BEFORE THE UNITED NATIONS
APPEALS TRIBUNAL
COMMON CAUSE APPEAL
S.P. SUNDARAM (APPLICANT 1), V. MUTHUSWAMI (APPLICANT 2)
AND G.S. SRINIVASAN (APPLICANT 3)
ON THEIR OWN BEHALF AND ALSO ON BEHALF OF OTHER RETIREES
APPLICANT
UNITED NATIONS JOINT STAFF PENSION BOARD
RESPONDENT
Statement of the issue
1. This case concerns an appeal by a number of retired employees of the United Nations and other member organizations, who are now in receipt of pension benefits from the United Nations Joint Staff Pension Fund (“UNJSPF” or the “Fund”). The appeal is against the decision of the Standing Committee of the United Nations Joint Staff Pension Board at its meeting in July 2009 to uphold the decision by the Chief Executive Officer of the Fund to deny the Applicants’ request to end, after a certain number of years, the reduction in the UNJPSF pension benefits of retirees who at the time of separation had exercised the option to commute into a lump sum a portion of their pension benefit entitlement in accordance with article 28 (g) of the UNJSPF Regulations.
Statement of facts
2. The three applicants who submitted the appeal on their own behalf and behalf of other retirees have been in receipt of a reduced UNJPSF monthly pension in accordance with Article 28 of the UNJSPF Regulations, because at the time they separated from the service of their respective former employing organizations, they each opted to commute a portion of their UNJSPF pension benefit entitlement into a one-time lump-sum that was payable (and actually paid) to them immediately by the UNJSPF.
3. In a letter sent to the Chief Executive Officer (“CEO”) of the Fund on 22 March 2009 (Annex 5), Applicant 1 requested that the reduction imposed on periodic UNJSPF pension benefits on account of a partial lump-sum commutation should be ended "once the indebtedness was cleared".
4. In an e-mail response sent on 5 April 2009 to Applicant 1 and Applicant 2 (Annex 6), the Fund's CEO confirmed, inter alia, that "without leaving any discretion to the Fund's CEO, the UNJSPF Regulations require that, for those UNJSPF retirees who opt for the immediate one-third lump-sum commutation of their otherwise payable UNJSPF retirement benefit, the one-third reduction in the benefit payable be applied for the lifetime of the retiree" and that to establish the commutation amount "the calculation is done on an actuarial basis". The CEO added that Applicant 1 and Applicant 2 were free to lodge an appeal pursuant to Section K of the UNJSPF Administrative Rules.
5. Following further communications exchanged between the CEO and Applicant 1, which were copied to a number of other UNJSPF retirees, the CEO received from Applicant 1 a formal request for review by the Standing Committee (Annex 1 of the Applicants’ submission). Between 21 May 2009 and 26 June 2009, identically worded formal requests for review regarding the same subject were also received from 40 other UNJSPF retirees. In addition to the formal requests, the Fund secretariat also received e-mail messages and letters from a number of UNJSPF retirees, expressing their support for the appeals that had been filed.
6. The Standing Committee of the Fund considered the case at its 191st Meeting held on 15 July 2009 and determined that:
a) The decision by the Chief Executive Officer of the Fund to deny the application to end, after a certain number of years, the reduction in the UNJPSF pension benefits of retirees who at the time of separation had exercised the option to commute into a lump sum a portion of their pension benefit entitlement in accordance with article 28 (g) of the UNJSPF Regulations was fully compliant with the relevant UNJSPF Regulations; and
b) Reductions in UNJSPF pension benefits on account of optional lump-sum commutations remain in effect for the lifetime of the UNJSPF retirees concerned.
Respondent’s legal arguments
7. The following provisions in the UNJSPF Regulations govern generally the partial lump-sum commutation option:
Article 1(f) - "Commute" shall mean cause to be converted and paid in a lump sum part or the whole of a benefit otherwise payable at periodic intervals, according to the actuarial tables of the Fund.
Article 28(g) - A benefit payable at the standard annual rate may be commuted by the participant into a lump sum subject to the following limitations and to supplementary article D, where applicable:
(i) If the rate is 300 dollars or more, the amount of the lump sum may not exceed the smaller of:
(A) The actuarial equivalent of one third of the benefit; or
(B) The actuarial equivalent of one third of the maximum benefit that would be payable to a participant retiring at the normal retirement age, on the same date as the participant, with a final average remuneration equal to the pensionable remuneration on that date for the top step of level P‑5 on the scale of pensionable remuneration in appendix B below;
(ii) Nevertheless, if the amount calculated under (i) above is less than the amount of the participant's own contributions, then the benefit may be commuted to the extent of the latter amount;
(iii) If the rate is less than 1000 dollars, the benefit may be commuted to the extent of its full actuarial equivalent; if a participant is married, the prospective benefit payable to his or her spouse may also be commuted at the standard annual rate of such benefit.
Article 29(c) The benefit may be commuted by the participant into a lump sum to the extent specified in article 28(g) for a retirement benefit.
8. It is therefore very clear that, under the UNJSPF Regulations, when a UNJSPF participant upon retirement makes a personal choice and elects to exercise the option to commute a portion of the UNJSPF pension entitlement into an actuarially calculated lump sum, the resultant reduction in the UNJSPF pension will then remain in effect for the lifetime of that UNJSPF retiree. It should be noted that such a commutation and the ensuing reduction in the benefit does not have an impact on any potential survivor’s benefits. At paragraph 23 of their submission, the Applicants refer to Article 43 of the UNJSPF Regulations (“Recovery of Indebtedness to the Fund”) in relation to the above provisions concerning commutation. Article 43 addresses situations where the Fund makes an (actual) overpayment to a beneficiary and is required to recover the sum paid since there is no entitlement and no payments are due to, or on account of, a UNJSPF participant or beneficiary. This provision has no relevance to the lump-sum commutation, which provides for the immediate payment of a pension entitlement, rather than one that would otherwise be payable at periodic intervals.
9. The UNJSPF is a defined-benefit type pension plan. In a defined-benefit pension plan the employer promises the employee on retirement a periodic benefit that is predetermined or “defined” by a formula which considers the employee’s earnings history, years of service and age, rather than resulting from what the employee and employer contributed and the investment returns. Participants in the Fund who are due to be separated from their employing organizations and are entitled under article 28 of the UNJSPF Regulations to receive a retirement benefit upon reaching normal retirement age or those who have reached the age of 55, but have not reached normal retirement age and choose an early retirement under article 29, are required by the Fund to submit their payment instructions on Form PENS.E/7 (Annex 7). The form offers participants the option to receive a full pension or full early retirement pension as the case may be, or they can receive up to one-third as a lump sum and the balance as a reduced periodic monthly benefit. Hence, commutation, an option for UNJSPF participants, is a one time, permanent conversion of the right to a lifetime periodic retirement benefit into a lump-sum payable to the beneficiary immediately at the time of separation from service. The sum is calculated on the basis of actuarial factors that take into account relevant interest rates and the beneficiary’s life expectancy, in accordance with article 1 (f) of the UNJSPF Regulations. Commutation does not create any benefit that might be due but unpaid by the Pension Fund. The UNJSPF Regulations permit participants to opt for a partial lump sum commutation of the retirement benefit; however, the Regulations also require that the one-third reduction in the benefit is applied for the life time of the retiree.
10. As a defined benefit plan, UNJSPF pools assets and shares the assumed collective risk for the eventual UNJSPF pension liabilities among all its participants (as at 31 December 2008 112,804), drawn from the Fund’s 23 member organizations. The Fund uses those pooled assets to provide benefits to staff members globally (periodic benefits in payment as at 31 December 2008 to 59,945 beneficiaries in 190 countries). The equal contribution and benefit levels are determined without regard to the identity of the member organization that employs the staff concerned. Likewise, nationality, former duty station or country of residence has no relevance to entitlements under the UNJSPF Regulations. Country of residence is relevant only under the UNJSPF Pension Adjustment System, in case the beneficiary opts for the so called two- track pension adjustment system. All UNJSPF participants contribute the same percentage of their pensionable remuneration regardless of their age, length of service, career progress, marital status, whether they have minor children or not, and irrespective of the location of their duty station.
11. Similarly, the commutation amounts are determined on the basis of factors that account for interest rates and life expectancy for the Fund population as a whole. The aggregated risk on a collective group basis means that, for example, life expectancy is an average: the actuarial calculations presuppose that some participants will die before, and others after, reaching the projected life expectancy. Therefore, retiring participants who die shortly after commuting part of their pension into a lump sum realize -at the expense of the Fund - a significant economic gain, which is balanced by those who live substantially longer than the projected life expectancy. The request of the Applicants would require a fundamental change in the level of contributions from participants and member organizations to fund the type of benefits requested by the Applicants. Obviously, it would also require changes to the UNJSPF Regulations, which – pursuant to Article 49 of the UNJSPF Regulations - can only be made by the United Nations General Assembly after recommendations made by the United Nations Joint Staff Pension Board (“Pension Board”). The UNJSPF system is non-discriminatory and fair to all participants and UNJSPF secretariat administers it in a consistent and equal manner world-wide, without any violation of human rights or ILO Conventions. The request of the Applicants would, in turn, be unfair to those retirees who opted to take the full pension and no lump sum, if the lump sum were to be restored to those retirees who opted for the lump sum as they would be getting an additional benefit - one that has no basis in the current Regulations.
12. Under the authority of the Pension Board, the Pension Fund is entrusted to provide retirement, death, disability and other benefits and related services to its participants, retirees and beneficiaries. To meet its long-term commitments, the Fund must ensure an adequate level of investment return on its assets while mindful of the approved risk tolerance philosophy and the requirements posed by its liabilities. The UNJSPF has in place a system for oversight of its assets and liabilities, which includes the Committee of Actuaries. The Committee of Actuaries consists of seven independent actuaries selected from the five different regions of the world. In addition to reviewing and approving the actuarial assumptions, which are also reported to the Pension Board and the UN General Assembly, the Committee of Actuaries also analyzes the biennial actuarial valuations of the Fund and advises the Pension Board on other actuarial questions arising out of the operations of the Fund’s Regulations. When the United Nations Joint Staff Pension Board reviews the actuarial report, it recommends appropriate action, if any, dependant on the results of the valuation. Several interest groups in the Pension Board, which has a tri-partite membership, regularly propose changes to the plan design of the Fund on the basis of the actuarial evaluation, i.e., actuarial surplus or deficit.
13. When administering and managing public funds, the UNJSPF is obliged to rigorously follow its Rules and Regulations in all cases. The Fund cannot assume financial risks and responsibilities other that those that arise on a group basis from service in a UNJSPF member organization with concurrent contributions. Consequently, and in fairness to all other Fund participants, there is no scope for negotiation with any particular interest group. Neither the Chief Executive Officer nor any other person or entity of the Fund has discretionary authority to waive or modify the pension benefit that is payable to a UNJSPF retiree in conformity with the UNJSPF Regulations, Rules and Pension Adjustment System. UNJSPF retirees have an active voice through FAFICS (Federation of Associations of Former International Civil Servants) which has the right to participate in meetings of the Pension Board and its Standing Committee, as well as other inter-sessional groups of the Board. Indeed, the Applicants could have pursued this alternative avenue if they wished to change the current UNJSPF Regulations.
14. At paragraph 29 of the Application, the Applicants have given a number of reasons as to why they opted for commutation of a portion of their pension benefits, including repatriation and resettlement back in their home country, and the fact that they were aware that commutation is a feature of some civil service pension schemes. The Respondent notes that employees of the United Nations who return to their home countries upon separation from service are provided with a repatriation grant to allow them to settle back home. Further, there is nothing in the UNJSPF Regulations, Rules and Pension Adjustment System that gives the expectation that the lump sum that is commuted may be restored; an assumption based on the policy of another entity is therefore erroneous. Quite clearly, the life-time reduction of a UNJSPF periodic benefit is based on the definition of the term “commute” in article 1 (f) of the UNJSPF Regulations. The Regulations of the Fund and the payment instructions signed by participants are clear about the implications of the option to commute up to one-third of a retiree’s pension benefit: the remainder is paid as a monthly benefit.
15. The Applicants have cited as the basis of their request the policy of the Government of India to restore commuted pensions of civilian employees and Defence employees, as well as provisions of the Universal Declaration of Human Rights. They have also asserted that some of the national civil service pension schemes limit the period of commutation, however, no examples of other national schemes have been provided. The Respondent’s research into the issue has not identified examples of other national schemes that restore commuted portions of pensions. The 1987 Supreme Court Judgment provided by the Applicants (Annex 4) that led to the Government of India’s adoption of the policy to restore commuted pensions does not provide an actuarial basis for the decision. Rather, it is stated at page 4 of the judgment that the Government took the decision “as an act of goodwill to pensioners and to extend to them some measure of relief in the evening of their lives”. Further it should be noted that the Government of India introduced a defined contribution pension system for all new government employees entering government service from 2004 and which from 1 May 2009 has been made available to all Indian citizens aged between 18 and 55. A defined contribution plan does not generally promise a specific amount of benefits at retirement. In these plans, the employee or the employer (or both) contribute to the employee's individual account under the plan, sometimes at a set rate. The value of the account will fluctuate due to the changes in the value of the investments. The main reason cited for the new system adopted by the Government of India was the cost of the defined benefit pension system, which was found to be a huge financial burden. The benefit that the Applicants are seeking to introduce within the UNJSPF, has, therefore, not been included in the new Indian Government national pension system in effect since 2004 for its Government employees.
16. The Respondent notes that the only basis to pay UNJSPF benefits is the provisions in the UNJSPF Regulations; no national legislation has any relevance to the Fund, which is a subsidiary organ of the UN General Assembly and which enjoys the same privileges and immunities as the Organization itself. The way to amend the UNJSPF Regulations has been described above. As noted above, the Government of India has taken steps to change its national pension system due to the high cost of the defined benefit scheme that was in place prior to 2004, and which included the feature that the Applicants are seeking to adopt for the UNJSPF. The actuarial implications of the request by the Applicants are likely to be very substantive to the Fund. In addition to inequality it would create, the cost is probably the reason why such proposals have never been advanced in the Pension Board by any constituent groups, including FAFICS. Neither has the Committee of Actuaries made proposals to that effect.
Conclusions and pleas
17. On the basis of the foregoing, the Respondent respectfully requests that the Applicants’ appeal be rejected on the basis that the decision by the CEO of the Fund to deny the Applicants’ request to end, after a certain number of years, the reduction in the UNJPSF pension benefits of retirees who at the time of separation had exercised the option to commute into a lump sum a portion of their pension benefit entitlement in accordance with article 28 (g) of the UNJSPF Regulations was fully compliant with the relevant UNJSPF Regulations. In addition, the Tribunal is requested to uphold the decision of the Standing Committee to confirm that reductions in UNJSPF pension benefits on account of optional lump-sum commutations remain in effect for the lifetime of the UNJSPF retirees concerned.
18. The Applicants’ request had no basis in the UNJSPF Regulations, and the Fund is obliged to strictly follow the Regulations. Any deviation would first require a change to the Regulations and those proposals are to be channelled through the Pension Board to the UN General Assembly. The Respondent respectfully requests that the application be rejected in its entirety.
Respectfully submitted,
Date: 28 October 2009
__________________________
Bernard Cochemé
Chief Executive Officer, UNJSPF
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