Employee funds need reform

The effort to deal with the burden to be imposed on bank finances by employees’ pension benefits will soon lead to concrete developments on several fronts. The management of Emporiki bank has already submitted its proposals and other banks are certain to follow. The adoption of international accounting standards (IAS) leaves little room for alternative action or maneuvering: In a few weeks’ time, the financial reporting framework will change radically. Beginning on January 1, 2005, all banks will be obliged to estimate the cost of their social security obligations – pensions, severance payments and other contributions to their employees’ pension funds – and deduct it from the bank’s own capital. There is no way to avoid IAS implementation and banks will soon have to inform their shareholders in detail about the impact of the new accounting method on their bottom line. The accounting change concerns all enterprises, but banks are especially affected due to their large number of employees and the troubled finances of several employees’ funds. The last thing the government wants at this time is any large-scale tampering with the social security system. Officially, it insists that, for the time being, there will be no extension of the rather shallow reform attempted by the previous government in 2002, after it had been forced to abandon more radical proposals. However, it is willing to partly finance a change in Emporiki’s social security regime, provided the employees agree to the management’s reform proposals. In other words, the government says it is not reconsidering social security reform but will back any changes agreed upon by individual enterprises, especially one such as Emporiki, where it indirectly controls 40 percent of the shares. If the proposal put forward by Chairman Giorgos Provopoulos is accepted by the employees, it will provide the blueprint for similar arrangements at other banks. (However, OTOE, the federation of bank employees’ unions, yesterday warned against piecemeal attempts at reform. In a meeting with Yiannis Costopoulos, the Alpha Bank chairman and head of the Hellenic Banks’ Association, it said that Provopoulos’s proposal to abolish the Emporiki employees’ auxiliary pension fund was a «provocation» and called on banks to work out a common proposal before entering into a dialogue with OTOE.) Emporiki is also a special case, because the accumulated debt of the employees’ fund exceeds 1.2 billion euros, the level of the bank’s equity capital. When he unveiled his plan, Provopoulos said that adopting the reform proposals was a matter of life and death. The need to cover the Emporiki employee fund’s debt, to the tune of 50 to 55 million euros annually, is a burden that the bank cannot undertake in the long term. Because of it, total social security contributions as a percentage of the payroll exceed the level of other banks by 30 percentage points. The Provopoulos proposal would also increase the years of employment required to receive a full pension, especially for female employees, and would transfer a great part of the bank’s pension fund to the Social Security Foundation (IKA). Emporiki would pay IKA some 250 million euros, while the total expenditure by the bank and state would reach 450 million. Provopoulos has called on employees to look at the long-term picture and not cling to costly privileges that will either bankrupt the bank or lead management to abolish them. Nonetheless, employee reaction to the proposal has been hostile. Without their consent, reform is impossible, as the current situation is enshrined in wage agreements that no one side can unilaterally abandon.