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The 56^th session of the Pension Board met in Vienna from 13 to 17 July 2009. FICSA, which has a seat as an observer at the Board, was represented by Mr. Mike Donoho, IAEA, Chair of the FICSA Standing Committee on Legal Questions.

FICSA statement to the Pension Board (FICSA/CIRC/1073)

FICSA reiterated its keen interest in safeguarding its members’ rights to a secure pension in troubled times and beyond, which needed to be achieved against a backdrop of three major developments:

• The drop in the market value of the Pension Fund’s assets
• The greater longevity of those covered by the Fund and the impact this will have on the actuarial valuation
• The shift in staffing trends as evidenced by the new types of contracts, in particular the increasing number of short- or fixed-term contracts and the diminishing number of permanent contracts.

FICSA urged the Board to reverse the decision to index the North American equities held by the Fund, while remarking that the Fund continues to be prudently managed. FICSA noted that the closer liaison between the Fund and the Investment Management Service would clearly strengthen the resolve to maintain an investment policy based on obtaining an optimal return over the long term, while applying the criteria of safety, profitability, liquidity and convertibility.

FICSA stressed that it would argue strongly against a change from the Fund’s current defined benefit plan to a defined contribution plan in light of the risks involved, and that the Federation would liaise closely with the participants’ representatives in the Working Group on Plan Design on this and the many other issues under discussion.

FICSA fully supported the position of the Federation of Associations of Former International Civil Servants (FAFICS) on lowering the duration of marriage from 10 to 5 years for eligibility to receive a surviving divorced spouse’s benefit.

Investments of the Fund

During the extremely volatile market environment, the market value of the Fund’s assets decreased to $US 29.0 billion on 31 March 2009 from $US 40.6 billion on 31 March 2008, a decrease of approximately $US 11.6 billion or 28.6 per cent. By 1 July 2009, the Fund recovered to $US 32.6 billion. In hindsight, the recommendation made at the 55^th session of the Board to further diversify by adding alternative asset classes proved to be sound because those recommended asset classes lost less (20%) than global equities (40.8%). Over the last 7 years, the Fund achieved an annualized return of 4.5%, outperforming both the 3.0% return of the new benchmark and the 3.3% return of the old benchmark.

The Representative of the Secretary-General mentioned that it was fortunate that the Fund had a defined benefit arrangement as this meant that beneficiaries were protected from market volatility.

The Board expressed its appreciation for the performance of the Fund’s investments over the policy benchmark despite difficulties encountered in the extremely volatile financial markets.

Bank charges on UN pensions

FAFICS presented a note to the Board regarding bank charges incurred by pensioners on UN benefit payments. A survey had revealed the bank charges being imposed by banks in 17 countries, and the number of retirees on small pensions that were affected. FAFICS requested the Fund to seek ways to reduce or eliminate bank charges incurred by retirees, and also proposed that the Fund absorb bank charges on small pension payments.

The Secretary/CEO of the Fund stated that the Fund’s secretariat would continue to work closely with pensioners and banking institutions regarding the bank charges issue, and the Board recommended that the Fund’s efforts in this regard be continued.

Accountability statement

A paper on a comprehensive accountability statement for the Fund including the accountability of the investment-related activities was presented to the Board. The Board requested a number of amendments to the statement, including a definition of accountability and a description of the roles and responsibilities of the Fifth Committee of the General Assembly and the Advisory Committee on Administrative and Budgetary Questions (ACABQ).

Progress Report of the Working Group on Plan Design

It was reported that the Working Group decided during its second meeting to focus on the following general topics: (a) normal retirement age; (b) reaffirmation of the defined benefit nature of the Fund, while looking into the feasibility of a defined contribution type plan; (c) 2002 recommendations already approved in principle by the Assembly; (d) enhanced full withdrawal settlements for participants with less than five years of contributory service; (e) accumulation rates, progressive and regressive; (f) earlier cost-of-living adjustments for deferred retirement benefits; and (g) FAFICS prioritized list of its previous proposals to be submitted at the next meeting of the Working Group.

FAFICS provided the Group with a list of priorities, namely that: (i) the defined benefit nature of the Fund should be maintained; (ii) the normal retirement age should be extended to age 65; (iii) the accumulation rate should revert to 2 per cent a year; (iv) full withdrawal settlement provision should provide for enhanced benefits for those separating with less than five years; (v) benefits for family members should be enhanced; and (vi) the 0.5 per cent reduction in the first consumer price index (CPI) adjustment due after retirement should be eliminated. It was noted that increasing the normal retirement age should not only be looked at in terms of the positive financial impact, but consideration should also be given to increasing the age, believing that employees should have the right to go on working to any age as long as they are capable of doing the job well.

It was decided that the Working Group should present its final report in July 2010.

Divorced spouse’s benefit

When discussing benefits at its 55th session in 2008, the Board approved several amendments to the UNJSPF Regulations concerning benefit provisions with respect to family or former family members. At the same time, FAFICS suggested that a requirement of Article 35 bis (b)(i) with regard to a continuous period of 10 years of marriage, during which contributions were paid to the Fund, should be reduced to 5 years, to align the period with the current vesting period of five years. The Board requested that appropriate text be presented by the Secretary/CEO for its consideration at its fifty-sixth session.

The Board had a lengthy debate on the issue. The executive heads, especially, wished to assess the potential impact the suggested amendment would have on their respective member organizations’ human resources policies, particularly in respect of other benefits of staff members, including eligibility to after-service health insurance. Therefore, the Board decided to postpone its decision on the proposed amendment to Article 35 bis until its next session in 2010.

The impact of currency fluctuations on pension benefits

In 2007, the Board requested the Fund to carry out three separate reviews in respect to the impact of currency fluctuations on UNJSPF pension benefits. The main focus of the Board’s consideration of the three studies in 2008 was on the impact of a declining US dollar on the local currency track pensions of Professional staff. In 2008, a review in respect to Professional staff revealed two issues that the CEO noted would require the attention of the Board, namely (i) the wide variations in local currency track pensions for those separating from 2002-2005 and (ii) the continued, but moderating downward trend in local currency track benefits for those separating after 2005.

On the basis of continued monitoring, as reflected in the status reports and in the report presented to the Board, the CEO found that:

• The wide variations experienced in respect to the local currency track amounts and thus in the corresponding income replacement ratios for separations from 2002-2005 had subsided.
• The continued but moderating downward trends in the local currency track amounts and thus in the corresponding income replacement ratios for separations after 2005 had leveled off and appeared to remain within a reasonable range of the targeted rate.
• The local currency track amounts, in cases where the cost-of-living differential factor was applicable, would be closer to the targeted income replacement rate if there was no application of the special index provision.

The Secretary CEO proposed the suspension of the special index provision, but the Board decided to defer its decision on the matter until its next session in 2010. The Board also requested the Secretary/CEO to present a report in 2010 with a recommendation on one or more solutions that would mitigate wide fluctuations in the income replacement ratios. It also requested the Fund to provide a simplified guide to the two track feature of the pension adjustment system, to help provide a better understanding of it, and why there may be fluctuations in the amounts payable between different points in time.

Provision to allow purchase of full contributory service by part-time staff

The Board discussed paragraph 20 of the Report of the Advisory Committee on Administrative and Budgetary Questions (ACABQ) concerning the purchase of additional years of contributory service by part-time staff. Recalling the terms of the Board’s previous discussion of the issue, it was suggested that there might have been a misunderstanding of the Board’s intention which was not, as it might have appeared, to violate the long-standing and accepted principle of income replacement.

During the discussions it was clarified that the intent had been to propose a mechanism for full-time staff to make arrangements for the continuation of full pension contributions during periods of reduced employment through existing leave without pay provisions. Thus, it had been the intention that the proposed conditions should apply in circumstances where a staff member who had previously been in full-time employment, changed to a part-time basis and then possibly reverted to a full-time basis. It had not been the intention that members of staff whose contract of employment had been established initially on a part-time basis could seek to take advantage of a possibility of gaining benefits as if for full-time work.

The Board felt that, given the complex legal and actuarial issues, it would be prudent to review and further analyze the issue during its next session. The Board therefore agreed to reconsider this question on the basis of a paper to be submitted by IAEA at the Board’s next session in July 2010.

UNAT Judgments of interest to the Board and the revised system of the Administration of Justice of the United Nations

The Board noted that no new judgments of the United Nations Administrative Tribunal (UNAT) concerning pension matters had been issued since July 2008. Pursuant to paragraph 51 of UN General Assembly resolution 63/253 concerning Administration of Justice at the United Nations, the Board considered the new system as approved by the General Assembly.

The Board took note of Article 2.9 of the Statute of the United Nations Appeals Tribunal, which clearly established the Tribunal’s jurisdiction with regard to pension matters, namely the competence to hear an appeal of a decision of the Standing Committee acting on behalf of the United Nations Joint Staff Pension Board alleging non-observance of the Regulations of the United Nations Joint Staff Pension Fund. The Board was informed that in accordance with paragraph 46 of the said resolution, pending cases from UNJSPF would be transferred to the Appeals Tribunal as from the abolishment of UNAT.

The Board noted that the new Appeals Tribunal would have the same jurisdiction as that of the former Administrative Tribunal on the matters arising out of decisions of the Standing Committee of the Board.