Speakers Air Concerns over Benefit Payment Backlog, Decreased Investment Returns as Fifth Committee Considers Budget of United Nations Pension Fund
Delegates Approve Draft Resolution by Which Secretariat Would Absorb Additional Costs of Effecting New Staff Compensation Package
Delegates in the Fifth Committee (Administrative and Budgetary) today voiced their concerns over the benefit payment delays endured by retirees and participants in the Organization’s $53.8 billion United Nations Joint Staff Pension Fund.
At a meeting in which the Fifth Committee approved a draft resolution on the cost of implementing a new common system compensation package in the United Nations Secretariat and discussed the upcoming overhaul of the United Nations Office in Geneva, delegates zeroed in on the Pensions Fund’s performance and processing glitches that had led to backlogs in payments.
Per the text, approved without a vote, the General Assembly, expressing serious concern over the Secretary-General’s failure to give Member States timely information on the delays in implementing the new staff compensation package, would decide that he would absorb all additional implementation costs from within existing resources.
Thailand’s delegate, speaking on behalf of the “Group of 77” and China, called for urgent measures to address the Pension Fund backlog and said the Group would carefully consider the Fund’s proposal for 20 temporary staff positions to help reduce the backlog. Yet in introducing the related report of the Advisory Committee on Administrative and Budgetary Questions (ACABQ), Vice-Chair Babou Sene said an additional workforce of nine temporary positions would be sufficient. “In the view of the Advisory Committee, the increase in the number of separations claims could have been anticipated,” Mr. Sene said.
The United States was very concerned with the past and present backlog of entitlement and pension payments to participants and retirees, as it could significantly impact the financial conditions of the retired staff and their families, according to that country’s representative. She trusted that the Pension Fund would act to anticipate any substantial increases in the number of separations and associated claims.
Carolyn Boykin, Representative of the Secretary-General for Investments of the United Nations Joint Staff Pension Fund, laid out the Secretary-General’s report on the performance and diversification of the Pension Fund’s investments.
Ms. Boykin said the Pension Fund’s investment performance had fallen short of the 3.5 per cent real rate of return target in 2014 and 2015, but was making good progress towards that target in 2016. It was important, she said, to note that the 3.5 per cent real rate target was a long-term goal which was not expected to be reached every year.
Salhina Mkumba, Director of External Audit of the United Republic of Tanzania and Chair of the Audit Operations Committee of the Board of Auditors, introduced the Board’s report on the Pension Fund, which had obtained a clear (unqualified) audit opinion. That confirmed that the financial statements presented fairly, in all material respects, the financial position of the Pension Fund as of 31 December 2015 and its financial performance and cash flows for the year in accordance with the International Public Sector Accounting Standards.
He added that while the Pension Fund was able to meet its short-term and long-term obligations, its decreasing returns in the last two years was concerning and had adversely impacted the Pension Fund’s performance over the short term. That could have a negative impact on the long-term objective of ensuring the Pension Fund was fully funded, he said. As of 31 December 2015, the net assets available for benefits totalled $52 billion and the Fund’s total income during 2015 was $1.81 billion and total expenses were $2.42 billion. That was a decline of $517 million in 2015 net assets, compared to an increase of $1.41 billion in 2014.
Paul Dooley, Deputy Secretary of the United Nations Joint Staff Pension Board, presented the Board’s report on implementation of the recommendations of the Board of Auditors contained in its report for the year ended 31 December 2015 on the Pension Fund.
Fifth Committee Chair Inga Rhonda King (Saint Vincent and the Grenadines) then drew delegates’ attention to the report of the United Nations Joint Staff Pension Fund Board (document A/71/5/9) and the statement of the Board’s Chair, Vladimir Yossifov, which was placed on the Fifth Committee website after the meeting. The report of the Pension Fund Board included the results of the Pension Fund’s actuarial valuation, as of 31 December 2015, and its investment performance from 1 January to 31 December 2015, and other issues considered during the Board’s sixty-third session.
The Fifth Committee opened its meeting with a discussion of the Strategic Heritage Plan, which details the upgrading of the United Nations Office at Geneva.
Michael Moller, Director-General of the United Nations Office at Geneva, presented the Secretary-General’s third annual progress report on the Plan and said the Swiss Government on 29 September had approved a 400 million Swiss francs (SwF) interest-free loan to support the project.
Mr. Sene, Vice-Chair of the Advisory Committee, introduced that Committee’s report on the subject and urged the Secretary-General to provide the General Assembly with additional information on any changes in the project’s financing schedule.
Thailand’s delegate, taking the floor for the first time for the Group of 77, said the Group believed a stronger project governance mechanism would help the project be successfully implemented within the approved timeline and budget. The Group was concerned with changes in the project schedule, particularly the overall duration of the new building work.
Before the close of the meeting, the Fifth Committee Chair extended her own and the Committee’s heartfelt condolences to the Permanent Mission of Cuba to the United Nations, its Government and its people on the passing of Fidel Castro. She noted his leadership and his contributions, not only to the people of Cuba but to citizens around the world.
Cuba’s representative, Jorge Antonio Gonzalez Sanchez, thanked the Fifth Committee and all the delegations for their condolences and said that although the physical presence of Fidel Castro had now disappeared, his teachings would continue in a strong and independent manner.
Also speaking at today’s meeting were delegates from the European Union and Switzerland.
The Fifth Committee will reconvene at 10 a.m. on Wednesday, 30 November, to discuss the budget outline for the 2018-2019 budget cycle; revised estimates for the Economic and Social Council; Umoja; and supporting the implementation of the 2030 Agenda for Sustainable Development and the Addis Ababa Action Agenda.
Strategic Heritage Plan
MICHAEL MØLLER, Director-General of the United Nations Office at Geneva, in introducing the Secretary-General’s third annual progress report on the Strategic Heritage Plan of that Office (documents A/71/403 and Corr. 1) said that the Swiss Government had approved a 400 million Swiss francs (SwF) interest-free loan that would support the project on 29 September. With regard to the planning and design of the project, the detailed design for Phase 1, which included the new permanent building and the renovation of existing buildings A and B, had been completed. Work on the new permanent building was expected to start in early 2017. The project team had also started a space utilization and occupancy study of existing working conditions at the Palais des Nations, which would be completed in the first quarter of 2017. While that was a good start, he said, the change management process required to introduce flexible workplace strategies would take time.
On the governance of the project, that mechanism was robust and included an Advisory Board; an external body comprising six members from broad regional representation; and the continuation of the Steering Committee, which was an internal body, he said. Given that the General Assembly had not finalized its deliberations last year, the Secretary-General had this year presented three possible schemes for appropriation and assessment of the project: 1) One-time up-front; 2) Multi-year; and 3) One time up-front appropriation with a mixture of up-front and multi-year assessment. The General Assembly was asked to decide on the currency of assessment, either United States dollars or Swiss francs, and to establish a multi-year special account for the project to allow for flexibility in managing project resources.
With the aim of reducing the overall assessment on Member States, a detailed study on the valorisation of United Nations-owned land and other assets had been completed, where six parcels of land had been determined to have valorisation potential for the project, he said. Since the value of the land could increase significantly if more preparation work was carried out, the establishment of a project team, to be financed from current rental income, was proposed for the years 2017 to 2019. A number of other funding resources, including a donations compendium, were also being pursued.
BABOU SENE, of the Advisory Committee on Administrative and Budgetary Questions (ACABQ), introduced the Advisory Committee’s eponymous report (document A/71/622) and said the Secretary-General did not recommend changes in the overall timeline of the approved project schedule, but proposed changes in the schedules for individual project phases. The Advisory Committee trusted the Secretary-General would provide the General Assembly with additional information, including the potential impact on the project’s financing schedule.
The Advisory Committee also noted that within the overall approved project budget of SwF 836.5 million Swiss francs the Secretary-General’s proposed adjustments were not adequately explained, including adjustments to the costs for the construction of the new building, renovation of existing buildings, escalation and project contingencies, he said. The Advisory Committee believed that a consistent approach to estimating the project contingency amounts was required to ensure full accountability and transparency.
Referring to the project’s financing, the Advisory Committee noted that the SwF 400 million loan at a zero interest rate was approved by the host country in September for both the project’s construction and renovation phases, he said. The Advisory Committee was concerned that the cost estimate for the building’s construction had increased by SwF 3.9 million and the loan amount would not cover the full construction costs.
The Advisory Committee stressed that the project governing mechanisms had to make every effort to avoid slippage in the project schedule, cost overruns and requirements for possible additional funding, he said. The Advisory Committee repeated the importance of the Board of Auditors’ assurance to give the Member States reasonable confidence that the resources allocated for the project’s implementation were used in the Organization’s best interests. After considering the Secretary-General’s proposal related to the valorisation at market price of land owned by the United Nations Office at Geneva, the Advisory Committee recommended against the establishment of a dedicated valorisation team. Instead it recommended the use of expert consultancy services.
SIRITHON WAIRATPANIJ (Thailand), speaking on behalf of the “Group of 77” and China, said the Group valued the Secretary-General’s efforts to renovate and upgrade the facilities at United Nations-owned buildings, including facilities in the United Nations Office at Geneva. The Group believed a stronger project governance mechanism would contribute towards the project’s successful implementation within the approved timeline and budget. The Group was concerned with changes in the project schedule, particularly the overall duration of the new building work, which had been increased by 10 months because of further development of the technical design and more extensive site preparation requirements. The Group would like more information on the matter as it could impact the project’s cost and schedule. It stressed the importance of continued assurances form the Board of Auditors regarding the soundness of the project’s governance framework, internal controls and management practices to give Member States the confidence that resources were being used to meet the stated objectives. The Group would like more information and clarification on project adjustments.
Regarding the contingency fund, the Group reiterated that any remaining unused contingency funds had to be returned to Member States when the project ended, she said. Regarding alternative funding opportunities, the Group reiterated its concern about the sale of United Nations-owned land. Yet it remained open to discussing other options during deliberations and noted that some earmarked donations had been received. It expected the Secretary-General would exert his efforts to avoid negative interest rates being applied to the currency holdings of the United Nations to prevent losses to the Organization.
FIONA GRANT, European Union, said robust governance in the Strategic Heritage Plan was crucial. Noting some slippage in the project schedule, she stressed the need for effective monitoring by the Steering Committee as well as risk management and monitoring by the Board of Auditors. She welcomed efforts to promote accessibility for persons with disabilities as well as a pilot programme for the use of flexible workplace, which could both enhance space utilization and improve the working environment for staff.
She underlined the importance of deciding during the current Fifth Committee session on issues such as funding options for the project, and the related options on currency for the appropriation and assessment scales in order to avoid difficulties that could prejudice to the construction and project management later on. It was important to continue identifying opportunities for land valorization in Geneva. The financial benefits of valorization should be applied directly to reducing assessments for the project. Decisions must be guided also by the necessity to preserve the long-term interests of the United Nations in relation to real estate values in Geneva. A balance between those two imperatives must be found.
CHERITH NORMAN CHALET (United States), noting the progress to date on the Strategic Heritage Plan, said her focus was to ensure it was managed well and in line with the General Assembly’s guidance on flexible workspace, was kept on schedule and within budget. She looked forward to discussing further governance, risk management, space utilization, accessibility and financing of the project, noting that this year’s discussion would centre on the latter. She commended efforts to explore options for the valorisation of the United Nations properties in Geneva, but expressed disappointment over the limited information available concerning the study’s findings and conclusions. She asked for further explanation surrounding the estimated proceeds from both the sale and lease of the various properties. Any revenue gained from leasing or selling such properties must be applied to the project and its financing. She sought an update on the net gain from donations and rental income and how flexible workplace was being implemented in the Plan’s design and construction. While the Palais was a historic building, she still expected to see changes to ensure a more flexible workplace and increased capacity within the area.
JÜRG LAUBER (Switzerland) commended the United Nations Office at Geneva for its work on the Plan, which was proceeding on schedule and within the planned budget. Because of lower maintenance expenses, cost avoidance as well as the optimisation of the work environment, the Plan would lead to substantial annual savings, he noted, pointing out the efforts made to find alternative funding sources for the project. The SwF 400 million zero-interest loan offered by the host State provided significant financial benefits, and land valorisation income would further reduce costs. The Plan would also bring qualitative benefits for staff, delegates and visitors to the Palais des Nations by providing a modern, attractive and safe work environment. Therefore, agreeing on the financial modalities was important, he said, warning that uncertainty on that front bore the risk of causing delays and additional costs, discouraging staff, partners, contractors as well as potential investors and donors.
United Nations Joint Staff Pension Fund
CAROLYN BOYKIN, Representative of the Secretary-General for Investments of the United Nations Joint Staff Pension Fund, presented the Secretary-General’s report on the performance and diversification of the Pension Fund’s investments (document A/C.5/71/2) including the Secretary-General’s note on the membership of the Investments Committee (AC.2141). The investment performance of the Fund had fallen short of the 3.5 per cent real rate of return target in 2014 and 2015, but was making good progress towards that target in 2016. As of 25 November, the Fund’s nominal year-to-date return had been 3.82 per cent, with the nominal target being approximately 5.5 per cent. It was important, she said, to note that the 3.5 per cent real rate target was a long-term goal which was not expected to be reached every year.
Furthermore, the Fund’s nominal return exceeded the policy benchmark by 10 basis points in 2015, but fell short in 2014 and was also falling short during 2016 due to the fact that the market cycle favoured passive management over active management and the Fund’s portfolios had been actively managed, she said. In terms of market value of assets, the Fund stood at $53.89 billion as of 25 November, which was approximately $1 billion more than the market value of assets as of 31 December 2014. “Net and net, this represents more than capital preservation during a challenging market environment,” she said.
On diversification in developing countries, a growth in investments in those regions had been achieved during the biennium, while maintaining the Fund’s four criteria of safety, liquidity, convertibility and profitability, she said. Efforts had also been made to improve the Fund’s environmental, social and governance profile, with an emphasis on climate change. The Fund had been recognized in that regard by Principles for Responsible Investment and Asset Owners Disclosure Project, who both had awarded the Fund with the grade A for fund management in 2015.
“We believe that the markets will continue to be volatile over the near-term; we believe that we are well positioned by adhering to our strategic asset allocation policy; and we believe that the 3.5 per cent real rate of return remains an appropriate long-term investment objective for the Fund,” she concluded.
SALHINA MKUMBA, Director of External Audit of the United Republic of Tanzania and Chair of the Audit Operations Committee of the Board of Auditors, introduced the report of the Board of Auditors on the United Nations Staff Pension Fund and the financial report and audited financial statements for the year ended 31 December 2015 (document A/71/5/Add.16). He said the Pension Fund had obtained a clear (unqualified) audit opinion, which confirmed the financial statements presented fairly, in all material respects, the financial position of the Pension Fund as of 31 December 2015, and its financial performance and cash flows for the year ended in accordance with the International Public Sector Accounting Standards.
While the Pension Fund was able to meet its short-term and long-term obligations, its decreasing returns in the last two years was concerning and had adversely impacted the Pension Fund’s performance over the short term and could have a negative impact on the long-term objective of ensuring it was fully funded, he said. As of 31 December 2015, the net assets available for benefits totalled $52 billion and the Fund’s total income during 2015 was $1.81 billion and total expenses were $2.42 billion. That was a decline of $517 million in 2015 net assets, compared to an increase of $1.41 billion in 2014.
Turning to investment issues, Mr. Mkumba said long-pending vacancies at the Pension Fund’s senior level adversely impacted its performance and investment strategy. It would be prudent to have a well-defined succession plan to ensure vacancies were filled promptly. Regarding the return on investment, the Pension Fund’s long-term performance objective was to achieve a 3.5 per cent annualized real rate of return, as adjusted by the United States Consumer Price Index. The Fund had an inflation adjusted negative real return of 1.7 per cent during 2015, as compared to a positive real return of 2.4 per cent during 2014. The Pension Fund had underperformed both years against the 3.5 per cent benchmark and investment income had declined by $5.26 billion in 2014 over 2013, and by an additional $2.12 billion in 2015 over 2014. The Board was very concerned by the Pension Fund’s foreign exchange losses, a major factor in the net investment loss of $458.26 million in 2015. The Board recommended the Pension Fund address the foreign exchange exposure issue and use suitable procedures and tools to mitigate foreign currency losses.
Regarding pension processing issues, the Board of Auditors had carried out a sample check of the time taken to process benefits after the Pension Fund’s receipt of all documents, he said. The Board noticed that out of a sample of 98 death-on-service cases, only 14 per cent of the cases were processed within the target benchmark of 15 days and 85 per cent of cases were processed with delays ranging from 16 days to more than one year. Out of a sample of 4,413 cases of retirement or withdrawal, only 8 per cent of the cases were processed within the benchmark of 15 days while 91 per cent were processed with delays ranging from 16 days to more than one year.
Turning to the 12 outstanding recommendations as of 31 December 2014, only three, or 25 per cent, of the recommendations had been fully implemented; seven, or 58.33 per cent, were under implementation; and two others, 16.67 per cent, were not implemented, he said. The Board had 17 recommendations in its current report and the Pension Fund had accepted all of its recommendations.
PAUL DOOLEY, Deputy Secretary of the United Nations Joint Staff Pension Board, presented the Board’s report titled “Implementation of the recommendations of the Board of Auditors contained in its report for the year ended 31 December 2015 on the United Nations Joint Staff Pension Fund” (document A/71/397). The report included information on the status of implementation, the department responsible, the estimated completion date and the priority of each recommendation as well as an update on the status of implementation of the Board of Auditor’s recommendations relating to prior periods that the Board considered not to have been fully implemented. The Board of Auditors had issued a “clean” unqualified audit opinion on the Pension Fund’s financial statements for 2015 — the fourth consecutive clean audit opinion of its financial statements prepared under the International Public Sector Accounting Standards. For the year ending 31 December 2015, the Board of Auditors had also made 17 recommendations to the Pension Fund, all of which were currently under implementation.
Many of the Board of Auditors’ observations and recommendations related to benefit processing and implementation of the Integrated Pension Administration System, he said. The independent post-implementation assessment by a specialized consultant presented to the Pension Board in July 2016 concluded that the Pension Fund achieved the fundamental priority of deploying a fully functioning, accurate and consistent payroll, covering 72,00 beneficiaries in 190 countries, and significantly reduced operational and information technology risks. The new Administration System would also improve the interface and communications with 23 member organizations as well as increase access to information and online services for participants and retirees.
At the same time, since the beginning of the year, the Pension Fund had experienced a surge in incoming new cases, largely due to the higher than normal rate of separations from the downsizing in peacekeeping operations as well as efforts from reporting entities to send more opportunely separation documentation, he said. Recognizing the adverse impact of the delayed payment of pension benefits on some new retirees, the Pension Board supported measures introduced by the Pension Fund to improve caseload processing and welcomed initiatives to strengthen client services and communications, which would also address the concerns expressed by the Board of Auditors. The Pension Fund had decided to approve extra temporary resources for 2016—2017 to create 20 temporary assistance positions to support activities related to the surge, manage the end-to-end review and strengthen the Pension Fund’s communications activities. If the current trend continued, the number of new benefit cases received by the Fund this year would exceed by 42 per cent the number of cases received in 2014. That trend was expected to continue in the coming years.
To deal with the surge, the Pension Fund had introduced several steps: setting up a task force to process withdrawal settlements; creating a quality assurance team and dedicated survivors’ benefit/disability benefit teams, and revamping the Fund’s website, he said. Other measures included implementing a pilot client services Call centre and joint end-to-end review of the separation to benefit process in cooperation with member organizations as well as introducing the possibility of making a provisional benefit option as an advance payment to new retirees in extraordinary cases where the processing time for establishing their benefit took longer than three months after all required documents had been received by the Pension Fund.
The Pension Fund was working to address structural and external challenges by strengthening governance and operations in line with strategies, plans and actions mandated by the Pension Board and General Assembly, he said. In turn, the Pension Board and Assembly must provide the Pension Fund with the required resources to adequately fulfil its mandate and implement the decisions of its governing bodied and the Board of Auditors’ recommendations.
BABOU SENE, Vice-Chair of the Advisory Committee on Administrative and Budgetary Questions, in introducing the related report of that Committee (document A/71/621), said it expected measures proposed by the Pension Fund to address delays in benefit payments would lead to measurable results. Such measures were end-to-end reviews of the processes and the establishment of a network of focal points in member organizations. He recalled that the Pension Board had indicated that an increase in the number of separation cases from downsizing peacekeeping missions in 2015 and 2016 had been an important cause of recent delays in processing benefit payments. To manage that increase in separation cases, the Pension Board had proposed the establishment of a taskforce consisting of 20 temporary positions. “In the view of the Advisory Committee, the increase in the number of separations claims could have been anticipated”, Mr. Sene said, adding that it considered an additional workforce of nine temporary positions sufficient. The Advisory Committee also advised against the establishment of two P-5 positions of Senior Communications Officer and Senior Management Analyst.
On the proposed measure of provisional benefit payments by the Pension Fund to beneficiaries whose payments had been delayed, the Advisory Committee considered that further information on the implications of implementing that measure should be provided as soon as possible to the General Assembly, he said.
Ms. WAIRATPANIJ (Thailand), speaking again for the Group of 77, expressed concern about delays in benefit payments, calling for urgent measures to address that challenge. The Group would carefully consider a proposal for 20 temporary staff positions in the taskforce and amendments to the Fund’s Regulations related to medical matters. While taking note of positive developments, including a surplus of 0.16 per cent and the successful implementation of the Integrated Pension Administration System, she expressed disappointment that the Secretary-General had not included information on the performance of his representative in reports on the investments of the Fund, as per Assembly resolution 68/247 B.
She noted that the Fund’s investment had an inflation-adjusted negative real rate of return of 1.7 per cent in 2015 and its income had declined by 76 per cent in 2014 compared with 2013 and by a further 127 per cent in 2015 compared to 2014. As such, its performance had not met its target annualized real rate of return of 3.5 per cent. The Group was interested to learn more about strategies to increase diversification of the Fund to developing countries with transitioning economies. Finally, she welcomed the stand-alone report of the Board of Auditors on the Pension Fund, which would allow the Assembly to better perform its oversight duties, and encouraged the Fund to implement its recommendations.
SIMONA PILLERI, European Union, expressed concern over the continued delays in the payment of United Nations retirees’ pension benefits. There had been apparent problems in both the submission of documentation by member organizations and the processing of applications by the Pension Fund. “We call on the Fund to take action to mitigate the impact on retirees who have been deprived of their benefits and to prevent this situation from happening in future years,” she said. The Pension Fund had to take on a systematic approach which should identify and tackle inefficiencies and bottlenecks in existing business processes, while also enhancing the forward-planning of the Pension Fund to anticipate fluctuations in caseload. The European Union also took note of ACABQ’s recommendations and hoped that the General Assembly could set a clear course of action during the present session. It also noted that the Pension Fund had failed to meet its performance objective of a 3.5 per cent annualized real rate of return in both 2014 and 2015, and looked forward to explore how the Secretary-General could meet his fiduciary duty to the participants of the Fund.
CHERITH NORMAN CHALET (United States) expressed serious concern about the past and present backlog of entitlement and pension payments to participants and retirees. While the Pension Fund was taking steps to address that backlog, the United States encouraged sustained attention to the issues as benefit payment delays could have a significant financial impact on retired staff and their families. Requesting further information on the implications of implementing the provisional payment of benefits, she also looked forward to the results of the Office of Internal Oversight Service’s audit on that issue and the outcome of the end-to-end reviews. The United States trusted that the Pension Fund in the future would take steps to anticipate any substantial increases in the number of separations and associated claims.
Common System Compensation Package: Action on Draft Resolution
The Fifth Committee then approved draft resolution A/C.5/71/L.5, entitled “Implementation of the new common system compensation package in the United Nations Secretariat” without a vote. As per the text, the General Assembly would take note of the Secretary General’s notes on the matter as contained in documents A/70/896 and A/C.5/71/CRP.1, also expressing serious concern that the Secretary-General failed to provide Member States with timely information on delays in the implementation of elements of the new compensation package for staff in the Professional and higher categories. The General Assembly would also decide that the Secretary-General, in implementing the new common system compensation package, would absorb all additional requirements from within existing resources, as had been described in document A/C.5/71/CRP.1.