Over the past decade, the Belgian Government has encouraged employers to introduce occupational pension plans for their workers in response to the aging Belgian population (as the "baby boom" generation approaches retirement age) and the expected difficulties that will be faced in financing state pensions in the future.
In 2003–2004, the laws relating to pension schemes were revised. The result of these revisions is that today about three million employees in Belgium are members of an occupational pension scheme or a pension fund.
Employers have a legal obligation to guarantee a minimum return of 3.25 percent on employers' contributions and of 3.75 percent on employees' contributions to occupational pension schemes. These minimum return percentages are calculated as an annual average over the duration of employment.
However, due to the financial crisis and low interest rates, insurance companies say that they are no longer able to guarantee these minimum returns and have asked the Belgian Government to lower them. The Belgian Government has so far refused to do so.
Insurance companies have now unilaterally decided to lower these rates to 2.25 percent, initially only in respect of new contracts entered into on and after January 1, 2013. One major insurance company with a market share of about 30 percent, has also lowered the rates for existing contracts for future accrual of benefits.
The legal issue here is that it is the employers who must guarantee the minimum returns. Consequently, if the insurance companies are no longer willing to provide these minimum returns, the cost of the occupational pension schemes for employers may significantly increase if interest rates remain low and if the Belgian Government does not intervene. This situation also has an impact on mergers and acquisitions because a buyer will have to determine whether there is any shortfall in the pension scheme of the target and whether such shortfall should be taken into consideration when determining the acquisition price.