EMPLOYER ACTION CODE: MONITOR
The European Central Bank (ECB) has published a consultation on draft regulations on statistical reporting requirements for pension funds requiring ongoing regular reporting of comprehensive and detailed information on assets, liabilities and membership numbers for pension funds in Eurozone countries. Implications for pension funds in EU member states outside the Eurozone are less clear. The ECB maintains that the regulation would increase transparency and comparability of data on assets totaling approximately 2.5 trillion euros, for an internal market covering 50 million EU citizens. However, where this information is not currently obtained by those managing pension funds, in all likelihood it would significantly affect costs and resources used with little evident benefit for plan members and sponsors.
In comparison with the data compiled by the U.S. Federal Reserve on U.S. pension funds, the reporting frequency and granularity of information of the ECB proposal appears substantially more challenging. The Fed’s data compilation generally draws on U.S. funds’ annual reporting to the Department of Labor and Internal Revenue Service, including certain high-level asset information, whereas the ECB would require quarterly asset reporting on an apparently much more detailed basis.
Pension funds would need to provide broad and detailed reports on their assets, liabilities and membership numbers (broken down into actives, deferreds and retired members), and in the format specified by the ECB. Failure to report or information that is incorrect or in the wrong format could lead to significant fines for each breach, up to 200,000 euros.
As mentioned, the required data is granular — including, for example, each security’s International Securities Identification Number, price, market value, number of units, revaluations, sales/purchases and currency in which the security is recorded.
It’s proposed that asset data must be provided quarterly — within seven weeks of the quarter’s end. Liability data for all pension funds in scope must be provided annually. Initially this must be no later than 20 weeks after the end of the year to which the data relates, but this timescale will be tightened by two weeks per year until it reaches 14 weeks by 2021. This also indicates the ECB’s intention that the proposal will become law in time for reporting asset data in the first quarter of 2019 and annual (liability) data beginning with year-end 2018.
Required liability data would cover both asset-related liabilities (e.g., pension fund borrowings) as well as benefit-related liabilities of both defined contribution arrangements (i.e., pension fund capital to meet future pension claims) and defined benefit arrangements (i.e., present value of future pension claims). Both headline asset values and changes (revaluation adjustments) for price and currency would need to be given at the security level. Data could be provided either directly to the ECB or, more likely, via national central banks or a pension fund’s national competent authority (supervisor).
EU member states would be able to exclude smaller pension funds from some of the proposed reporting (such as those funds with assets of less than 10 million euros or fewer than 100 members) — although they would still be required to report certain asset information on an annual basis. The proposal also notes that those pension funds may choose to “fulfill the full statistical reporting requirements.” The exemption would be somewhat undercut by a requirement that the quarterly aggregated balance sheet should account for at least 80% of the total assets of pension funds in each country, and in order to meet this threshold, member states may require smaller pension funds to provide full reporting.
Insured arrangements would appear to be excluded, as would “non-autonomous pension funds” (which presumably would exclude book reserve arrangements from the reporting requirements).
Certain aspects of the proposal will still need to be clarified. For example, pension funds (for this purpose) are not necessarily the same as those covered by the Institutions for Occupational Retirement Provision (IORP) Directive, and the national central banks and/or supervisors will need to consider which pension arrangements are covered. However, it is still evident that it covers both defined benefit and defined contribution arrangements.
The proposal is likely to have significant time and cost implications for pension funds if they do not currently collate these data items or do not have a central asset custodian that does. Moreover, national central banks/supervisors will have to be informed “within a reasonable time before it takes effect” of any merger, division or reorganization that might affect the pension fund’s ability to meet its statistical reporting obligations.
Simultaneously, the European Insurance and Occupational Pensions Authority has issued a consultation paper on templates for obtaining aggregate information from national supervisors in relation to IORPs and insurers’ retirement business covered by the IORP Directive. The information required goes beyond that required by the ECB and includes, for example, data about pension protection plans and security mechanisms.
The deadline for providing responses to the ECB on this consultation document is September 29, 2017.