Credit unions’ pension fund deficit of 78 million euros could destabilize the sector

A huge deficit has emerged in the pension fund covering thousands of credit union employees.

The €78m deficit is so large it has the potential to financially destabilize the sector, credit union sources say.

The shortfall increased from just €6 million in 2017. It reached €20 million in 2020, but increased to €78 million this year, due to the impact of interest rates. low interest on the scheme.

The scheme is overseen by the Irish League of Credit Unions and covers staff of that organization as well as employees of affiliated credit unions.

The shortfall will have to be made up by individual league member credit unions, it says in a memo from pension advisers to the league marked “confidential” and seen by the Irish Independent.

Now there are fears the debacle will lead to mass resignations by individual credit unions from the league, an industry representative body.

Some credit union executives are annoyed they received no warning about the rapidly deteriorating state of the regime.

They have been called into online meetings this week, with some expressing surprise at the extent of the financial mess he finds himself in.

Although the financing gap will be filled over several years, the overall cost of the rescue will have to be accounted for this year.

This was likely to push a number of credit unions into a deficit position, senior sources in the movement said.

This, in turn, could mean that their reserves are running out, which will raise huge concerns for the Central Bank, which regulates the sector.

It is understood that around 1,000 serving employees contribute, with another 1,000 members of the scheme made up of retired staff and those who have not yet retired but have changed jobs.

It is a defined benefit plan, which means that employees are promised a fixed pension based on their years of service and final salary.

These programs are being phased out because they are extremely expensive to fund.

The huge deficit in the Republic of Ireland’s Irish Credit Union League pension scheme has prompted panicked members of the league’s board to call in experts from PwC to outline options for coping to the regime’s black hole and how to finance it.

It is so heavily in the red that PwC has recommended that from next month it be closed to new members, and that no new pension benefits be paid to existing staff, who will transfer to a different scheme.

Staff should be informed in the next few days that they will be transferred to a defined contribution plan. The league stressed that the bailout would protect benefits staff had accrued in the past.

Munro O’Dwyer, a partner at consultancy PwC, was called in to carry out an urgent review of the program.

A memo he produced for the league board, seen by this publication, warned the program was likely to become unaffordable and unsustainable.

“If left unchecked, the cost increases risked becoming unaffordable for a number of credit unions, and of most concern was that there was clear potential for DB sustainability. [defined-benefit] plan itself under pressure,” the memo reads.

Its memo recommends that starting next month, individual credit unions be required to start covering the shortfall, calculated in monetary amounts rather than as a percentage of employee salaries.

The amount of these contributions will be determined by the plan’s actuary.

About 100 credit unions and league staff are part of the program after a number of credit unions pulled out in recent years due to funding charges.

The contribution level was 33.2% of each staff member’s salary.

The Irish League of Credit Unions said it was not alone in switching from a defined benefit scheme to a defined contribution scheme.

Subject to the agreement of the administrators of the defined benefit plan, from March 1, current active members of the defined benefit plan will receive pension benefits on a defined contribution basis, it said.

“It should be noted that a significant number of individual credit unions have already made this decision with respect to their employees,” he added.

Pension benefits accrued in the plan will continue to be funded by the league and individual credit unions.

This change, when implemented, will put in place sustainable funding mechanisms for the plan.

The league said it recognizes this is a change for active members of the program and has put in place support and guidance measures for those affected throughout the process. change.

The league said it had engaged with the Central Bank of Ireland and would continue to share detailed and final calculations with regulator as they became available.

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