ING Group Shedding Pension Obligations, Will Result in 1.2 Billion Euros First-Quarter Charge
January 14, 2014 by Fran Lysiak
AMSTERDAM – ING Group NV plans to transfer all future funding and indexation obligations under its closed defined benefit pension plan in the Netherlands to the ING pension fund to reduce the equity volatility for ING Bank and ING Insurance due to requirements under revised international accounting rules. ING will pay 549 million euros ($746 million) to the pension fund to remove these obligations and write off a pension asset from its balance sheet amounting to 800 million euros, expected to result in an after-tax charge of 1.2 billion euros in the first quarter.
“This agreement represents a significant milestone in the separation of bank and insurance as we prepare for the base case IPO of ING Insurance planned for this year,” said Ralph Hamers, chief executive officer of ING Group, in a statement. “It also provides for a solid financial future for our employees and pensioners as the ING Pension Fund will be well-funded,” he said, calling the process a “complicated exercise.”
The ING pension fund manages about 18 billion euros in assets for about 70,000 current and former employees of ING Bank and ING Insurance.
ING said it reached the agreement concerning its Dutch defined benefit pension plan with trade unions (CNV Dienstenbond, FNV Finance and De Unie), the ING pension fund, the Central Works Council and the Association of Retired ING Employees. ING Bank and ING Insurance will be released from financial obligations from the Dutch defined benefit plan, which would no longer be accounted for as a defined benefit plan.
ING expects to announce a final agreement in early March. However, the agreement, which needs regulatory approval, also is subject to the condition that going forward, the company will be released from all future financial obligations arising out of the Dutch defined benefit plan.
In 2008, the Netherlands-based ING received a US$13 billion bailout from the Dutch government during the global financial crisis. The restructuring plan between ING and the European Commission as of 2010 required ING to divest its global insurance, ING Direct in the United States only, and asset management operations by 2013 through sale, an IPO or a combination of those.
In July 2012, ING adopted two new defined contribution pension plans for employees in the Netherlands as of Jan. 1, 2014: one for employees of ING Bank and another for employees of ING Insurance. It also announced that the defined benefit plan of ING employees in the Netherlands would stop accruing new pension benefits also as of Jan. 1, 2014
Other elements of the agreement include that the cross guarantees between ING Bank and ING Insurance to jointly and severally fund the obligations of the ING pension fund will end; and, that ING will reduce the employees’ own contribution to the pension premium under the new defined contribution plan by about 80 million euros over six years.
As of Dec. 31, 2013, the estimated Dutch defined benefit net pension asset amounted to 1.1 billion euros. Under the revised IAS 19 accounting rules, “unrecognized actuarial gains and losses” on defined benefit pension plans are recognized immediately in equity, which increases volatility driven by movements in financial markets. The transfer of the obligations connected to the Dutch defined benefit plan removes this source of volatility for both bank and insurance.
ING U.S. plans to rebrand in 2014 as Voya Financial (NYSE: VOYA), and last year raised about $1.3 billion in its IPO of stock (Best’s News Service, April 17, 2013). In October, ING Group said it planned to offer 30 million of its shares in ING U.S. The transaction will reduce ING Group’s stake in the U.S. business to about 60% from 71%, the company said (Best’s News Service, Oct. 21, 2013).
(By Fran Matso Lysiak, senior associate editor, BestWeek: fran.lysiak@ambest.com)
