The High Court yesterday unanimously rejected an appeal by the Histadrut labor federation and eight pension funds under their ownership against the Supervisor of the capital markets, Tsippi Samet. She decided in March 2000 to file for a complete separation in management between "old" and "new" pension funds under the same management.
Samet demanded that the new funds appoint a separate fund manager, separate managerial staff and separate actuary. This would stop the new and old funds having the same fund managers and management, leading to a conflict of interest - to the detriment of the old funds. The situation also increases the burden on the finance ministry which is committed to bearing the monstrous deficit of the old funds, covering 540,000 people.
The saga began in 1995 when it was finally decided the old funds would take on no new members, since they were already suffering vast actuarial losses and needing heavy government subsidy. The accumulated deficit on these funds has reached NIS 130 billion - made up of an actuarial deficit of NIS 56 billion, and a further NIS 74 billion in hidden subsidies through the bonds the government issues specially to these funds.
Once the old funds were closed, the management could launch new funds that would be in actuarial balance and needing relatively low levels of subsidy. But the treasury simply did not realize who they were dealing with. Once the Makefet and Mivtachim pension funds (like most of the others) understood they would have to compete with new and more efficient private funds (there are nine up and running since then), they decided to use monies from the old funds to subsidize the new. This would draw in all the new arrivals shopping around for a pension fund, and kill off competition in the market.
Subsidies come in many guises. For example, the old Mivtachim fund has sizeable advertising expenses - but why does it need to advertise if it's already a closed fund? The answer of course is that the advertising was for the new fund. Also, the new Mivtachim fund hadn't paid the old for the use of its offices.
And, for example, when the Makefet fund decided to set up an insurance agency with an outside partner, the old fund supplied a subsidized loan to the business partner. And here's another ploy - granting extra rights to the strong worker committees covered by the old funds, on condition they ensure new workers put their contributions into the new funds.
The High Court objected to the cross subsidizing, harshly criticized the Histadrut and the funds, and rejected all of their arguments. Given this unequivocal rejection of the appeal, the justices ordered the Histadrut and the pension funds to pay especially high court costs of NIS 100,000 - a fitting fine, apparently.
The problem here, of course, is that there is a very good chance this fine will be paid from the coffers of the old funds. This again will be at the expense of the insured, the state, and the taxpayer.
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