SWEDEN - Some of Sweden's biggest corporates are said to be reorganising their position with Alecta - the occupational pension scheme for blue collar workers - on the back of its "special agreement" with the airline company SAS.
Under a specific and special agreement with Alecta, SAS can account for its share in the plan as defined benefit (DB) and also receives a written description of surpluses. The company also has the option to move its assets away from the ITP plan (which is reinsured with Alecta) if it chooses to.
Under IAS19, companies that are covered under a multi-employer plan have to account for their portion in the plan as DB, provided that coherent and reliable information is available. However, last year Alecta claimed it was unable to provide such information resulting in the Swedish Accounting Standard Board stating that plans insured with Alecta can be accounted for as DC until it is able to provide this reliable and coherent information.
However, SAS in its 2004 Annual Report said: “It is SAS’s opinion that the information received from Alecta is correct and reliable and enables reporting of SAS’s proportional share of DB commitment along with assets under management and costs associated with the Alecta plan.”
Mats Langensjo (pictured), managing director at Aon Consulting in Stockholm, said: “Some of the bigger companies now feel that they should be provided with similar information. If a company is given this information, it can assess how its liabilities affect its book and can also get control of its assets. These companies are also deciding if they should move to a more customised solution. No corporate wants to take on a mismatched risk that is unrewarded.
“There are some inherent inconsistencies here. If the DB plan is insured with Alecta it is supposed to be accounted for as a DC plan by the sponsoring company.
Nevertheless, in the collective agreement where the ITP plan is one part, it is assumed that the company is always finally responsible for the pension promise. If so, it is likely that the liabilities and the assets of Alecta should be accounted for in the company balance sheet, as a DB.
“The issue with that is that Alecta holds an average portfolio, that does not reflect or consider each individual company?s risk approach, financial status or structure of the liability. So in fact, pensions may be more secure with a pension foundation or under the book reserve method (with a credit insurance) where the employer bears the full financial responsibility,” added Langensjo.
Bjorn Nilsson, a senior consultant at Hewitt added: “As in Finland, if all employers are allowed to transfer into a pension foundation book reserve it might be considered reasonable. This can be considered as a tactical model and we might discuss doing something similar in Sweden.”
An Alecta spokesman commented: “The SAS deal is not a regular deal and it is a special agreement.”
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