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The comedy of the absurd centering around Israel Electric Corporation pensions is expected to reach new heights this week, as the company and its pension fund submit financial statements for 2009 with drastically different opinions as to the company's actuarial liabilities.

While the IEC says its pension liabilities total NIS 15 billion, the pension fund says the IEC owes NIS 18 billion.

The NIS 3 billion difference is what the IEC says the pension fund owes it - excess pension deposits that need to be returned. The pension fund doesn't see itself as owing the IEC anything. Clearly, it's in the workers' interest that the pension fund not give anything back, since that money would otherwise go to them. However, it is in the interest of the rest of Israel's citizens that the money, which they paid in the form of electricity rates, be returned to the utility company.

A key player in this comedy is the capital markets supervisor at the Finance Ministry, Oded Sarig. For what may be the first time ever, he permitted the IEC and its pension fund to submit contradictory reports. He wants Israel's pension funds to be stable, so increasing the pensions of Israel's electric workers is in his interests. Dealing with the possibility that these deposits were extraneous, and are unnecessarily making electricity more expensive for Israel's citizens, does not fall within his discretion.

The source of the discrepancy is the reporting methods used by the IEC and the pension fund. The IEC uses international financial reporting standards, but the pension fund uses an older method, in keeping with the instructions of the capital markets supervisor. This resulted in a gap regarding the workers' wage drift - the rate at which actual earnings exceed negotiated earnings - and hence the source of the NIS 3 billion discrepancy over future pension obligations. The pension fund report is based on actuaries' estimates regarding the pace of future wage drift, while the international reporting standards don't allow for such forecasts, factoring in only existing wage agreements.

There's an argument over which method is better for evaluating pension obligations, and most actuaries actually back the pension fund's method. The IEC's accountants, on the other hand, have the support of the Israel Securities Authority.

In fact, the gap is smaller that it could have been: It would have been NIS 6 billion, but half of that discrepancy is expected to disappear this week, once a new pension agreement goes into effect and gives workers inflation-linked pensions. This eliminates pension drift (though not wage drift) as a factor.