Thursday, July 9, 2015

Anatomy, Analysis and Action! by Geoffrey Baldwin (9 July 2015)

Pension Matters: Anatomy, Analysis and Action  (AFICS: please take note)

The recent AFICS letter (2 July 2015) asserts that all questions put to the AFICS Annual General Meeting were answered.  That is mistaken;  mine on the ultimate jurisdiction governing the pension fund was not.  From conversations, after the AGM it seems that Legal Counsel on stage warned the protagonists not to answer it.  One wonders why not?

The following observations are for comment and correction by those with expertise in the field.
•    The Pension Fund does not exist, as is known, in national jurisdictions.  It has the form, but not the substance.
•    All staff are employees of the United Nations Organisation, or affiliated organisations such as FAO, ILO etc.  Their contracts of employment with the UN are signed by the SG or his staff under authority delegated from the UN.
•    The rules of the pension fund are incorporated in each and every staff contract.  The benefits arising are contractual commitments by the UN to each staff member.
•    The pension fund is the vehicle whereby the UN has chosen to meet its obligations to staff.  It has a sole trustee, the SG, who has the fiduciary duty of a trustee to protect the financial interests of the owners of the fund.  The owners are the participants and beneficiaries, art 18.
•    All payments to beneficiaries are deferred emoluments earned while in service, they are not current income.
•    The SG has a second role, as chief executive officer of the UN.  It is his duty to administer the management of the staff, including paying their salaries.  The cost of so doing is borne by the budget of the UN.  Payments to beneficiaries are, or should be, in the same case, but under Art 15 they are not.  The work is delegated to the Pension Board and its staff, who are, or should be, UN staff members.  The organisation of that work is an administrative matter which may affect serving staff, but should not be of concern to beneficiaries.

•    The fiduciary liability of the SG as trustee is backed up in the pension fund rules by the UN.  It guarantees that it will make good any actuarial shortfall that may be revealed, art 26.  That is a contractual commitment to every staff member and beneficiary.
•    In 1982 the UN refused to make up an actuarial shortfall.  It chose to penalise all staff given a contract from January 1983.  There are still staff serving under the revised regime who actually started their service in 1982.  In Fifth Committee proceedings some member states recorded their concern that the proposal was unfair.  Nevertheless the UN in general assembly approved the proposal.  The Joint Pension Board was party to the discussions and instrumental in formulating the proposal, but it should not have been a decision maker.
•    By so doing the UN was in breach of its own Charter.  Article 8 forbids discrimination between staff in like case.  An arbitrary date does not put staff in unlike case.  The discriminatory rules are still part of the pension fund rules and part of all staff contracts.
•    Under its rule 19(a) the Board may make suggestions to the SG trustee on the investment policy of the Fund.  The Board is not obliged to make observations and the SG is not obliged to consult it.
•    In the early 1990’s the UN in general assembly removed the facility to refer a case to the International Court of Justice for an advisory opinion.

The position now is that the UN is its own ultimate jurisdiction in contractual matters concerning its staff and beneficiaries, whose contracts are for life and in many cases beyond.  One concern of AFICS should be to restore access to ICJ and to obtain from the UN an affirmation of their contractual obligation to fund all actuarial shortfalls, including historic ones, and to remedy their breach of Article 8 of the UN Charter.  In this mission AFICS should seek to mobilise the support of FAFICS and all its member organisations, bearing in mind that FAFICS has the right to attend meetings of the Standing Committee of the Fund.  The Board members include four UN staff participants.

With regard to the investment policy of the fund, its owners, the participants and beneficiaries, should address their concerns to their trustee, the SG.  It is his fiduciary duty to listen to the owners of the fund.  That is no business of the Pension Board at their coming meeting.  It should suffice that AFICS, FAFICS and the affiliated organisations urge the Board to confine itself to its proper administrative duties.  AFICS please take action on this front, without there being an extra-ordinary meeting, which is obviously not going to happen before the Board's meeting.

The Fund rule 19(a) is contrary to the principle of separation of its administrative and investment functions.  The SG's representative on the Board needs administrative skills, not investment experience. It is the Investment Committee that needs professional investment experience and the SG is bound to consult it, but not to obey it.  Under Rule 20 it is the SG's prerogative to appoint the Committee, subject to GA confirmation.    Rule 19(a) needs amendment to remove the Board's facility to offer investment observations, for which it should lack professional experience, being outside its core administrative mandate.  For the Board to acquire the necessary depth of experience would duplicate the work of the Investment Committee and its secretariat.

The next important meeting is the UN in general assembly.  FAFICS should urge the SG, as trustee, to present the concerns of the owners of the fund to the UN, reminding the assembly of the UN's ongoing contractual obligations to all its staff, whether in service or separated. Amendments are needed to articles 15 and 19 of the Fund's regulations.  Another approach could be for all staff to petition their own governments, as UN member states, to support the grievances of the staff in general assembly.  That would need a common letter, in many languages.

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