new style’ VO will be installed. This new style means that, this body other than the BO has less extensive powers than the ‘old’ VO. The board will only ask advice about a collective transfer,
liquidation, merger, conversion and closing or modification of an administration agreement. This loss of authority has to do with the direct representation of all stakeholders in the board. In the composition of this body the employer can be added, but it is not obligatory and will be done only after consulting the other stakeholders.
Internal supervision
With internal supervision there is a control mechanism to oversee all responsibilities being met in accordance with the funds objectives. This oversight can vary depending on the funds complexity and should include coverage of organisational and administrative processes. But with more complex funds the controls also involve performance and risk management
assessments (DNB 2015c). To strengthen these governing bodies a ‘whistle blowing’ function needs to be incorporated in the governance framework of the fund. With this requirement any detected problem should be reported to the supervisory authority (Stewart & Yermo 2008).
As said, the new Wvbp provides for new and stricter requirements on the internal supervision. The Wvbp requires the internal supervision to be exercised by a yearly visitation committee, a supervisory board (Raad van Toezicht. hereinafter RvT), or by the
non-executive part of the board within the one-tier board structure. A BPF can only select from the last two.
The internal monitoring by supervisory boards also received enhanced duties and powers to carry out their role. The RvT will have the right of approval on important board decisions like approval of the annual financial statements, the remuneration policy, a collective transfer, liquidation and merger.
An overview of all board models and their composition can be found in table 2 in the
appendix. The different board models are divided by their structure of two-tier or one-tier. In the table the different solutions for internal supervision are added per model. The overview also shows how the participation of the stakeholders is organized per model.
2.3.3. Fund objectives and policy principles
The main objective for pension funds is to provide safety of the retirement income for the beneficiaries and to meet pension liabilities. Pension funds should communicate these objectives to the stakeholders, along with its plans how to achieve them (Ammann & Zingg 2010). The Dutch Pension Act (article 102a) makes the board clearly responsible for defining the objectives and the policy principles of the pension fund, including its risk attitude. Before finalizing the objectives, they should be discussed with the other governance bodies. This allows pension funds to establish specific governance guidelines and design processes (Kakabadse et al. 2003). Clarification of the funds’ mission and strategic goals can help boards to set up decision protocols to achieve them (Clark & Urwin 2010). Most important is to convert the objectives to accepted operational goals and performance criteria (Mitchell et al. 2008).
The other governance bodies can use these objectives and principles when reviewing and advising on the administration agreement with service providers, the decision-making and accountability of the Board. The board strives as much as possible to gain clarity of the
stakeholder representatives’ views on the ambition of indexation and the risk attitude, both are underlying the objectives. Most obvious is to obtain that clarity through the stakeholder representatives in the VO or BO.
2.3.4 Risk management for pensionfunds
Steward and Yermo state: (2008, p.5) ‘good governance also needs to be risk based.’ The process of risk management starts at a strategic level where the relevant risks for the pension fund and its stakeholder are defined and analysed. In the second stage a decision should be made on what is the acceptable and desirable amount of risk to be taken. After this decision the process of measuring and controlling risk will start (Franzen 2010). This definition shows that risk management for pension funds goes well beyond the comparison to market
benchmarks often made (Waitzer & Sarro 2013). A pension fund should manage its risks in the context of its own objectives (Clark & Urwin 2010). The present position of pension funds in society entails a challenge to pension funds regarding their funding and investment policy (Stewart & Yermo 2008). However Franzen (2010) shows that regulatory and accounting issues are more often the main driver for risk management than the funds mission and risk profile. The tendency in the Dutch environment still is towards a risk-based external supervision closely related to other financial services, especially after the integration of the Pension and Insurance Supervisory Authority of the Netherlands into DNB.
The type of risk assessment determines the nature and intensity of the supervision. The external risk supervision allows pension funds to develop their own internal mechanisms (Brunner et al. 2008). Franzen (2010) states that Asset-Liabilities-Management (ALM) is the
risk management tool on strategic level often used in the Netherlands. In ALM models scenario analysis is applied, to simulate market variables as well as the funds liabilities. With all such relevant input the model can devise an optimal investment policy (Franzen 2010).
2.3.5 Suitability, expertise and reliability
In order to comply to good governance a pension fund board needs qualified and experienced individuals with diverse and relevant skills. This would enhance the quality of fully informed decision making by the board so it can live up to its responsibilities. However, as
representation is also a goal of pension fund governance there is a trade-off between expertise and representation. Pension funds boards can be constrained by the limits of their expertise. Besides setting up suitability standards, as guidance for carefully selecting board members, there should also be a test of commitment to the pension fund goals. This would reinforce the engagement with the fund. Once in function sufficient education and task specific skills should help board members in their decision-making. Self-assessments and evaluations can help boards to identify ‘gaps’ in the knowledge and expertise. But in case some required specific knowledge is missing, for instance on risk and investment, board members should consider complementing the board. This can be done with external independent experts or committees adding this missing knowledge and targeting specific topics. These committees can consist of board members completed with external independent experts. However board members should keep in mind not to rely on one source, but to keep a countervailing power (Beath & MacIntosh 2013; Ammann & Zingg 2010; Clark & Urwin 2010; Clark et al. 2007; OECD 2009).
The regulator sees a pension fund as an institute having both a social objective as well as a future financial obligation to its stakeholders (Maatman 2005). The latter means that
quality and expertise. Both the board members and supervisors must be fit for their duties and their reliability must be beyond doubt. As the sector regulator DNB will test both ability and reliability, the appointment of a board member can only take place if DNB agrees.
In their suitability test, DNB will also test the time commitment of the Board members and the RvT members as of the 1st of July 2014. This is done to check whether candidates have sufficient time to perform their duty in the fund. DNB, as regulator, has special power to do the suitability test. This power is awarded to DNB by a special General Administrative Order (Algemene Maatregel van Bestuur, hereinafter: AMvB). The test on the availability of time will be done by DNB on the basis of the Full Time Equivalent (FTE)2. There is a difference in the allocation of FTE between large (above €10 billion Euros) and small funds, and between different legal forms of the entity in which the other job is performed (private company, public company or foundation).
2.4 The pension fund code
The pension fund code has been prepared by the Pension Federation and the STAR to
formulate standards and norms for pension fund governance. Both institutions emphasize the social importance of the pension funds. The goal of the Code is to optimize the governance of pension funds and to increase the confidence of stakeholders in the pension funds. The Code replaces the guidelines for pension fund governance published in 2005 by STAR. The Code also stresses its place in a comprehensive set of existing laws and regulations to improve governance. For instance, the Code itself is imbedded in the Pension Law article 33:
‘guaranteeing good governance’. When norms are already integrated in legislation the Code will focus more on the procedure. The earlier mentioned institutions hope that the Code will
2 Full Time Equivalent: is used as an element to measure the time needed for a function. If the FTE is 1, the
person uses all (full) his time for the function. The FTE is allocated to the prospective role in the fund and current other jobs. A combination of functions of for instance 0,6 FTE and 0,5 FTE is 1,1 FTE. This will result in a cancellation of the appointment of the candidate by DNB.
lead to a dialogue and a balanced decision making instead of just complying with regulations (so-called ticking off boxes). The Code anticipates possible deviations from the Code by pension funds, but urges pension funds to ‘comply-or-explain’ the deviations in their annual report.
The norms within the Code
In the Code are 83 norms pension funds have to comply to. These norms are divided in two parts: general themes and secondly: structure and organization. The general themes mentioned in the Code are:
2.1 - 2.3 Duties and method of working 2.4 - Accountability
2.5 - Integral risk management 2.6 - Communication and transparency 2.7 - Sustainable investment
2.8 - Administration, outsourcing and costs 2.9 - Role of auditors and actuaries
2.10 - Complaints and disputes 2.11 - Reporting irregularities
The general norms all concern the board. The first norm, duties and method of working also involves the stakeholders’ body and the internal supervision. But as mentioned earlier, because this is also covered in the pension act, the Code is more focused on the process than the content.
The norms more focusing on structure and organization are: 3.1 - Appointment, dismissal and suspension;
3.4 - Terms of office and reappointment; 3.5 - Diversity;
3.6 - Acting with integrity; 3.7 - Remuneration policy; 3.8 - Compliance
These norms are mandatory for all governance bodies with the exception of the voting proportions; they only apply to the board. The remuneration policy can also apply to other persons than those involved in the governance. The policy will also apply to people employed by the fund.
.
2.4.1 Monitoring committee for the pension fund code
In 2014 a monitoring committee is installed by the Pension Federation and STAR to monitor compliance with the Code. This committee has independent (expert) members interested in pension fund governance. The committee has the following responsibilities. Firstly they annually identify compliance of pension funds with the Code. Secondly they try to identify tendencies in the compliance, the governance and legislation. Thirdly the committee can make recommendations to amend the Code. They will report their findings to the commissioning institutions and the Minister of Social Affairs and Employment.
In February 2015 the committee presented their first research report as a baseline for further study. It analysed 34 of the items from the Code as presented in the 2013 annual reports of pension funds. Later in 2015 the committee will do the same for 2014 annual reports and will come up with recommendations.
2.5 Combining the Wvbp and the Code
July 2014 saw two landmarks on the governance of pension funds; the Wvbp and the Code. The Wvbp has a threefold target: to improve the expertise of stakeholders, to strengthen their representation and to streamline bodies and procedures within the fund. The Code focuses on the implementation of the ensuing measures to improve governance and thereby enhance the confidence of its stakeholders. By combining the items mentioned in both the Wvbp and the Code (an) the overview (is given) in table 1 can be given. This table entails an integration of relevant items mentioned in the Wvbp and the Code3. Some items show an overlap between the Code and the Wvbp. Also the AMvB, awarding power to DNB to test candidates, is added to show the overlap on the item suitability. The special role (of the AMvB) for DNB to test on time commitment is mentioned as well.
Table 1: Overview of items influenced by the Wvbp, Code and used by DNB
Item in the Law Item number in the Code Item used by DNB: AMvB
Duties and method of working x 2.1 – 2.3
Accountability x 2.4
Integral risk management risk attitude 2.5
Communication and transparency 2.6
Administration, outsourcing and costs 2.8
Role of auditors and actuaries 2.9
Appointment, dismissal and suspension x 3.1
Suitability x 3.2 x
Voting proportions 3.3
Diversity x 3.5
3. Method
The method of this study has been designed to show how Dutch pension funds were affected in their governance by legislation mandatory in the Netherlands since the 1st of July 2014. With clear observations from the researchers own experience as a start, but with limited pension funds governance theory on hand, a more inductive approach seemed appropriate. According to McNulty et al. (2013) qualitative studies are a helpful method in a situation where ownership and governance of governance are less defined by equity stake and
principle-agent relations, and where informal structures are important. A qualitative study will give depth and detail to the research; the researcher is closer to his subjects. A more inductive way will show light on concepts and constructs. The goal is to come up with a model or hypotheses that can be tested in a future study (Chen & Beetsma 2014; Bikker 2013).
A semi-structured interview is used as method. Thus, questions derived from the theory could be asked but in the same time there was room for detail and depth (Yin 2013). The questions were related to a selection of the items found in the literature, the Law and the Code. The selection chosen is shown in table 1 (p. 23). On purpose the items were approached with generally formulated questions in order to stimulate an open atmosphere. To specific questions might hamper a free impression of opinions, experiences and insights. For this same reason several items (2.7; 2.10; 2.11; 3.4; 3.6 and 3.7) of the Law and Code were not used. These items were too classified for the Board members to talk about frankly. Item 3.8, compliance, is too early to tell. None of the pension funds in the sample yet published their annual report 2014. In the open atmosphere thus created also many specific answers could be gathered. An interview protocol with an introduction of the topic an explanation of the interview procedure and the items was set-up to help the researcher during the interview.
For this study 15 board members of Dutch pension funds have been interviewed. Five of the board members interviewed are president of their board, three of them serving as an
independent president. The distribution of those interviewed was a reflection of the
distribution of the 360 pension funds available on January 1st 2015 (DNB 2015b). The sample for this study is made up of ten OPFs, three BPFs (two obligatory and one non-obligatory) and two BRFs. Their fund size ranged from under €100 million to above €5 billion and the member size ranged from above a million participants to under 200.
Approaching these board members was done in different ways. Six of them were contacted directly through the researchers’ own network; five were asked by two colleagues of the researcher. The final four were contacted through social media with a search on ‘pension fund administrator’. All board members were promised confidentiality and anonymity of chance for detriment of the board members (Clark & Urwin 2008). This confidentiality would allow them to speak unrestrained. Throughout the research no pension fund, employer or board member is identified by name. The board members are given a letter to identify them; the letter will replace their actual name. Employer(s) and funds were given the same letter. As the sample holds 15 board members letters will range from A to O.
Besides the interviews the researcher visited a conference from the ‘Kring Pensioen Specialisten’ (KPS) on the 10th of March 2015. At the conference the keynote speakers were specialists from the Dutch pension fund sector. One of the topics discussed was the
implementation of the Wvbp. Together with this visit and additional informal interviews with two accountants, an actuary, a consultant to pension funds and a staff member of the Pension Federation, the researcher was able to define the approach to the research.
The third method to categorize and identify those interviewed and their funds was a desk research: visiting websites, reading annual reports and the official records of the funds like charters and administration agreements.
Interviews were held from the 24th of February to the 13th of March 2015. Each interview was done face-to-face and lasted between 45 to 60 minutes. All interviews were taped and
transcribed. The interviewer also made notes to highlight important answers. To analyse the interview NVivo 10.2 for MAC was used. This program is designed to code text and enable cross-referencing between the interviews. The coding was based on the items found in the literature and used in the interviews. With this analysis a pattern in the outcome of the interviews and the characteristic of those interviewed can be distinguished. Reasons for similar and contrasting results could be identified (Yin, 2003).
4. Results
4.1 Board Models
For board member D the proposed new governance models were no surprise: “…governing a
pension fund has been a very quiet activity for decades. You could just really pull it off in a few afternoons per year”.
In choosing a model funds have weighed the advantages and disadvantages, for
example fund D wondered whether there was added value in changing their model, looking at the impact of the choices on the composition and expertise. Board member E preferred the parity model to the inverse mixed model because "it is easier to absorb know-how,
information or otherwise."
Four board members (M / F / J / O) indicated costs and efficient implementation as specific considerations. However, their choice was different. Fund M chose the reverse mixed model because there are fewer bodies. However, contrary to their own expectation,
experience now teaches that they need to bring the non-executive board more into the daily work. On the other hand fund F switched from a reverse mixed to a parity board because of costs. The assessment was that the addition of a mandatory RvT was too expensive in the reverse mixed model.
Five funds wanted as little change as possible. In the opinion of two board members (E / F) there were already sufficient checks and balances and there can also be question of too many governance bodies. Two other board members (H / I), however, stressed the risks in this choice: you can linger too much in the past.
Four funds (D / F / M / N) indicated that they already moved to a reverse mixed model in their parity model: “We took the decisions. Ultimately, the executive office carried out the
office previously has provided and still provides certain efficiencies, however, their choice of the model differs.
During this process all funds discussed whether they are a financial institution or not. Two funds regarded themselves a financial institution (G / N). However, the choice of model was different. One wants to hold up the social aspect: the social partners ‘in the driver’s seat’ because it remains a social institution. Therefore it was hesitant to bring in outsiders (G). The other one puts the stakeholders in the non-executive board (N).
That all stakeholders should be represented on the board is clear to all funds. Board member I indicated that non-professional board members were asking different questions and thinking more on a long term base. Also considered as important by board members is
showing confidence to the outside world and the commitment of the employers in the board (L). Thus the composition of the fund will be visible more clearly (H) and pensioners can justify the policy (O).
The addition of experts creates in the opinion of member K more professionalism. Board member I added that objectivity is a valuable addition to the board and there will be more countervailing power towards the service providers.
Eventually three board members (B / M / N) stressed that ultimately the quality of the people in the board is decisive. The right expertise, appropriate competencies and integrity: then you have good governance (M).
4.1.1 The fulfilment of the bodies
Because of the additional expertise-requirements for board members and members of the other bodies, the pool of candidates is shrinking, both for the employers and employees. Board members indicate that this creates problems in complementing these bodies. Funds A and K have used external agencies to find the right people. Along with fund G they indicate
that commitment and ‘feeling’ for the fund is decisive. Additionally, the board members of fund D, E and J stated that in their case the rules or statutes of the employer diminish the number of available candidates. Board member H knows from experience that international companies have more difficulty finding the right people. To prevent a long periods of idleness, funds now start searching earlier to find the right people. Fund J is already taking two years to find a new chairman. Another fund indicates that they use a substitute to ease the pressure on searching (Fund C).
4.1.2 The use of committees
Committees are used by the funds for two reasons, supplementary expertise and the need for a filter for the abundance of information available to the board. Thus, at fund E discussions within the committee often lead to a concrete proposal to the board. In the reverse mixed model of fund J this process is screened by the non-executives. In the experience of the Board, the quality of the proposals is increasing.
For most funds, the committees consist of board members supplemented by
specialists. These may be people from the service providers, specialists from the executive office and or independent experts. Board member B however wondered whether the first two categories should take place in a committee.
The committee may provide countervailing power to the board. Board member J shows that the involvement of service providers and the executive office has increased by them taking seat in to the committees.
Fund M works properly with vocal points (spokespersons) instead of statutory and formal committees. These vocal points perform the role of committees together with the specific specialists of the executive office. They have conversations with the departments to
4.1.3 Method of working
Board member A finds ‘being a board and making it visible’ the most important in the process of governance. Board member N therefore does not understand that the term
‘independent’ should be put on the board. Fund G agrees with fund A both stressing that the board members “have a role towards their (own) supporters.” Board member G does not always see collectiveness in discussion and decision-making in his board. He sometimes noted a split between fractions. He thinks that external independent members are useful to give the debate more scope. According to board member F external people add different perspectives to his board, moreover they can curb dominant board members. Fund L feels collective responsibility to be important for the policy and its implementation. This board member says that: “as you identify yourself more strongly with parts of the policy, you run the
risk of undermining that shared ownership, responsibility and performance”.
By opting for a reverse mixed model, board member B has seen the executives
become more professional. Small decisions are delegated, the executives are more in the lead and the non-executives give each other space to develop in their roles. The non-executives are struggling to abandon their old role, as now they have to co-decide in the board. This division of roles is also visible in fund J. The non-executives have therefore divided the policy issues among themselves in order to manage them better and to form ‘antennae’ to get information.
Fund E has a parity board and is noticing that the board sometimes looks too much at the substance and thus is loosing the overview: “... .but you have to occasionally look a bit
away from what is daily happening and ask yourself: is this now the right path?”.
To support the governance in the decision-making fund M has developed frameworks for the board to make decisions. However: “These (frameworks) are not cast in stone”, the board may differ in view of the circumstances.
4.1.4 Voting Proportions
Board member C indicates that his fund actually does not vote as often as before; they reach collective decisions through discussion. Most funds have voting proportions depending on the composition of the fund. One fund, O, has negotiated them and is surprised by the result. If they had looked at the composition before there would have been a different voting rate. An BPF (A) also indicates that it is the voting power, not the number of seats that is decisive for the influence of the stakeholder. This has been in discussion during the process of
introduction of the Wvbp. But the vote between employers and employees is now 50-50. Thus parity balance is preserved. Three funds, which have an inverse mixed model, also stress the role of the independent chairman. One fund has an independent non-voting chairman (L) and two parties have an independent chairman with voting rights (B, N). Board member B remarks that an independent chairman with voting rights can be forced to show ‘colour’. Board member N says his chairman would never have accepted his role if he would have no voting rights. He wants to be a “full board member.”
4.2 Accountability
The role of accountability is important for pension funds. This becomes clear in the discussion this item triggers among board members. Board member F even notes that governance is guided by accountability. However, as forwarded by Board member N, accountability can only be claimed afterwards on the basis of the annual report, financial statements and possibly reports by internal supervision. Board member L notes that the
emphasis on responsibility in his fund should be more in the design and content of the pension scheme. Once that is achieved social partners will be satisfied and might slowly fade out of
However accountability is of prime importance. A board member of a BPF: “I think
it's more important to account to the VO for its legitimacy than to the Supervisory Board.”
4.2.1 Accountability Body
The role of the VO (accountability body) gives different viewpoints: as Board member I puts it “A good VO is a VO where you suffer from”, another (B) states the fact that “They are seen
as spies.” All board members agree with each other that setting up the VO’s was done in
fruitful discussions with the old organs as the DNR and VO (old style). But now the question is how it will turn out in practice.
Filling up seats with suitable people is a problem for smaller funds, just as it is for the boards. The VO is the body, according to the majority of the board members, where
legitimacy of the policy towards the stakeholders is guaranteed (L), thus the VO (the board) is transparent (B) and by its representation it ensures involvement (A and B). A number of funds (C, H, and O) call the expertise of pensioners an issue, while the employees have a problem concerning time available. A relatively aged fund (H) states that by filling the VO, there were less employees than pensioners. This was seen as an issue because the VO especially aims at a balanced representation of interests.
In the funds B, D and H there is a discussion whether the employer should have place in the VO. On the one hand it is important to keep employers engaged, and since all other stakeholders are in the VO the employer should have a place as well. On the other hand the employer is already involved by being on the board and thereby: “They have more direct
influence than the VO” (D). Thus other stakeholders should have a place in the VO. It is also
cited that some employers have deliberately taken more distance from the fund and do not want a seat in the VO.
The elections for VO’s also had a remarkable result: at fund A the pensioners won, while at fund C young representatives of employees won the election. The board members of these specific funds indicated that the degree of organization of each constituency was of great influence on the voting.
Especially OPF’s had problems with the size of the VO as members of the former DNR and VO wanted a seat in the new VO. Board member C rejected this approach, as in his view smaller VO’s are more efficient. Board member N recognized the merits of a big VO in the 'old' participation situation, but not in its new accountability role. However, in both BRF’s and BPF’s (one VO has over 30 members) the Board members interviewed are satisfied. In their opinion the VO members are well prepared by their own (preparatory) meetings and successfully develop their skills.
Some VO’s want more rights (for instance approval rights) than just giving advice. This expectation mainly lives among members coming from the old DNR. The problem is that the VO now combines an advisory task to the Board with a controlling task how the Board has performed. The VO would thus has to discuss its own advice (H, M, O). Anyway the VO should not sit on the chair of the board. The Board will always have the final
responsibility. However in the case of fund M: the VO has advice rights on more issues than the Wvbp prescribes. This comes closer to the old rights of the DNR.
The moment of final accountability and the method of preparation is a concern for the Board members. As was shown in the literature the annual report is the moment of official account or as Board member B puts it: “The ultimate time for pay-off”. However, there are funds that gladly have their VO be part in the decision process, to ensure acceptance of the decisions taken.
problems have arisen between boards and their VO’s. Board member N calls it a constant hunger for updated information and continuous consultation as a remnant of the old DNR situation.
Board members indicate that there is not always a clear role division between the VO and the internal supervision by the RvT. It is felt that they are bearing similar responsibility. For example, the RvT of fund J is more theme oriented in its supervision, it follows
developments constantly and is involved in the processes. In another fund, this is precisely the task of the VO (Fund M). Because in his opinion the roles overlap, Board member I wonders:
“And should you not make certain that you simply have a strong and powerful Board, that's the main thing. Then VO has oversight. Should you then also have a Supervisory Board?”.
This constant sense of responsibility is an annoyance to Board member G: “I don’t think its
suitable in the way we socially justify our actions”.
4.3 Risk Management
Pension fund H has started building a new risk management reassigning process roles and responsibilities. This has resulted in the appointment of a risk manager with a coordinating role. The board and its committees monitor the risks through reports and consultations. This is done on a three-month basis for the financial risks and six-month basis for operational and strategic risks. Board member H indicates there now is more discussion about risk
management and commitment to it. The Board was in his opinion too far away from the topic but was still responsible. This has resulted in a different focus on outsourcing.
D, G, H, and M explain their risk management frameworks on the basis of the risk awareness of the Board. These are frameworks in which risk is valued, while at the same time the impact of the risk is analysed. The Board can now check these frameworks electronically and thus be kept informed constantly.
At funds F and I the Board considers all risks once a year. At fund I there are weekly risk reports so policy in asset management can be modified. Board member F says that there are clear agreements with the asset manager and processes involved are recorded in case the risks negatively influence asset returns. The Board of fund F would like to add some more
‘qualitative points’ of risk management, for example: “We advocate culture, do we have a healthy culture?” The essential questions only to be answered are according to him, “Who can reach the money? What happens when this money is in acute danger?” Boards G and J
base their risk management on calculated scenarios with different risks. This way they try to anticipate ex ante on risks and prepare reactions. Fund L stands in its opinion too close to its executive office and has therefore consciously chosen to outsource the ALM study. This is done because the resulting study predicts the risks and the boards policies are based on this study. Thus, implementation and policy preparation are separated. Board member B would like to do more stress tests, cumulating data and monitoring scenarios on a daily level. He said the fund is on the right track but not there yet. In his opinion funds claim excessively they have done something but cannot respond to risks. According to Board member N, claiming this is mainly because of regulations; ‘one is put in a strait-jacket’. He prefers outsiders to look at the risks, in his opinion they see risks sooner than insiders.
Board member K indicates the fund is engaged in mapping risk management and risk awareness of the participants. The board member notes, however, that much risk management is done by the executive office and the service providers. The role of his Board is now mainly controlling, but the Board has the ambition to grow to supervising.
Board member G emphasizes the uncontrollability of risks: “A crisis, a financial
crisis, cannot be predicted. Pension fund boards are not about that. Only: are you well prepared and do you take the appropriate measures?” Board member M shows that the
risk management before the financial crisis has done more harm than good: “The investment
policy was hard-coded tuned to risks. Funding ratio thus fell harder.” The boards of D, K and
L also indicate that a fund should not want to cover disproportionate risks with high
investments, “Then you need the assets already at enormous cost to be secure. And even then
you are not safe for geopolitical complications.”
4.3.1 Executive Office
Except for B, I, J and L all funds have their own executive office, these four funds have outsourced this task. The executive office advises the board and prepares the policy. In addition, they coordinate the monitoring of external parties. The policy documents at fund A have a cover note of the executive office. Board member D indicates that his executive office, has an mandate from the board, containing policy and investment frameworks in which it can act on behalf of the Board. At Fund F the general approach and continuity brought in by the executive office is the key element in the relationship with the board. The Board member O indicates he could no longer perform his work without the executive office and its director. The Board members E, I and L still have their doubts about their relationship with their executive offices. E wonders whether the board should have more countervailing power to the executive office, as according to DNB the executive office is part of the fund and needs supervision. The doubts of I and L, with an outsourced executive office, are similar: all management affairs are with the same organisation and their supervision is only one external audit per year. On paper there is a separation between the service provider and the executive office: “However, from a distance, I say, they are the same” (Board Member I). The other two Board members with an outsourced executive office, Board members B and J, do not have these doubts. D, N, H, M and O cite that the executive office provides a source of
knowledge for the boards. At N this is precisely the reason why the board has chosen to put the executive office within the board as the executive part in the reverse mixed model.
4.3.2 Outsourcing
The monitoring of outsourcing activities must be intensified according to board member B. At fund N the executive board members monitor the outsourced investment management. Except for funds A, G and M all funds have outsourced the investment activities. These three funds and fund N have their own administration of pension rights. In fund C, there has been a two-year project in which the outsourcing policy is completely renewed, with a new risk
management and devices to create more countervailing power to the service providers. All processes and agreements are evaluated and converted into new contracts. At fund M this was done when a new fund was set up, given the opportunity to “rebuild the whole chain.” The employer mandated the new fund to outsource all activities to service providers. The inverse mixed board was elected on the basis of experience with outsourcing processes.
The executive offices of almost all funds (except for H and L) will oversee all outsourced tasks of the fund. This is done by means of a large number of reports obtained from the service providers. In fund D the executive office has the reports and asset statements by its own risk manager. Moreover Board member B indicates “And we know, there is still
more top happen in the coming years.” Fund F is just trying to keep the policy simple by
looking at a benchmark. The board itself can directly carry out the checks. Board member K indicates that, after selling their administrative service provider, the executive office has been reinforced because the outsourcing policy requires stronger monitoring. In the process the Board has come more at a distance of day-to-day management. Monitoring is done by looking at the benchmark on costs and performance of the investments. In fund E, as with H, the
members. This way the board tries to secure the process from different angles. According to H, recommendations from the committee are leading to quite some discussions in his boards.
4.4 Communication and transparency
Board member B indicates what transparency means to him: “You have to be accountable for
what you do and what you don’t do”. According to Board member G, this is also the reason
why the funds’ mission and objective are on the website. According to him, communication and the involvement of stakeholders in the fund can renew confidence in the system. But he also immediately adds that people can look at it differently: you will have to show good performance. The board of fund O indicates that transparency ensures less problems with participants, and a clear internal communication between the VO and the Board. He therefore indicates that the fund also makes errors public and even puts a review by DNB on the funds’ continuity on the website of the fund. Board member K also indicates that it should be made clear to the stakeholders that some objectives are difficult to reach, “And we always say, you
know, we do try and it has so far succeeded well, but there may come a time that you can simply no longer guarantee indexation.”
Transparency provides the Board with a support base from the stakeholders, according to board member L. He indicates there is more legitimacy for the fund and its policies in the eyes of employees and employers, “the Board is a delegation of them and it should bridge the
unbridgeable gap of pension knowledge and understanding in their person.” A dialogue takes
away the tensions between stakeholders and the fund according to board member J. According to board member D, communication is easier for OPF’s. They have a ‘familiar face’ for the participants, something Board member G also recognizes. Especially when funds have an office in the building of the employer, it is easy for participants to come
by, according to D. BPF’s have more adverse circumstances having clients at many different locations, D explains.
The administrative ‘machinery’ under the board is very important according to G. The board is the top of the pyramid with a constant flow of information: the channelling of
information must be open to questions from below. To optimize this process they frequently use surveys and panels. To Board member G this a pleasant way of managing; it shows how participants think about the state of the fund. By actively involving stakeholders fund E wants to create awareness about pensions, but also foster the image of the fund, including an
explanation of the funds risks. It is harder for a participant to make a choice when he or she is not well informed. Hence pension fund C, an OPF, withdrew communication from the service provider and has again outsourced it to a special financial communications agency. They wanted to be in control themselves.
In the case of occupational pension funds the professional association has an important role in the communication and transparency, which is a great advantage according to board member K. But he also indicated that even for highly educated participants, fruitful communication is difficult and pension communication all the more.
4.5 Suitability and expertise
Board members B and D agree with each other that another era has been entered where pension funds own €1100 billion. This requires expert board members and supervision on expertise by DNB. Although the board does not have the daily management to fund D, they are responsible. According to board member H the financial crisis has made the board more aware of the importance of capability and expertise. DNB, according to C, therefore sets higher demands upon candidates than in the past. At fund M someone is only sent for a
fund or the individual. Board member B mentions that availability of time has also become a criterion in the screening as well. When setting up a new fund, the fund of M therefore chose a technocratic team that already knew each other, with full focus on expertise.
The availability of suitable candidates varies, depending on the sector. The employer of Board member B, i.e., is used to be subject of external supervision, which ensures
professional employees. According to N, D and L ample financial know-how is available internally with the employer, and Board members are consequently of a high level. C recognizes this, but asset management experts are asked from outside. These experts
strengthen the boards A, E, H, and F to a great extent. Board member A sees his more limited expertise in a number of areas as an advantage. Even without specific expertise he can be of value from a general perspective. Similarly member G praises the combination of top experts and social partners in his fund. L does warn “not well distributed expertise or too much
expertise can lead to rapid substantive and interesting discussions but also to segmentation in the administration.” In the same vain A and I warn against too much emphasis on expertise.
They see other sectors where only experts work, like banks, being hit harder by the financial crisis.
The board members A and H indicate the necessity for board members to meet
suitable profiles. C and H mention in this connection training of all board members should be orchestrated in order to prevent any gaps in expertise. All funds design a training program as well as continuing education for board members. I.e. the board of K discusses a theme before each meeting and arranges training days. At M they even have set up a separate training program together with a training organisation (SPO) adding fund-specific features. At the employer of M is already much attention for financial and general competences but specific pension expertise has to be provided. M mentions that the employer has extensive experience with outsourcing processes, which now comes in handy for the pension board.
