The e3.5bn Brussels-based pension fund for Belgian telecommunications group Belgacom (BGC) has active membership of around 15,000 and more than 10,000 retirees. Deferred/vested members represented just over 7,000 in December 2000.
The fund, the largest in Belgium, is charged with the role of securing the legal pension liabilities for the statutory staff of Belgacom – this takes the form of a defined benefit (DB) plan covering 75% of final salary with benefits linked to inflation, ie purchasing power plus welfare adjustments. The fund has been responsible for this portion of state pension provision since 1930.
The benefits include the legal retirement entitlement of social security, a special early retirement programme (PTS), disability pension and a survival pension, introduced on January 1, 2001.
Until 1995, the fund was a pay-as-you-go (PAYG) entity . In the same year, the concept of capitalisation (funding) was introduced and the Belgacom pension ‘fund’ created. BGC took the initiative of setting up a separate legal entity to keep the pension assets easily distinguishable from the corporate risk. The deal took two years of negotiation with the government before the fund could gain the necessary legal authorisation. The separation of duties is now clearly laid down in a separate management agreement between the plan sponsor and the pension fund.
In terms of its funded status, which is based on a going-concern basis (dynamic financing methods), the scheme had an asset/projected benefits obligations (PBO)-liabilities level of 78% at the end of 2000. In 1995 this had only been 22%. A tough funding plan and favourable returns had produced exceptional results. Indeed, on a static basis the funding level of the Belgacom scheme was 198% at the end of 2000.
At the heart of BCG’s pensions policy are three pillars – security, transparency and accountability to all shareholders. The recognition of unfunded pension liabilities as a corporate debt/obligation and the introduction of a dynamic funding policy were part of this approach. The policy of integrated financial management was another. This included regular dynamic ALM studies, integrated benefit funding and asset policy. Risk was also continuously integrated on a corporate level with VAR and downside risk assessment included.
For the shareholders, the visibility of the pension fund enables the company to set clear corporate objectives, while the application of US GAAP and IAS standards makes a clear impact on the company’s annual accounts.
Although not legally required, the fund publishes an annual report in three languages – French, Dutch and English and included in the document are the scheme’s social role, investment results, PBO, funding policy and asset allocation. The report is also available via a company intranet site and is sent to members two weeks in advance of publication.
A cornerstone of the fund’s philosophy is that it is seen as a profit centre and not a cost centre. For employers the benefit is the investment in human capital and cost efficiency. For workers, the separate funding structure creates more guarantees for current and future pensions. For unions the benefit is the investment in social peace, while for the government the contracting-out model makes industrialised public companies accountable for their own pension costs and any anticipation of future demographic shocks.
On the investment side, all assets are outsourced to external managers through European public tender procedures to ensure transparency.
The pension fund decision process begins at board level. The board comprises four shareholder members, three members from the sponsor and three from the unions. The board takes what the fund calls the ‘big picture’ decisions and finds the best balance between fiduciary and funding objectives. The fund also tries to ensure the board is as multi-cultural as possible.
A government commissioner has a place on the governing body, albeit with no voting rights. However, a veto can be applied by the commissioner should a fund decision conflict with laws or government security policy in Belgium.
Actual day-to-day management of the scheme and the execution of board decisions are made by two general managers. The general managers are not members of the board and do not have voting rights, although they help in the decision making and education of the board.
The investment managers are controlled by the general managers, who are also responsible for optimising the allocation of the risk budget and defining the investment approach itself. The scheme has a clear separation of duty between custody of the fund’s assets and its management, which is cross-controlled and checked for security.
A staff of 10 people deals with the administration side of the scheme such as benefit payments, accounting, custody and monitoring of cost. Credit risk and operational risk are regularly monitored and the fund has an integrated overall risk management system that looks at legal, policy, ALM, operational and sponsor risks.
Again, while not required by law, the fund has also published a statement of investment principles (SIP), approved by the board in consultation with government.

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