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Shell Dutch Pension Fund Melt Down Recovery Plan

By John Donovan

In December 2008, based on information provided by the website royaldutchshellplc.com, the Financial Times and other news organizations, including the International Herald Tribune, reported that the Shell Dutch Pension Fund was substantially underfunded and as a consequence, employee contributions would have to increase.

The Shell Dutch Pension Fund conceded in March 2009 that the fund had been hit hard by the credit crunch. The funding ratio – the ratio between the Pension Fund’s assets and liabilities – fell from 180% to 85% within a year at the end of November 2008.

Kees Linse, Chairman of the Board, explained what had happened ánd what action was being taken.

“In the first half of 2008 there was little cause for alarm. Stock market fluctuations, nothing more than that. But from mid-September onwards, things started happening very quickly

Kees Linse reflected on what Shell has described as a bizarre period:

“From mid-September onwards the stock markets plummeted, while the interest rate went down as well. This double impact has hit us hard. In early October our funding ratio dropped below the Pension Fund’s required level and barely a week afterwards we dropped past the 105% limit.”

The Pension Fund’s Board and Management immediately did what had to be done.

Kees Linse continues:

“We did, of course, immediately report to De Nederlandsche Bank when our funding ratio dropped below the limit. Then we immediately started working on two recovery plans, firstly to get the funding ratio back to 105% and secondly to at least restore it to the required level. We submitted the first recovery plan to De Nederlandsche Bank on December 19, 2008, and the second plan before April 1.”

The Board was assisted by a dedicated workgroup which drew up the recovery plans. This comprised an investment strategist, an actuary, the SPN General Manager and a lawyer specialising in pensions.

The Pension Fund also took decisions on the level of contributions. The employer’s contribution was increased on January 1, 2009 from 5% to 23.6% and the employee’s contribution, on that part of salary that exceeds € 74,881, from 2% to 8%, which is the level laid down in the Regulations.

Kees Linse explains:

“For participants, there is no change in their pension accrual, but the temporary lower rate of contribution on the salary bracket above € 74,881 has been discontinued. Pension beneficiaries will receive their normal pension. However, it is an important point that we still have to take a decision on indexation.”

On 15 July the Pension Fund received notice from De Nederlandsche Bank (DNB) that it had granted approval for the recovery plan containing both short-term and long-term recovery measures.

Between the moment of submission of the recovery plan and the receipt of the approval, the Pension Fund has further discussed some elements of the recovery plan with DNB. In the meantime, the funding ratio of the Pension Fund has increased to 105%, amongst others as a result of additional payments by Shell companies.

Today the Shell Dutch Pension Fund announced that it had paid an extra 2 billion euros into the fund in the second quarter of 2009 as part of the recovery plan.

The above information includes substantial extracts from information kindly provided by Shell Pensioenfonds.

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