Administration February 1, 2010

BMW Looking to Transfer UK Pension Liability

February 1, 2010 (PLANSPONSOR.com) - BMW is in talks to offload more than £2.5bn of longevity risks from its UK pension scheme.
Reported by

The Financial Times reports that Abbey Life, Deutsche Bank’s specialist unit, and Paternoster, the pensions buyout business set up by former Prudential executive Mark Wood, are negotiating the deal and hope to pass on much of the risk to specialist reinsurers. Final contract terms have not been settled and scheme members have not been notified, but it is hoped a deal can be announced this month, according to people familiar with the situation, the news report said.

According to the Financial Times, BMW would not confirm the talks but said: “The longevity hedge would simply make it easier for the company to budget for future pension payments and therefore make scheme funding more secure overall, which of course benefits everyone in the scheme.”

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The pension offloading trend has grown in the U.K. since 2007 when Paternoster was one of the first firms to enter the pension buyout market (see Is Sponsorship Transfer Next Frozen DB Plan Solution?).

The Financial Times said the BMW deal would be a first for Deutsche Bank, though it was indirectly an early entrant in the market through its 40% ownership of Paternoster, which has been closed to new business since last April after it was hit hard by the financial crisis (see U.K. Pension Buyout Business Cut by Financial Crisis).

Deutsche is using Paternoster to help structure and price longevity deals. Neither firm commented on the BMW deal, according to the news report.

Compliance February 1, 2010

Court Refuses Chapman Appeal Bid

February 1, 2010 (PLANSPONSOR.com) – A federal appellate court has rebuffed a bid by former investment broker Nathan Chapman Jr. to overturn his conviction for fraud against the Maryland state pension system on "ineffective assistance of counsel" grounds.
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Chief Circuit Judge William B. Traxler Jr., writing for the 4th Circuit Court of Appeals, ruled that it was properly the role of Chapman’s lawyer to decide whether to accept a court offer of a mistrial. The lawyer’s decision not to accept the offer despite Chapman’s wishes did not mean the lawyer was rendering ineffective assistance, Traxler asserted.

“To summarize, we conclude that decisions involving mistrials — whether to seek a mistrial or accept a mistrial offered by the trial court — are tactical decisions left to the sound judgment of counsel,” Traxler wrote. “The decision remains counsel’s to make even if the client expresses disagreement with the decision, and counsel’s decision is not unreasonable simply because the client disagrees.”

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Chapman, sentenced in 2007 to five years and three months in prison, was convicted in August 2004 of using state pension money to buy stock in his companies to prop up their value – a move that went sour when the stock value plummeted and the retirement system lost virtually all of that money (See Chapman Jurors Convict on 23 of 32 Charges ).   

Chapman once served as a chairman of the state university system’s board of regents.

The 4th Circuit ruling is available here.

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