Dutch Central Bank Puts 12-Year Timeline on Funding Targets for Distressed Pensions

The Netherlands’ Central Bank this week told the nation’s distressed pension funds that they have 12 years to rectify their funding situations.

Approximately two-thirds of Dutch pension funds are under distress, although the benchmark for “distress” is much higher in the Netherlands than in the U.S. – Dutch pensions are considered distressed when their funding ratio falls below 104 percent.

More from Reuters:

The longer recovery plans will allow 154 troubled funds to restore their solvency gradually and “almost entirely from expected returns on investments.” It did not name the funds.

Dutch funds are considered under stress when their coverage ratio falls below 104 percent; they are only allowed to increase pension payments to match inflation once their coverage rate returns to above 110 percent.

An analysis by Aon Hewitt published last month found that the coverage ratio of the average Dutch fund was 104 percent at the end of July.

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In July, the central bank announced it would measure pension liabilities more strictly than required by European rules, by assuming that interest rates will remain low into the distant future.

The Aon Hewitt analysis estimated that coverage ratios at Dutch pensions fell by about 4 percentage points as a result of the change.

But Tuesday’s announcement of the results of the DNB review show the central bank is not taking a hard line on the other side of the equation, expected returns. It is allowing funds to calculate a return of 7 percent on equities and a 4.7 percent overall average return.

The largest Dutch pension fund, ABP, manages roughly $340 billion and is 100.9 percent funded – which technically qualifies as distressed.