Let S Keep Functions Segregated: Pension Fund Takes Care of Pension; UN Takes Care Of

Open Letter

Let’s Keep Functions Segregated: Pension Fund Takes Care of Pension; UN Takes Care of Staff Matters: It Has Worked Well for over Half a Century

Sugiyama Iutaka[1]

Robert J. Myers writes[2]that when the United Nations was being established in 1945, it was recognized by the Preparatory Commission that there should be an adequate staff retirement system for the newly created organization. While such plan was being developed a provident fund (a savings plan) was established for the UN Secretariat staff. A provisional retirement plan was introduced in 1947 and adopted on a permanent basis in 1948. Later, the plan that was applied only to the United Nations admitted staff members from the specialized agencies. During the initial decades a number of changes were introduced in the plan and the in late fifties the General Assembly established a Pension Review Group comprised of members from eight Member States to create an organization that would be self- sufficient for decades to come. The consolidate plan created the United Nations Joint Staff Pension Plan effective in April 1961. In September 1960, the Fund had about 11,900 full members and about 3,400 associate members and the assets of the Fund were about $110 million. Now, at the end of 2013, it is over $50 billion, with over 120,000 participants and over 67,000 benefits being paid. The Fund has the largest payrollin the common system, paying over $2 billion a year to beneficiaries and separating staff. At the same time, the Fund has begun to show an increase in the actuarial deficit.

Over 50 years have passed from the date that the report of the Pension Review Group was implemented and one can conclude that the plan designed by the Fathers of the UNSPF was very good; by any standards it is a big success. The question one may ask is: Why the plan was successful? The conclusion most likely would be: (a) it is compulsory plan; (b) it is a fully funded pension fund; (c) there a rigid segregation of functions with separate authority and responsibility;(d) there is a clear distinction between Organization’s Staff Regulations and Rules and Pension Fund Regulations and Rules and (e)there is a continuous and intensive oversight mechanism among other features. The interaction of the various parts makes the UN Pension Fund a very complex organization but it has worked well.

Let’s illustrate with a few examples how it works. The General Assembly has the final say and it decides the Regulations of the UNJSPF. The Pension Board is a unique tri-partite body where the Governing Bodies are members because they are the guarantors of the fund if there is deficiency in the Fund. The Heads of the member organizations are represented and the participants are members because they, together with the beneficiaries, are the stakeholders (or owners) of the Fund, as it is a self-funded pension system. Each member of the Board has an equal vote, i.e., oneout of33 votes. The General Assembly writes the Pension Fund Regulations, the Pension Board writes the Rules and the Secretary of the Board writes the Administration Manual or procedures. The Pension Fund Secretariat is administered by the Pension Board and the CEO shall perform his functions under the authority of the Board. At the same time, Pension Fund Investments are administrated separately under the authority of the Secretary General and he consults with the Investment Committee, whose members are chosen by the General Assembly and reports to the Pension Board. For pension matters the head of the Pension Fund Secretariat (CEO) reports to the Committee of Actuaries that receives a separate input from the external Consulting Actuary on the health of the Fund. All these reports go to the Pension Board that submits its annual report to the General Assembly. While all these events are taking place, the External Auditors continuously examine whether the Pension Fund Regulations and Rules are being implemented correctly. Furthermore the OIOS is present in the Fund’s Secretariat to ensure that implementation is correct and whether administrative measures could be improved. It is difficult not to conclude that a paramount concern of the Pension Review Groupwas the establishment of a secure and stable Fund: out of the four criteria used in investment, security ranks first before profitability, liquidity and convertibility.

Implicit in this overall design that rigidly segregates functions to eliminate possible conflicts of interest is a clear separation between organization’s Staff Regulations and Rules and Pension Fund Regulations and Rules. It was understood by all participant organizations that the Head of their organization had no say in pension matters. All staff members working at the Pension Fund were under the authority of the Pension Fund Secretariat on all pension matters. For conditions of service they were under the authority of the Head of the Organization holding their contract according to their Staff Rules. In order to avoid possible conflicts of interest, the Head of an Organization could not have authority over pension matters of staff members and the head of the Pension Fund could not have authority conditions of service of staff members.

In practice staff members were appointed by the Secretary General as UN Secretariat staff members and placed at the disposal of the Pension Fund. The Fund in turn would be responsible for the cost of that service. The staff member would be under the UN Staff Regulations and Rules but would not accept any instructions from the Secretary General involving pension matters. The safeguard can be illustrated by the functioning of an agency Staff Pension Committee. The Secretary of the SPC could be instructed by the head of that organization and he/she would have to follow the instruction with or without a disclaimer. But the work submitted by the local secretary would be examined by the central secretariat in NY or Geneva.

The conclusion one reaches from the complex structure of the UN Pension Fund is that the Founders of the Fund designed a system having the security of human and financial resources in mind. For this reason, it seems logical that the existing segregation of functions and authority should not be changed. If changes of this nature are to take place, the only body that has the authority to do that is the General Assembly after having heard the views of the Pension Board because any change could potentiallyviolate the principle of segregation of functions within the common system and the Pension Fund Secretariat. Finally stakeholdersmay ask themselves what possible impact there would be onthe management ofinvestments of the Fund inan organization that does not segregate functions and what impact there would be onthe equal conditions of service for allstaff.

[1] Former Pension Fund staff member

[2] Social Security Administration BULLETIN, March 1962, pp. 9-17