New regulation prohibits policymakers and co-policymakers at a company pension fund from being employed by a participating employer that the fund has outsourced certain tasks to.
Almost all pension funds outsource tasks to third parties. When it comes to company pension funds, those third parties are often participating employers. They will carry out tasks such as pension administration, provision of information, and aspects of asset management.
Statutory law and regulation require that the risks of this outsourcing are carefully monitored. Pension funds must take adequate risk management measures. The legislature’s aim is to reduce any potential conflicts of interest. The government identifies conflicts of interest where a personal union exists between the policymaking bodies of the pension fund and the participating employer that the pension fund outsources tasks to. For that reason, new regulations have recently been published prohibiting this type of personal union as of 1 July 2014. Policy and co-policymakers include the pension fund’s managing directors, board members, and members of supervisory or stakeholders’ bodies. According to the explanatory memorandum, a personal union exists if a (co-)policymaker of the fund has a seat on the managing or supervisory board of the organisation that the pension fund has outsourced tasks to or is an employee of that organisation. The latter, in particular, broadens the scope of the new rules considerably.
The new rules have far-reaching consequences for company funds that outsource tasks to participating employers.
If the pension fund wants to continue the outsourcing to the participating employer, it will have to recruit its (co-)policymakers outside that employer’s circle of employees. This may not be a realistic option.
In our view, the consequences of the new rules have not been properly thought through. Outsourcing relationships are so diverse and frequent that preventing potential conflicts of interest is virtually impossible. It is a form of overkill to impose a complete ban on potentially conflicted relationships. Instead, it would be preferable to manage the risks that could arise from outsourcing, in each case based on the specific facts and circumstances. Relevant factors in this regard are what type of activities are outsourced and how much the pension fund’s policy maker is involved in those activities as part of his position at the participating employer.