OPEN LETTER TO THE CHAIR
Open letter to Mr. Vladimir Yossifov
Chairman of the United Nations Joint Staff Pension Board
7 July 2017
Dear Mr. Yossifov,
Subject: Matters of concern before the upcoming Pension Board meeting, 24-28 July 2017, Vienna
With regard to the annual Pension Board meeting, which will take place in Vienna from 24 to 28 July 2017, while we are not privy to the Board’s agenda, we understand that several important topics will be before the Board for discussion.
Specifically, the issues of investment underperformance and the unprecedented backlog in benefit payments, as variously detailed in General Assembly resolution 71/265, Board of Auditors report A/71/5 Add 16, Advisory Committee on Administrative and Budgetary Questions (ACABQ) report A/71/621, Pension Board report A/71/9, and Office of Internal Oversight Services (OIOS) audit 2017/2, are among the issues requiring the Board’s attention.
In this connection, we are concerned about divergent messages in the statements of the Fund’s Chief Executive Officer, Sergio Arvizu, and the Representative of the Secretary-General for Investments, Carol Boykin, at the annual assembly of the Association of Former International Civil Servants/New York (AFICS/NY), held on 27 June 2017. A video of the meeting is available here for your ease of reference:
Strangely, investment performance was one of the primary topics of Mr. Arvizu’s presentation, although it does not fall under his area of responsibility. The fund is increasingly dependent on investments to remain solvent, he noted. In this connection, he said, many large organizations, including the World Bank, have moved away from the defined benefit model (the UN pension fund model), where the employer takes all the risks, to the defined contribution model, where the employer transfers all the risks to the employee. Mr. Arvizu’s reference to this issue is curious, indeed.
Any such move in that direction would fundamentally change the purpose of the UN Pension Fund: the social security of United Nations employees worldwide. These provocative and troubling speculations by Mr. Arvizu undermine staff confidence and invoke longstanding concerns of the UN staff federations and others, about his past moves to consolidate and privatize the fund.
Regarding the backlog in pension payments, once again Mr. Arvizu’s focus was exclusively on “actionable” cases. He noted in this regard: “We’re addressing all of the straightforward cases within the same month, and the remaining balance is less than one week, or one week, and we follow the industry practice of 80-20”.
Absent from his presentation was any mention of the thousands of pending cases of other types, as detailed in the audit of the Office of Internal Oversight Services mentioned above. How can Mr. Arvizu be expected to address a problem he is unwilling to even acknowledge?
Ms. Boykin presented a Power Point array of investment charts, in dazzling detail, “in the spirit of continual improvement in transparency”, noting in this regard: “We have had a lot of questions about the performance of the fund, and we’ve heard people saying that we’re underperforming. We’re not underperforming.”
Ms. Boykin’s characterization of concerns about the fund’s investment underperformance as “people saying we’re underperforming” seems oblivious to the fact that these views were expressed by major UN bodies (the General Assembly, the Pension Board, the ACABQ, the Assets and Liabilities Monitoring Committee), not just “people saying.”
While Ms. Boykin acknowledged in her statement that the Fund underperformed in investments in 2016, it is documented in the reports of these major UN bodies that the Fund also underperformed in the 2014-2015 biennium.
Further, and contrary to Ms. Boykin’s statement that “in Q1 2017 we were right on top of our benchmark. . . So we’re right in line with the benchmark this year”, according to the Fund’s publicly available investment report for May 2017, the Fund returned 8.24 per cent while the policy benchmark returned 8.51 per cent, i.e, the Fund underperformed by 0.27 per cent. (See May 31, 2017 monthly report here): http://imd.unjspf.org/monthlyreports/May-2017.pdf. How can Ms. Boykin be expected to address a problem she’s unwilling to even acknowledge?
On a more realistic note, we were gratified that the Chef de Cabinet, Ms. Maria Luiza Ribeiro Viotti, noted that the “Secretary-General is aware of your concerns” and that “The Pension Fund’s backlog of actionable cases and management issues has caused hardships for thousands of employees.” Further, she said, while progress had been made on actionable cases, “there are still other pending cases related to deferred pensions, special and recalculation cases, as well as non-actionable cases pending receipt of additional information.”
Ms. Ribeiro Viotti also provided a welcome reality check on investments, noting that the Secretary-General, who “has a fiduciary responsibility, is looking forward to the board’s consideration” of “a review of the fund’s investment practices, risk management and investment performance conducted by an independent third party.”
In this regard, we were also gratified to hear from Warren Sach, chair of the AFICS/NY pension committee and Federation of Association of International Civil Servants (FAFICS) representative to the Board, that “pension delays are unacceptable” and that the Board will “spend considerable time” on the issues of the backlog in pension payments and the independent third-party review. Investment underperformance in 2016, he noted, “means that the value of assets of the fund as at year end 2016 were nearly $1 billion or $937 million below what they would have been if the Pension Fund portfolio performed as well as the market as measured by the policy benchmark.” (If one adds underperformance of $147 up to May 2017, in less than eighteen months, the Fund has underperformed by $1.084 billion.)
Of particular significance was Mr. Sach’s statement (quote): “Do not be misled into thinking that mere growth in assets of the Fund to new highs in billions of dollars means that investments are performing optimally. It is performance relative to the market that matters.”
We are not misled on the topic of the Fund’s investment underperformance. We also do not believe that this underperformance is owed to the “market favoring indexation over active management” as Mr. Boykin contends.
Neither are we misled on the issue of the backlog in pension payments. While we note Mr. Arvizu’s claim, and Mr. Sach’s resolve to support his request for more resources, we do not believe that the backlog in pension benefits or issues with client services can be solved by additional resources alone. The OIOS audit points squarely to managerial deficiencies in the Fund Secretariat and there is no clear indication that these have been resolved.
Finally, we wish to state our concern about your active support of Mr. Arvizu in blocking two duly elected participant representatives to the UN Staff Pension Committee from participating in the Board, despite assurances that arrangements could be made to avoid potential conflicts of interest. This, unfortunately, echoes the Board’s reported muzzling of the UN staff federations at last year’s board meeting, and continues to cause us serious concern about the fairness and objectivity of the Board’s proceedings.
There are grave matters before the Board that will affect the future of our Fund, including decisions about changes to its leadership moving forward. We urge you to eschew partisanship for leadership on decisions that will ensure that our Fund continues on a healthy track for the benefit of both current and future beneficiaries..
c.c. Maria Luiza Ribeiro Viotti
UNJSPF Board members
AFICS/NY Governing Board members