fund within a fund variant approach

[barney]

hi all.

for M&A, when a bulk transfer is calculated at the completion date, using the variant approach i.e. bulk transfer is calculated in respect of actual transferees only, who bears the risk that salary increases will be higher than expected?

For transferees, i would assume this is the Purchaser, because the bulk transfer was calculated in respect of the transferees at the completion date, using the members' salaries at the completion date, so the salary increases they've been granted during the participation period are irrelevant.

what about those who don't transfer out after all, and are subsequently deducted from the bulk transfer payment? what actually happens here? if they don't transfer out, at what point do they become deferred members of the vendor's scheme? who bears the risk of high salary increases after the completion date?

thanks in advance.

 

[Quang]

You are right that the Purchaser takes on the risks of salary increases granted to transferring members after the completion date.

I am not sure about your second question. My guess is you were thinking about those transferring members above who choose not to transfer out after all. I asked the same question myself and was explained that because the Transfer Amount calculation was not carried out on the Completion Date, instead it is usually carried out after the Transfer Date. By then, the Purchaser would have known all the members who will transfer, i.e. the term "transfering members".

Hope it answers your question.

 

[Gresham Arnold]

Hi Barney

You are right that under the FWAF variant approach, the purchaser and purchaser's scheme take the risk that salary increases in the participation period for transferring members are higher than expected. This is because:

- the bulk TV is calculated at completion date, and

- if salaries increase after that date, it doesn't affect the size of the bulk TV but the liabilities increase, so

- the purchaser's scheme will move into deficit.

The vendor's scheme bears the salary increase risk in respect of non-transferees. This is because:

- under the FWAF Variant approach, non-transferrees are completely excluded from the bulk transfer plus any adjustments, so salary increases of non-transferees have no impact on the bulk TV, and

- the non-transferees will receive a deferred pension in the vendor's scheme based on salary and service to transfer date (the end of the participation period), and

- so if salaries for these members increase more than expected during the participation period, the vendor's scheme will need to provide bigger deferred pensions than previously expected.

I hope this helps