More UK Plans Underfunded Thanks to FRS17

April 2, 2002 (PLANSPONSOR.com) - UK oil giant BP is the latest in a list of large companies to show a deterioration in the funding levels of its pension plan under the new accounting regulation FRS17.

The UK’s largest final salary pension plan, which just last year was 120% funded, can now only cover 96% of its liabilities, due to current stock market weakness. Some 72% of the £12.6 billion fund’s UK assets, and 80% of its US assets are held in equities, according a report from the Financial Times.

The volatility of the fund’s investments in equities is clearly visible in the group’s FRS17 declaration, an accounting rule recently drafted by the Accounting Standard’s Board. FRS17 makes the disclosure of final salary pension fund assets and liabilities mandatory.

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Since companies began implementing the new regulation, a number of large UK companies have declared funding deficits in their pension plans:

  • compass reported a 74% funding level, from 107% previously
  • carlton’s funding level fell from 100.5% to 95.2%
  • ICI’s pension plan saw funding drop from 99% to 93.8%.

Shortfall Fallout

Opponents of the new regulation argue that it will discourage companies from offering pension plans to their employees.

In fact, last week, House of Fraser, the department store group, reported a 81% funding level and announced that the plan would be closed to new entrants.

Other UK companies have made changes to their investment policies. UK retailer Boots placed 100% of its plan assets into fixed income securities in order to ensure pension payments to its retirees.

At present, FRS17 does not require companies to contribute to underfunded plans, however, from June next year, when the new requirements will apply in full, companies will have to reflect the shortfall on their balance sheets.

Sen. Edwards Lashes Out at Frist-Breaux Draft

March 14, 2001 (PLANSPONSOR.com) - Senator John Edwards (D-NC) has lashed out at a new patient's bill of rights from Senators Frist (R-TN) and Breaux (D-LA), still in the draft stages.

Edwards called the bill an “HMO Bill of Rights”, according to CongressDaily/A.M., and said the terms of the draft “appear to have multiple problems”, including:

  • A provision that would allow states to opt out of having to adopt the federal patient protection standards if a governor could show that it would raise health care costs in the state by 2% or more
  • A requirement that most new cases be tried in federal court, which Edwards said don’t have the resources to handle the cases

The Frist-Breaux bill would also let a state opt out if it could establish that:

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  • It has a state protection that is essentially the same or
  • It has low HMO enrollment

In its current form, the Frist-Breaux bill ( Employers Might Find Patient Protection in Frist Bill ) would:

  • Allow employers to designate a third party that will have “clear and exclusive” authority to make determinations that give rise to a cause of action
  • Require patients to exhaust administrative appeals before going to court
  • Bar punitive damages
  • Limit non-economic damages to $500,000.

– Nevin Adams       editors@plansponsor.com

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