Pension Fund Manager Erisa by jzt11186

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									                                                                                                        PN091250055




   WORKSHOP 28: POOLING OF
    PENSION FUND ASSETS
                      27TH May, 2009 | 11:15 – 12:30

                 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
Part 1:
Introduction: Why Bother?




                            1
Part 1: Introduction: Current Position
                                           Diagram 1
                                     Multinational Employer Group



                    Pension Fund 1          Pension Fund 2          Pension Fund 3



      Custodian 1                Custodian 2                 Custodian 3


      Investment                 Investment                  Investment
      Manager 1.1                Manager 2.1                 Manager 3.1

      Investment                 Investment                  Investment
      Manager 1.2                Manager 2.2                 Manager 3.2

      Investment                 Investment                  Investment
      Manager 1.3                Manager 2.3                 Manager 3.3
                                                                                     2
Part 1: Introduction: Desired Position*
                                           Diagram 2
                                      EU Employer Group




        Pension Fund 1                  Pension Fund 2              Pension Fund 3


                                        Pooling Vehicle         Custodian


                      Equity Sub-
                                                             Bond Sub-Fund
                        Fund

       Equity Manager            Equity Manager      Bond Manager        Bond Manager
              1                         2                 1                   2

                   Sub-Custodian 1                           Sub-Custodian 2

*Assumes no U.S. plan participation
                                                                                        3
Part 1: Introduction: U.S. Master Trust Structure
                                      Diagram 3
                                    U.S. Employer


                 U.S. Pension        U.S. Pension       U.S. Pension
                    Fund 1              Fund 2             Fund 3


 Investment Committee                Master Trust        Master Trustee


                   Equity Sub-
                                                         Bond Sub-Fund
                     Fund


      Equity Manager        Equity Manager      Bond Manager        Bond Manager
             1                     2                 1                   2


                Sub-Custodian 1                          Sub-Custodian 2

                                                                                   4
 Part 1: Introduction: Desired Position with U.S.
 multinational overlay
                                                                        Diagram 4
                                                               U.S. Parent Company


              EU Company 1                        EU Company 2                    U.S. Company 1                   U.S. Company 2

                 EU Pension                          EU Pension                      U.S. Pension                     U.S. Pension
                   Fund 1                              Fund 2                           Fund 1                           Fund 2
                                                                                                                                             Investment
                                                                                                   Master Trust
                                                                                                                                             Committee
                                Management                                                                    Custodian/Master
                                                                       Pooling Vehicle
                                 Company                                                                         Custodian

                                 Equity Sub-Fund                                                              Bond Sub-Fund


              Equity Manager 1                      Equity Manager 2                      Bond Manager 1                       Bond Manager 2

                                Sub-Custodian 1                                                              Sub-Custodian 2
* 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.
                                                                                                                                                                5
Part 1: Introduction: Hoped-for efficiencies
       Source of        Existing Position            Use of Pooling Vehicle               Comment
       Efficiency

1.   Investment     1.1 Each pension fund         1.1 Reduction in number of    1.1 Possible for sponsoring
     management     appoints its own investment   investment managers           employer group to achieve
     fees           managers                                                    number of the savings if
                    1.2 More investment           1.2 Reduction in number of    pension funds used the same
                    management agreements,        investment management         investment managers (as fees
                    so more management time       agreements                    can be negotiated on a bulk
                    and legal fees and higher                                   basis)
                    management fees
                    1.3 Multiple investment       1.3 Volume discount on
                    managers                      investment management fees.
                                                  Savings in legal fees and
                                                  management time
2.   Custodian      2.1 Each fund appoints its    2.1 Reduction in number of    2.1 Possible for sponsoring
                    own custodian                 custodians                    employer group to achieve
                    2.2 More custodian            2.2 Reduction in number of    number of the savings if
                    agreements, so more           custody agreements            pension funds used the same
                    management time and legal                                   custodian managers (as fees
                    fees and higher custody                                     can be negotiated on a bulk
                    fees                                                        basis)
                    2.3 Multiple custodians       2.3 Volume discount on
                                                  custodian fees. Saving in
                                                  legal fees and management
                                                  time

                                                                                                               6
Part 1: Introduction: Hoped-for efficiencies (cont'd)

        Source of         Existing Position                  Use of Pooling Vehicle                     Comment
        Efficiency

3.   Governance      3.1 Higher consumption of            3.1 Group investment                Pooling vehicle has a clear
                     management time in relation to       expertise can be focused in         advantage (if not outweighed by
                     investment matters for each of the
                     different pension funds
                                                          governance committee of             disadvantages)
                     3.2 Dilution of available internal
                                                          pooling vehicle
                     investment knowledge and
                     expertise                            3.2 Better use of management
                     3.3 Duplication of purchase of       time
                     investment consulting services

                                                          3.3 De-duplication of
                                                          investment consulting advice




4.   Reduction in    4.1 Each pension fund will have      4.1 Transactions are, by            Pooling vehicle has a clear
     dealing costs   to buy or sell investments           definition, aggregated via          advantage
                     separately
                                                          pooling vehicle
                     4.2 In some cases, one pension
                     fund will be selling the same        4.2 Funds wishing to withdraw
                     shares (to raise cash) at the        cash can net against funds
                     same time as the other pension       wishing to invest cash with only
                     fund is buying shares                the net position then giving rise
                                                          to a transaction external to the
                                                          pooling vehicle in buying or
                                                          selling investments

                                                                                                                                7
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



                                                                               8
Part 2:
Introduction to types of
pooling vehicles




                           9
Types of pooling vehicles



      Country       Name of vehicle                           Brief description of vehicle

 1.   Belgium   Organisme de placement           Tax transparent fund for collective investments. Structured
                collectif institutionnel (OPC)   as a UCITS or a common investment fund (FCP). New
                                                 vehicle since 18 December 2007. Very flexible regime.
                                                 Access restricted to institutional and professional investors.
                                                 May be set up by only 1 investor.
 2.   Ireland   Common contractual fund          A tax transparent vehicle. Contract based (not a separate
                (CCF)                            legal entity). Established by a management company
                                                 under which investors by contractual arrangements
                                                 participate and share in the property of the fund as co-
                                                 owners of the assets of the fund. The CCF must comply
                                                 with the investment objective, policies set for it and the
                                                 restrictions of the UCITS or non-UCITS rules applicable to
                                                 it. The assets of the CCF are held by a custodian. The
                                                 custodian is a party to the Deed of Constitution.




                                                                                                                  10
Types of pooling vehicles (cont'd)


      Country         Name of vehicle                  Brief description of vehicle
 3.   Luxembourg   Fonds commun de      Tax transparent fund for collective investment.
                   placement (FCP)      Contract based (not a separate legal entity). Established
                                        by a management company under which investors by
                                        contractual arrangements participate and share in the
                                        property of the FCP as co-owners of the assets of the FCP
                                        (but the co-owners have limited liability in the sense that
                                        they can only lose the amount invested in the FCP). The
                                        assets of the FCP are held by a custodian which is
                                        normally party to the management regulations as its
                                        appointment by the management company is a pre-
                                        condition for any participant subscribing in it.
                                        Note: Can be established:
                                        – under Part I of the Luxembourg law of 20th December, 2002
                                        regarding undertakings for collective investment to qualify as an
                                        Undertaking for Collective Investment in Transferable Securities
                                        ("UCITS") under the EU Directive 85/611/EC (as amended), or
                                        – under Part II of the 2002 law, or
                                        – under the law of 13th February, 2007 regarding Specialised
                                        Investment Funds.




                                                                                                            11
Types of pooling vehicles (cont'd)


         Country                  Name of vehicle                      Brief description of vehicle

 4.      The Netherlands      Fonds voor Gemene           Tax transparent mutual fund for collective investments
                              Rekening (FGR)

 5.      UK                   Pension fund pooling        Must be established as a trust which would amount to a
                              vehicle (PFPV)              "unit trust scheme" (but which is then de-natured as a unit
                              See Note 1                  trust scheme for tax purposes by the Income Tax (Pension
                                                          Funds Pooling Schemes) Regulations 1996. Unitholders
                                                          are limited to UK registered pension schemes, "Section 615
                                                          funds" and recognised overseas pensions schemes.
                                                          Operator (usual trustee) of a PFPV will require
                                                          authorisation to undertake this activity under the Financial
                                                          Services and Markets Act 2000 . In practice, cannot invest
                                                          directly in land or buildings, tangible assets (e.g. works of
                                                          art or gold bars) or insurance contracts
                                                          Investments in limited partnerships may be possible so long
                                                          as the property of the limited partnership is one in which a
                                                          PFPV could invest in directly



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.

                                                                                                                          12
Types of pooling vehicles (cont'd)


          Country                    Name of vehicle                                Brief description of vehicle

  6.      USA                   – No specific vehicle for cross-      – In the master trust structure, an ERISA fiduciary (typically an
                                border pension investing has been     investment committee appointed by the parent entity) directs the
                                established; no prohibition against   master trustee as to the sub-funds to be established, appoints the
                                cross-border pooled investments       investment manager of each sub-fund and allocates assets on a plan
                                exists either. See Note 2.            by plan basis among the sub-funds. All of the assets in the master
                                – U.S. employers typically use a      trust are treated as “plan assets” under ERISA
                                master trust to commingle assets      – A recent Advisory Opinion published by the U.S. Department of
                                of group’s U.S. plans for             Labor has been referenced as evidencing regulatory approval of a new
                                investment.                           cross-border investment vehicle. Others assert that the Advisory
                                – Some U.S. based global              Opinion represents no change. For a U.S. multinational entity, the
                                custodians are developing             developing global pooling structure adopts a “safe harbor” approach
                                vehicles for global pooling.          treating all commingled subfunds as subject to ERISA, e.g.
                                                                      ERISA’s “indicia of ownership” rules restrict how
                                                                      investments may be held outside of the U.S.;
                                                                      ERISA’s “plan asset” rules apply;
                                                                      ERISA’s prohibited transaction rules apply; and
                                                                      all managers of the sub-funds are “investment
                                                                      managers” as defined under ERISA.




 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
                                                                                                                                             13
Part 3:
Legal and tax constraints




                            14
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




                                                          15
     Constraint 1: Can the pension fund
     invest in the pooling vehicle?
                                                                EU Multinational



                        EU Pension                                 EU Pension                          U.S. Pension
                          Fund 1                                     Fund 2                               Fund*

                                                                                                           Trust or
                                    Units (see           Units (see           Other assets                                       Investment
           Other assets                                                                                    Master
                                     Note 1)              Note 1)                                                                Committee
                                                                                                            Trust*

                                                      EU established pooling                        Custodian/Master
                                                             vehicle                                   Custodian


                        Equity Sub-Fund                                                        Bond Sub-Fund


        Equity Manager 1                 Equity Manager 2                     Bond Manager 1                   Bond 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.
                                                                                                                                                 16
     Constraint 1: Can the pension fund
     invest in the pooling vehicle? (cont'd)

                                                  Restrictions as to
                            Restrictions as
        Country of                                  percentage of
                               to type of                                  Currency
        establishment of                          portfolio invested                                Other
                            investment that                               restrictions
        pension fund                                 in particular
                              may be held
                                                     investments

1.      Belgium             None specific –      Investments in the    None                 No
                            prudent man rule     sponsoring
                            UCITS –              company: max 5%
                            restrictions may     Maximum 10% in
                            be applicable        companies
                                                 belonging to same
                                                 group
2.      Ireland             None if QIF*         QIF – None            None                 No
                            Yes, if UCITS        UCITS – investment
                            (limitations under   restrictions
                            UCITS Directives
                            – e.g. no property
                            or commodities)




* A Qualifying Investor Fund where the minimum investment is €250,000 and the investor has assets of €25,000,000.

                                                                                                                    17
     Constraint 1: Can the pension fund
     invest in the pooling vehicle? (cont'd)

       Country of           Restrictions as       Restrictions as to         Currency                 Other
       establishment of        to type of           percentage of           restrictions
       pension fund         investment that       portfolio invested
                              may be held            in particular
                                                     investments


3.     The Netherlands      None specific as     None specific, but      None                 No
                            far as the           there are limitations
                            investment           to (in) direct
                            portfolio as a       investments in the
                            whole is prudent     sponsoring company
                            UCITS restrictions
                            may be applicable




 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



                                                                                                                 18
     Constraint 1: Can the pension fund
     invest in the pooling vehicle? (cont'd)

       Country of           Restrictions as      Restrictions as to         Currency                Other
       establishment of        to type of          percentage of           restrictions
       pension fund         investment that      portfolio invested
                              may be held           in particular
                                                    investments


4.     UK                  None specific –      None specific, but      None                No
                           prudent person       there are limitations
                           rule applies.        to (in) direct
                           However,             investments in the
                           necessary to         sponsoring company
                           make sure that       (including person
                           general              connected or
                           restrictions         associated with a
                           imposed by Article   sponsoring
                           18 of IORP           company)
                           Directive
                           (2003/41/EC) as
                           implemented into
                           UK legislation



 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
                                                                                                                    19
Constraint 1: Can the pension fund
invest in the pooling vehicle? (cont'd)


     Country of      Restrictions as       Restrictions as       Currency                            Other
     establishment      to type of        to percentage of      restrictions
     of pension      investment that          portfolio
     fund              may be held           invested in
                                              particular
                                            investments
5.   US              ERISA                ERISA fiduciaries    There are no       – A pooling vehicle and commingled sub-
                     fiduciaries have     have a duty to       specific           funds may be subject to ERISA if 25% or
                                                                                  more of their respective assets are
                     a duty to act        diversify plan       currency           attributable to U.S. pension plans
                     prudently (a         investments; there   restrictions,      – Some multinational employers with U.S.
                     comparable           are no specific      but ERISA          parent companies have unilaterally adopted
                     fiduciary            statutory or         fiduciaries are    a structure whereby all assets invested via
                     standard); no        regulatory           subject to         the pooling vehicle are treated as subject to
                     specific statutory   restrictions as to   fiduciary          ERISA (a “safe harbor” approach)
                     or regulatory list   the percentage of    standards of
                     of approved          a portfolio that     prudence,
                     investments a        can be invested in   diversification,
                     plan may hold        particular assets    etc




                                                                                                                                  20
 Constraint 1: Can the pension fund
 invest in the pooling vehicle?
                           Due process to follow before investing:
     Country of              Amend           Obtain investment         Other regulatory       Comment
     establishment of     statement of            advice                requirements
     pension fund          investment
                           principles?
1.   Belgium            Probably,            No                   If SIP to be amended:
                        depends upon                              prior advice of works
                        content of                                council, health
                        strategic                                 committee or trade
                        investment plan of                        union delegation of
                        the fund                                  sponsoring company
2.   Ireland            Yes                  Yes                  Not on fund's side

3.   The Netherlands    Probably,            No                   No
                        depends upon
                        content of
                        strategic
                        investment plan of
                        the fund
4.   UK                 Yes                  Yes (Section 36 of   Comply with UK
                                             the Pensions Act     Financial Services and
                                             1995)                Markets Act 2000:
                                                                  Needs to be a strategic
                                                                  decision (not day to day)
                                                                  or fall within "with
                                                                  advice" exception
                                                                                                        21
 Constraint 1: Can the pension fund
 invest in the pooling vehicle? (cont'd)
                            Due process to follow before investing:

     Country of           Amend               Obtain               Allocation of Fiduciary Responsibility
     establishment     statement of         investment
     of pension         investment            advice
     fund               principles?
5.   USA             Prudence,            The sub-funds    Under ERISA, fiduciary responsibility can attach by
                     diversification      should be        designation or by operation. U.S. pension plans
                     and other            managed by an    typically designate a “named fiduciary” to establish the
                     requirements         “investment      plan’s investment structure, asset allocation, selection
                     must be satisfied.   manager” as      of managers, etc
                     This requires        defined under    – For a U.S. multinational, it is logical for: (i) the global
                     appropriate          ERISA. Also,     custodian function being exercised by the “master
                     process and          the              trustee” to be expanded as described herein; and (ii)
                     consideration        “management      the model for the pooling vehicle structured to comply
                     including, for       company” could   at all levels with ERISA. In addition, note that:
                     example,             be an ERISA       if a U.S. plan designates a U.S. named fiduciary, but
                     adopting             fiduciary        actual investment control of its assets is exercised by
                     appropriate                           non-U.S. corporate executives, these non-U.S.
                     investment                            individuals also could have ERISA fiduciary
                     guidelines                            responsibility and potential liability
                                                            if the U.S. plan designates non-U.S. corporate
                                                           individual or entity as its named fiduciary, the designee
                                                           will be subject to ERISA fiduciary standards with
                                                           respect to the decision to invest through the pooling
                                                           vehicle

                                                                                                                           22
 Constraint 2: Restrictions on marketing
 the pooling vehicle to the pension fund

                    Restrictions on marketing the pooling                           Comment
                         vehicle to the pension fund


1.   Belgium      No                                                Pension funds = institutional investors
                                                                    Shares of OPC must be and remain
                                                                    registered.
2.   Ireland      No restriction for company sponsored CCF.         Irish funds have been privately placed
                  Third Party marketing QIFs would have to          worldwide
                  be privately placed pursuant to local private
                  placement rules. UCITS would have to be
                  registered for sale in the relevant
                  jurisdictions
3.   Luxembourg   UCITS requirement to comply with local            3.1 No additional Luxembourg law
                  marketing rules/ restrictions applicable in the   restrictions apply to marketing the
                  countries of distribution. Luxembourg law         UCITS to pension funds established in
                  restrictions apply if marketed to Luxembourg      countries outside of Luxembourg.
                  established pension funds                         3.2 If the pension fund pooling vehicle
                                                                    was to be marketed also to a pension
                                                                    fund established in Luxembourg, there is
                                                                    unlikely to be any additional restrictions,
                                                                    as the contact would be a one to one
                                                                    contact.



                                                                                                                  23
Constraint 2: Restrictions on marketing
the pooling vehicle to the pension fund (cont'd)
                                   Restrictions on marketing the pooling                       Comment
                                        vehicle to the pension fund



4.       The Netherlands         No                                               For example, assets of the Italian
                                                                                  Pensplan are invested in closed
                                                                                  FGR of the APG Group


5.       UK                      Financial Services Market Act 2000, Sections     The pooling vehicle will generally
                                 21 and 238 includes restrictions on              be a collective investment scheme
                                 invitations to invest in collective investment   for UK Financial Services and
                                 schemes or otherwise engage in investment        Markets Act 2000 purposes
                                 activity. Necessary to fall within exemption     High value trusts are those with
                                 available for issue of promotional materials     assets in excess of £10 million
                                 to "high value trust"


6.       USA                     There are no statutory or regulatory             Marketing typically is considered in
                                 restrictions on marketing investments to         the context of managers seeking
                                 pension plans. The decision to invest the        investment by the U.S. plan in their
                                 pension plan’s assets in the pooled vehicle      products
                                 would be a fiduciary decision under ERISA


Note: The general rule is that country of location of pension fund sets the rules on marketing restrictions to that
pension fund.

                                                                                                                         24
Constraint 3: Constraints imposed by
the legal structure of the pooling vehicle

     Country of        Does the     Is the vehicle    Restrictions       Nature of supervisory          In specie
     establishment   vehicle have         tax         on operation              regime                transfers in
     of pension       a separate    transparent?       of pooling                                        and out
     fund                legal                          vehicle                                         allowed?
                     personality?
1.   Belgium         FCP: no        FCP: Yes –       No quantitative     No direct prudential        Yes, possible
                     UCIT: yes      exempt from      limits or risk-     control by CBFA             subject to
                                    corporate        spreading rules     (indirect control through   contractual
                                    income tax on    apply. Permitted    control on custodian,       provisions
                                    income and/or    investment          management firm of
                                    capital gains.   assets              OPC and pension fund
                                    UCIT: Yes        restricted to       – direct control on
                                                     financial           scope of activities: no
                                                     instruments and     public offers)
                                                     liquid assets       Registration with
                                                     (should be          Belgian Tax Ministry (no
                                                     broadened in        control on content of
                                                     near future).       documents)
                                                     See Deed of         External auditor/ audit
                                                     Constitution.       firm
2.   Ireland         No             Yes              Deed of             IFSRA (Irish statutory      Yes
                                                     Constitution will   regulator of financial
                                                     set these out       services industry)



                                                                                                                     25
 Constraint 3: Constraints imposed by
 the legal structure of the pooling vehicle (cont'd)

     Country of        Does the       Is the vehicle   Restrictions on       Nature of           In specie
     establishment   vehicle have a         tax         operation of        supervisory      transfers in and
     of pension      separate legal   transparent?     pooling vehicle        regime           out allowed?
     fund             personality?



3.   Luxembourg      No.              Yes, from a      Deed of             CSSF              Yes
                                      Luxembourg       constitution will   (Commission
                                      perspective      set these out       de Surveillance
                                      and accepted                         du Secteur
                                      as such in the                       Financier)
                                      main
                                      jurisdictions




                                                                                                                26
Constraint 3: Constraints imposed by
the legal structure of the pooling vehicle (cont'd)

     Country of         Does the       Is the vehicle   Restrictions on       Nature of            In specie
     establishment    vehicle have a         tax         operation of        supervisory       transfers in and
     of pension       separate legal   transparent?     pooling vehicle        regime            out allowed?
     fund              personality?


4.   The             No, based on      Yes              Deed of             Possible           Yes, possibly
     Netherlands     contractual                        Constitution will   supervision by     made subject to
                     arrangement                        set these out       AFM (Authority     approval of other
                                                                            Financial          participants
                                                                            Markets) and
                                                                            DNB (Dutch
                                                                            Central Bank) if
                                                                            it involves
                                                                            outsourcing by
                                                                            Dutch pension
                                                                            funds
                                                                            No supervision
                                                                            if participation
                                                                            is only offered
                                                                            to qualified
                                                                            investors within
                                                                            the meaning of
                                                                            the Prospectus
                                                                            Directive


                                                                                                                   27
Constraint 3: Constraints imposed by the legal structure
of the pooling vehicle (cont'd)
      Country of         Does the vehicle      Is the vehicle     Restrictions on        Nature of           In specie
      establishment      have a separate             tax           operation of         supervisory      transfers in and
      of pension        legal personality?     transparent?       pooling vehicle         regime           out allowed?
      fund


 5.   USA               There is no            Yes; the pooling   N/A; if              ERISA (the        Yes, but subject
                        separate vehicle       vehicle should     considered to        Internal          to prohibited
                        under US law           be transparent     hold plan assets,    Revenue Code      transaction* rules
                        designed for cross-    (e.g. a            pooling vehicle      for tax           under ERISA and
                        border pooling of      partnership for    will be subject to   considerations)   the Internal
                        pension assets.        U.S. tax           ERISA.                                 Revenue Code
                                               purposes)
                        A US master trust
                        may only hold          Pension plans
                        assets of certain      participating in
                        US retirement          the master trust
                        arrangements (i.e.     must be limited
                        code section           to US plans to
                        401(a) tax qualified   benefit from tax
                        plans, IRAs and        exemption
                        governmental plans     available for
                        to benefit from US     master trust
                        tax exemptions         (see Note 1)


*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
                                                                                                                              28
Constraint 4: Constraints imposed by the regulatory regime
of the country of establishment of the pooling vehicle

       Country of         Minimum     Authorisation     Need for       Limits on      Limits on        Governance
       establishment       capital     for starting   prospectus/      controls        controls         structure
       of pension       requirement    business?         listing      available to   available to
       fund                                           particulars?    sponsoring      investors
                                                                       employer


  1.   Belgium         None           None – Upon     No –           Through         See            Deed of
                                      confirmation    Information    pension fund    contract/      constitution –
                                      of its          brochure is    and SIP         Deed of        Board of
                                      registration    enough                         constitution   Directors or
                                      with Belgian                                                  Manager -
                                      Tax Ministry                                                  Custodian

  2.   Ireland         QIF:           IFSRA           Yes,           Usually         Usually        Deed of
                       €250,000 –     approval*       prospectus     imposed         imposed        Constitution –
                       minimum                                       under Deed      under Deed     Board of
                       investment;                                   of              of             Directors of
                       €25m per                                      Constitution    Constitution   Management
                       investor.                                                                    Company
                       UCITS: no
                       minimum
                       investment



   *Changes to structure require prior approval, e.g. Investment Managers

                                                                                                                     29
Constraint 4: Constraints imposed by the regulatory regime
of the country of establishment of the pooling vehicle (cont'd)
      Country of         Minimum       Authorisation    Need for        Limits on      Limits on        Governance
      establishment       capital       for starting   prospectus/      controls        controls         structure
      of pension       requirement      business?         listing      available to   available to
      fund                                             particulars?    sponsoring      investors
                                                                        employer

 3.   Luxembourg      Minimum net      CSSF must       Yes.           Usually         Deed of        Board of directors
                      assets           authorise the   Prospectus     imposed         Constitution   of Management
                      € 1,250,000      Management      required       under Deed                     Company
                      (to be reached   Company of                     of
                      within 6         the FCP.                       Constitution.
                      months of        CSSF must                      But direct
                      authorisation)   approve the                    control not
                                       Deed of                        usually
                                       Constitution                   possible

 4.   The             None             None            No             Custodian is    If separate    General assembly
      Netherlands                                                     in control      custodians,    and Manager-
                                                                                      segregated     Custodian
                                                                                      liability

 5.   USA             N/A              N/A             N/A            N/A             N/A            N/A
      No global
      pooling
      vehicles
      developed
      under U.S.
      law.

                                                                                                                          30
 Constraint 5: Tax hurdles:
 Country of establishment of pooling vehicle
                     Income Tax      Capital     VAT on        Stamp     Other          Fiscal        Double tax
                                     Gains     management       Duty     Taxes      transparency        treaties:
                                      Tax         fees                                  of the        Country of
                                                                                     investment    establishment of
                                                                                       vehicle        investment
                                                                                                         vehicle
1.   Belgium   FCP : Nil             Nil       Nil on         Nil      Reduced      Yes            UCIT: eligible
               UCIT : Yes –                    management              annual                      for treaty
               Subject to                      fees                    tax on                      benefits and
               corporate income                                        collective                  reduced
               tax but on                                              investmen                   withholding tax
               alternative tax                                         t funds of                  rates under
               basis (normally,                                        1.01% per                   Belgium's tax
               tax=0); Full credit                                     year                        treaty network
               for Belgian                                                                         e.g.: US
               dividend and
               interest
               withholding tax on
               dividend and
               interest received

2.   Ireland   Nil                   Nil       Nil on         Nil      Nil          Yes            N/A vehicle tax
                                               management                                          transparent.
                                               company                                             Each investor
                                               fees. Yes on                                        should have to
                                               Investment                                          look to tax
                                               Managers                                            treaties of its
                                               fees                                                own home
                                                                                                   jurisdiction
                                                                                                                      31
  Constraint 5: Tax hurdles:
  Country of establishment of pooling vehicle (cont'd)
                        Income     Capital     VAT on        Stamp      Other Taxes          Fiscal         Double tax
                          Tax      Gains     management       Duty                       transparency         treaties:
                                    Tax         fees                                         of the          Country of
                                                                                          investment       establishment
                                                                                            vehicle        of investment
                                                                                                               vehicle
  3.   Luxembourg      Nil         Nil       Exempt (as      Nil       Capital duty,     Yes, in           FCP does not
                                             management                previously        Luxembourg.       benefit from
                                             services in               €1,250, was       But need to       Luxembourg
                                             relation to               abolished with    check position    double tax
                                             collective                effect from 1st   of local tax      treaties if it is
                                             investment                January, 2009     authorities of:   accepted as
                                             scheme)                   Taxe              - investors,      tax transparent
                                                                       d'abonment:       and               Instead,
                                                                       (a) Exemption     - investment      investors/
                                                                       if only pension                     investments
                                                                       funds of                            need to look at
                                                                       companies in                        double tax
                                                                       the same                            treaties
                                                                       corporate                           between
                                                                       group invest                        country of
                                                                       (but see Note                       investor and
                                                                       1)                                  country of
                                                                                                           investment


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).
                                                                                                                               32
 Constraint 5: Tax hurdles:
 Country of establishment of pooling vehicle (cont'd)

                    Income Tax   Capital     VAT on       Stamp         Other         Fiscal        Double tax
                                 Gains     management      Duty         Taxes     transparency   treaties: Country
                                  Tax         fees                                    of the     of establishment
                                                                                   investment      of investment
                                                                                     vehicle           vehicle
     Luxembourg                                                   (b) 0.01%
     (cont'd)                                                     p.a., if only
                                                                  pension
                                                                  funds (not
                                                                  falling in
                                                                  (a) above)
                                                                  invest,
                                                                  payable
                                                                  quarterly
                                                                  on net
                                                                  asset
                                                                  value FCP
4.   The           Nil           Nil       Exempt from   Nil      Nil             Yes            Treaties with
     Netherlands                           VAT if                                                Austria, Belgium,
                                           management                                            Denmark,
                                           services                                              Norway, South
                                           collective                                            Africa, UK and
                                           investment                                            Taiwan.
                                           funds                                                 Memorandum of
                                                                                                 understanding
                                                                                                 with US

                                                                                                                     33
Constraint 5: Tax hurdles:
Country of establishment of pooling vehicle (cont'd)


            Income Tax        Capital     VAT on     Stamp     Other       Fiscal         Double tax
                              Gains     management    Duty     Taxes   transparency    treaties: Country
                               Tax         fees                            of the      of establishment
                                                                        investment       of investment
                                                                          vehicle            vehicle
5.   USA   N/A; but note      N/A       N/A          N/A     N/A       Should          Check tax
           that US income                                              qualify under   treaties between
           tax could apply                                             US tax rules    country of plan
           at the US trust                                             (e.g., as a     and country of
           level if a sub-
                                                                       partnership)    investment with
           fund engages
                                                                                       respect to taxes
           in transactions
           involving                                                                   at the subfund
           leverage or                                                                 level, e.g.,
           active operation                                                            (withholding of
           of a business                                                               dividends at the
           (rather than                                                                source)
           passive
           investment)




                                                                                                           34
    Constraint 5: Tax hurdles (cont'd)
    The existing position



                                        Taxes in country of investor?

                    Pension                                                        Pension
                    Fund 1                                                         Fund 2


                                       Taxes in country of investment?


                    Equities                                                       Equities




                        The                                                             The
Belgium   Ireland   Netherlands   UK         US            Belgium       Ireland    Netherlands   UK   US




                                                                                                            35
Constraint 5: Tax hurdles (cont'd)
The position on investment pooling


                         Taxes in country of investor?
         Pension                                                Pension
         Fund 1                                                 Fund 2

          Units                                                    Units


                                                          Taxes in country of pooling vehicle?
                             Pooling vehicle

                                                          Taxes in country of investment?

                                 Equities



                                    The
      Belgium      Ireland                               UK             US
                                 Netherlands

                                                                                                 36
Constraint 6: Legal risk
      Country of          Assets more remote            Extra country risk                     Complexity
      establishment       (custody, monitoring           (nationalisation/
      of pension fund        and reporting)          expropriation, exchange
                                                              control)

 1.   Belgium           In theory, yes. But, in    In theory, yes. But, in practice,   Not particularly complex
                        practice, no.              no (at least in normal
                                                   circumstances)
 2.   Ireland           In theory, yes. But, in    In theory, yes. But, in practice,   Not particularly complex
                        practice, no.              no (at least in normal
                                                   circumstances)
 3.   The Netherlands   In theory, yes. But, in    In theory, yes. But, in practice,   Not particularly complex
                        practice, no.              no (at least in normal
                                                   circumstances)


 4.   UK                In theory, yes. But, in    In theory, yes. But, in practice,   Not particularly complex
                        practice, no.              no (at least in normal
                                                   circumstances)

 5.   USA               If plan assets and ERISA   Fiduciary making decision is        ERISA is complex; with
                        applies, indication of     subject to prudence and other       Internal Revenue Code and
                        ownership and other        ERISA standards.                    other legal overlaps.
                        requirements must be
                        met.



                                                                                                                   37
    Constraint 6: Legal risk (cont'd)
    The existing position



                    Pension                                     Pension
                    Fund 1                                      Fund 2




                    Equities                                    Equities




                       The                                          The
Belgium   Ireland   Netherlands
                                  UK   US   Belgium   Ireland    Netherlands
                                                                               UK   US




                                                                                         38
Constraint 6: Legal risk (cont'd)
The position on investment pooling

                        Legal risk: Country of investor

      EU Pension                                                 EU Pension
        Fund 1                                                     Fund 2


          Units                                                       Units


                                                               Legal risk: country of establishment of
                             Pooling vehicle                   pooling vehicle



                                                               Legal risk: country of location of
                                 Equities                      investment




                                     The
      Belgium      Ireland        Netherlands
                                                          UK                 US

                                                                                                         39
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

                                                                     40

								
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