Following the recommendation of Compaq Computer Corporation, its Brussels-based subsidiary has completed the transition process of its pension fund to move from defined benefit to defined contribution (DC). The process was finalised earlier this year under the supervision of the company’s headquarters and the compensation and benefit team in Brussels.
“It took us quite a long time to make the move,” says Brigitte Strens, compensation and benefit manager at Compaq Computer pension fund in Brussels. “Our main concern during the process was to give employees all the information they needed in order for them to understand the change. We put a lot of effort into communicate with them on an individual basis about the changes involved so they could find out for themselves how the new plan would affect them,” Strens says.
The move began after Compaq Computer acquired Digital Equipment, and the two pension schemes became one. The actual pension plan covers employees working in Belgium and Luxembourg. “Right from the beginning we were in a very lucky position because the old Digital’s DB pension fund was overfunded,” Strens explains. “This allowed us to offer employees good transfer conditions from the old to the new fund. If this hadn’t been the case, the process would have been much more complex and probably we had have to offer a DC arrangement to newly hired employees only with the rest of employees staying in the old DB plan.”
This overfunding was one of the reason why the process succeeded and the changes were well accepted by members. “For the time being employees are quite happy with the new arrangements by they also understand that in a DC plan the investment risk lays with them,” she says.
Comparing the situation of this pension scheme with what other subsidiaries are doing, Strens says: “There are other countries like the Netherlands where the process has not been finalised.” Although this issue is being discussed everywhere, for some countries having these pension arrangements is not a priority. “Some countries in Central and Eastern Europe are more focused now on other aspects of benefit and compensation arrangements and the move to DC is not something they are planning to do right now,” she says. “It all depends on the involvement of work councils and employee information which affects the speed of the transition.” Although the establishment of a DC plan is highly recommended by the multinational, local regulation and requirements do not always help and, in this cases, other arrangements should be considered. “The company’s recommendations are not that strong that there can’t be any deviation. They are based on what the company believes is the best option for its employees, but they are not mandatory.”
Compaq also recommends taking a flexible approach towards benefits but this is not always possible. “Belgian legislation, for instance, does not allow full flexibility in terms of benefits,” Strens says. “You can’t tell your employees simply ‘make your choice, it’s up to you’ because the law doesn’t allow you to do that. This is one of the aspects we want to improve because we believe members would like to have more choices and do what they really want to do with their investments, but the current fiscal uncertainty does not help. Probably this is something that we’ll be doing in the next few years when the fiscal situation improves.” Also, in terms of flexi-plans or cafeteria systems, those are not easy to include in plans which have been working for a while. “When you start a fund from scratch you can include all the different arrangements that you wish, but when you are working with old plan introducing flexibility it’s not always easy.”
Another recommendation from the headquarters is the use of international pooling. “It’s also a requirement from our company that international pooling arrangements are considered because it’s understood that they can provide significant cost savings,” Strens says. “ But our experience tell us that at the level of a subsididary like ours, the visibility and transparency of these arrangements is very weak. Some times it’s difficult to understand how everything is calculated and, although we are members of an international pooling arrangement for certain type of benefits, we still prefer to take advantage from local experience before going to the international pooling.” She adds: “I think that especially in countries like Belgium were the premiums for life insurance are much higher than in other European countries, using a local provider is much more beneficial for us.”
Compaq does not have a group-wide strategy in terms of mobile employees but this issue is affecting more at headquarter than at a subsidiary level . “For the moment is not a big issue in Belgium or Luxembourg because there is not a lot of employee movement,” Strens says. “In general Compaq sees international transfers more on a permanent basis, so usually employees join the pension scheme of the new country,” she says. “When we were Digital we had a much more developed policy for mobile employees who were handle under an umbrella policy, but I don’t see Compaq going in that direction.”
In terms of investment strategies, these are also co-ordinated on a local basis. “We follow our own internal guidelines,” Strens says. “This is something we do together with the actuaries, external consultants and the financial institutions who manage our assets. We explain to them what we want to do, giving them a member profile for them to establish the best investment strategy.” At the moment they are using two investment houses which are now adapting themselves to the requirements of the newly established DC plan. “We still don’t know much about how things are progressing. There are going through an adaptation period and we have to follow this up.”
The fund which has now assets for BFr 1.8bn (e2.9bn) and covers 700 active member and more than 300 retirees, is now focused on improve communication. “ We want to be able to communicate with employees in a flexible way and give them the information they need on investment returns.” Strens says: “When you are working with more than one external manager is not easy to provide comprehensive information on performance on a very regular basis and that’s what we are trying to improve because this information is crucial when you are running a DC plan.” IPE