UN pension fund: Two steps forward, one step back
Posted on 25 Feb 2020
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Study for a British university degree in Geneva

The Assembly’s reform efforts of the past several years evoke the plight of that ancient toiler: Sisyphus: two steps forward, one step back. Real progress will require a change in the culture of the Board and fund Secretariat management.

The United Nations General Assembly’s annual resolutions on the Pension Fund, including the latest (A/C.5/74/L.22) aim to ensure the fund’s sustainability through sound financial and administrative management and  “unfaltering accountability by the Pension Board.”

Yet, the Assembly’s reform efforts of the past several years evoke the plight of that ancient toiler: Sisyphus: two steps forward, one step back.  Real progress will require a change in the culture of the Board and fund Secretariat management.

Rejecting the audit

The Board, having neglected to consider a serious of previous internal audits, at its Rome meeting in 2018, rejected most of the findings and recommendations of a comprehensive internal governance audit that the Assembly called for in 2017, that found conflicts of interest between the Board and the fund Secretariat management and serious shortcomings in oversight (A/73/341).

Piling insult on to injury, the Board reported the auditors to the Independent Audit Advisory Committee (IAAC) for an alleged flawed and unprofessional process.

Last August, in a letter to the Board Chair, the IAAC firmly debunked the Board’s allegations, stating that it found no evidence that the auditors had not followed accepted professional audit practices and standards.

Filling the vacuum at the top

In 2017, the Secretary-General reappointed former Chief Executive Officer of the fund Secretariat, Sergio Arvizu, for three years with oversight provisions, instead of a second five-year term as pushed for by the Board.   In December  2018, with  Arvizu on extended sick leave and his deputy slated for retirement at the end of the year, the Board selected former IAEA nuclear negotiator, Janice Dunn Lee, as Acting CEO, while noting that she had  “rather limited technical and financial knowledge of pension funds”.

Although the Assembly decided last year, to mitigate conflicts of interest in the dual roles of CEO and Secretary of the Board by splitting the functions of between a Pension Benefits Administrator and a Secretary of the Board (eliminating the CEO title) by latest January 2020, the vacancy announcement last May for a permanent head of the Secretariat advertised for a CEO/Pension Benefits Administrator.

Last July, the Board selected Rosemarie McClean, former Chief Operating Officer of the Ontario Teachers Pension Plan.  It appears that there were negotiations over her title. While the press release of 26 August lists her title as Pension Benefits Administrator, the Assembly decided in its latest resolution on a new title of Chief Executive Pension Administrator (CEPA).

Defying the Assembly

In its 2018 resolution, the Assembly requested the Board’s governance working group to review and report on a number of important governance audit recommendations that the Board had rejected, including adjusting the composition and size of the Board, and proposing modalities for directly electing retiree representatives.

Last December, the Group of 77’s representative to the Fifth Committee busted the Board for violating the Assembly’s directive to adhere to the tripartite structure, by  including a retiree representative from the Federation of Associations of Former International Civil Servants (FAFICS).

FAFICS’ outsize influence

FAFICS representatives on the Board, who include former UN Controller, Warren Sach, exert outsize influence on the pension system, despite their non-voting status, while representing, as the audit notes, some 18,500 beneficiaries, approximately a quarter of the total number.

FAFICS was among the former CEO’s staunchest supporters. The audit found that circulation by his staff of a letter from FAFICS to beneficiaries in January 2018 “gave the appearance of collusion…to challenge the authority of the Secretary-General and the General Assembly in governance matters of the Fund.”

The audit also found that the fund has been footing the bill for attendance at the Board by six FAFICS representatives, although the Assembly had agreed on funding for two members, plus one for the Standing Committee.

Anticipating the Assembly’s decision that alternates should attend Board meetings only if principals cannot, the governance working group rushed to agree that FAFICS, instead of four representatives and two alternatives, now has six principals.

Intimidation and physical threats

At its Board meeting last July in Nairobi, the UN participant representatives, who include former whistleblowers and have consistently advocated for reforms and supported the governance audit’s recommendations, reported that they were intimidated and physically threatened.

Representing 85,000 active staff, they have filled the vacuum left by FAFICS in advocating for retiree interests, including direct election of representatives, as is the case for active staff.

Back to the drawing board

Last month’s Assembly resolution makes no mention of the anemic recommendations of the Board’s governance working group, but requests that the new Chief Executive Pension Administrator engage an independent expert to conduct a comprehensive and objective analysis of the issues, and make recommendations to the next session.

Addressing conflicts of interest

In extending the mandate of the governance working group, the Assembly insists on adherence to the Board’s tripartite structure, comprising representatives of governing bodies, executive heads, and participant groups – which excludes FAFICS.

While noting the temporary deployment of a Director from Geneva, the Assembly requests the Board to expedite the selection and nomination of a Secretary to the Board; ensure his or her independence; and develop a code of conduct, and procedures to address questions of ethics and confidentiality.

Business as usual

In her year as Acting CEO, Lee never wavered from the Secretariat’s longstanding mantra of “no backlog” in benefit payments. The audit noted that underreporting of the backlog was based on not counting cases with missing documents.

There is also the fund’s disturbing report in its 2018 financial statements of forfeitures of pension benefits to the tune of $45 million, and 4000 cases, as reported by the UN participant representatives, slated for forfeiture.

There was no action when staff asked for an investigation of the surprisingly positive and fluctuating benefit processing figures promulgated by the fund Secretariat under Lee’s leadership.

One of Lee’s more controversial decisions was to create a system called “functional management” involving the transfer of two senior posts from the fund’s Geneva office to New York.

The president of the Geneva retiree association noted in a letter to Lee dated 5 July 2019, that the structural change was likely to disintegrate the Geneva office and “gravely diminish” client services to beneficiaries in Europe, West Asia, and Africa, who comprise 62 per cent of all beneficiaries. The Assembly has asked for an update on the issue in the Board’s report.

Reports also are that the new system, ostensibly devised to improve coordination between New York and Geneva, actually serves to provide promotion opportunities for some senior staff in New York; increases travel costs; and runs counter to the Assembly’s imperative to manage expenses prudently.

Too many cooks

McClean’s anticipated arrival to head the Secretariat has been a positive. Sadly, although she officially assumed her functions on 2 January, she had to delay travel to New York because of injuries she sustained in Toronto on 26 December when she was struck by a car that jumped the curb.

Lee, whose functions officially ended on 31 December, was on that date still sending interoffice memoranda setting out policies and procedures aimed at cementing the new system. She is reportedly currently acting as adviser to McClean; but fund staff report she is still running the fund including chairing senior management meetings.

Investments

On the investment side of the fund, while Representative of the Secretary-General for Investments, Sudhir Rajkumar, reported record-low revenues for 2018, he also noted that the market value of the fund rallied in 2019. It is currently at its highest level, at $67.8 billion.

There are concerns about environmental and social policy, the possible impact of policy shifts on inflation, and staff management concerns about which the RSG has stated that he welcomes an audit.

The Assembly’s latest resolution refers to a planned internal audit of the governance of the Office of Investment Management and requests submission of the audit along with the Board’s comments in its next report.

Good governance and financial sustainability – a critical relationship

UN Participant representatives, Mary Abu Rakabeh, Ibrahima Faye, Ndeye Aissatou Ndiaye, Bernadette Nyiratunga, Ian Richards, Michelle Rockcliffe. © IAN RICHARDS
UN Participant representatives, Mary Abu Rakabeh, Ibrahima Faye, Ndeye Aissatou Ndiaye, Bernadette Nyiratunga, Ian Richards, Michelle Rockcliffe. © IAN RICHARDS

The audit noted that the Assets and Liabilities Monitoring Committee (ALMC) duplicates the work of the Investments Committee and the Actuarial Committee, that most of its members are not investment experts, and that it has provided advice that was technically questionable or contradicted advice from the Investments Committee.

When the audit recommended toretire the ALMC and the governance working group decided to retain it, the Assembly decided in its latest resolution to limit the ALMC’s work solely to assets-liability matters, which seems to indicate that its members are precluded from providing investment advice.

Last month, Board Chair, Philip Richard Owade, told the Fifth Committee that “the Fund is in sound and solid footing, contrary to the propaganda mounted by its detractors over the past 4 to 5 years.”

Among the reforms he bemoans is the key issue of the imbalance in Board composition which he described as “complex and delicate” and thus apparently, unsolvable.

The Board over which he presides is a bloated bureaucracy for which the audit found no formal terms of reference, code of ethics, term limits, or mechanism for avoiding conflicts of interest between its members and the fund management.

Although the fund’s rules and procedures call for decisions to be taken by 33 members with voting rights, the Board takes decisions by 93 ad hoc members including 31 alternates and staff pension committee representatives. 

Owade surely knows that concerns about good governance are not mere propaganda; that financial soundness does not exist in a vacuum; and that there is a critical relationship between good governance and the fund’s sustainability.  

The culture must change

There is room for optimism in McClean’s arrival as the new Secretariat head.

Progress in terms of increased oversight by the Assembly is also encouraging. Its request for McClean to engage an independent pension expert to review and make recommendations on many of the same crucial governance issues that it had assigned to the Board’s governance working group last year is particularly significant.

That being said, with the old guard entrenched in the Board and the fund Secretariat, unless there’s action to change the culture, McClean’s task will be Sisyphean, as will implementation of the Assembly’s reforms that are vital to the fund’s long-term health.

* Loraine Rickard-Martin is a UNJSPF beneficiary and author and administrator of the UN pension blog, http://unpension.blogspot.com.