Dow Netherlands Willing To Compensate Scheme For Lower Returns

Employer Dow Chemical is willing to increase its pensions contribution in order to compensate for lower returns generated by its Dutch pension fund, after it has reduced its investment risk.

In a newsletter to its participants, the €2.5bn pension fund explained that an increased contribution would reduce the risk that the employer would have to fill in a financial shortfall at its defined benefit (DB) scheme during economic headwind.

The sponsor’s willingness goes against the usual practice of employers aiming at a steady premium by switching to a defined contribution (DC) plan, removing the requirement to plug financial gaps at their pension fund.

Both the employer and the pension fund declined to provide additional information.

Currently, Dow pays its pension fund a costs-covering contribution, with its workers contributing 1.82% of their pensionable salary.

The closed scheme, with a declining number of participants, is currently reducing its investment risk in order to stabilise the financial results.

Last year it gradually started divesting its alternatives, including real estate and infrastructure, in favour of fixed income holdings.

It also decided to reduce its equity allocation from 30% to 25%, while increasing its fixed income portfolio to 75%.

The pension fund further indicated that it would raise the interest hedge of its liabilities from 75% to 85%.

It added that, while it was recalibrating its investment portfolio, it would assess the extent of its credentials on socially responsible investing.

The Dow scheme reported an investment loss of 1% for 2018. It said it lost 4.9% on equity, while returning 9.7% on its alternatives. Fixed income generated 1.2%.

The pension fund has approximately 1,470 active participants, 1,045 deferred members and 2,770 pensioners.

At August-end, its funding stood at 115.9%.