Update on Development of Pan-European Pensions

Report Addresses Implementation of IORP Directive

The Committee of European Insurance and Occupational Pension Supervisors (CEIOPS) released on March 31 a comprehensive report that provides analysis of IORP Directive 2003/41/EC on the Activities and Supervision of Institutions for Occupational Retirement Provision.

While the advantages of implementing pan–European pension arrangements include reduced costs, improved governance and better risk management, companies considering such a step should be aware of the CEIOPS findings set out in this report. The report incorporates comments from member state supervisors on areas that have been problematic due to interpretation and implementation differences across member states.

The CEIOPS report, Initial Review of Key Aspects of the Implementation of the IORP Directive, essentially represents the practical experience of participating member states. While the report confirms that the supervisory process is working under the IORP directive, it states there are "some areas where action appears to be needed for clarity and for supervisory convergence."

The report also notes that member states have "definitional differences" and that clarification is required in four areas: cross-border activity, subordinated loans, ring-fencing and investment regulations.

DOL Allows Cross-Border Pension Pooling Arrangements

The U.S. Department of Labor on April 10 issued an advisory opinion to Northern Trust Company that essentially clears the way for U.S. pension plan participation in cross-border pension pooling vehicles that meet requirements of section 404(b) of the Employee Retirement Income Security Act of 1974 (ERISA).

This opinion gives the green light to the pooling of ERISA and non-ERISA assets of U.S. multinationals companies. A U.S. pension scheme will now be able to participate in tax-transparent cross-border pooling vehicles domiciled in Dublin, Luxembourg, the Netherlands and Belgium.

While this development is significant for multinational companies with large U.S. pension scheme assets, it may have equal benefit for smaller European scheme assets. The European scheme could reap economies of scale from the assets of the larger U.S. plans.

Northern Trust requested an advisory opinion concerning the indicia of ownership requirements in ERISA section 404(b). Northern Trust specifically asked for an interpretation of whether certain arrangements involving multinational cross border pooling arrangements were consistent with the indicia of ownership regulations under section 404(b) of ERISA.

Specifically, the request concerned use of multinational cross-border pooling products designed by Northern Trust for multinational corporations and affiliates. These cross-border pooling products allow the pension plans of a multinational client, which may be located in different international jurisdictions, to pool its investments into a single entity for investment purposes.

With respect to ERISA section 404(b), which requires that the indicia of ownership of plan assets be maintained within the jurisdiction of the U.S. court system, the DOL advisory opinion issued to Northern Trust stated the following:

1. Custody of the U.S. assets satisfied ERISA section 404(b)
2. As the U.S. Bank (Northern Trust) was organized and had its principal place of business in the U.S. and its non-U.S. branches were subject to U.S. federal and state banking regulation, the requirements of section 404(b) were satisfied
3. Custody of non-U.S. assets by affiliated and non-affiliated foreign banks was consistent with the requirements of section 404(b)

Reproduced with permission of the copyright owners from Benefits & Compensation International magazine, Volume 37, Number 6, January/February 2008
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