PN 091250055 WORKSHOP 28 POOLING OF PENSION FUND

PN 091250055 WORKSHOP 28: POOLING OF PENSION FUND ASSETS • 27 TH May, 2009 | 11: 15 – 12: 30 Corinne Merla (Belgium); Brian Buggy (Ireland); Wijnanda Rutten (The Netherlands); Philip Bennett (UK); Howard Pianko (USA) Note: Our thanks to Jacques Elvinger of Elvinger Hoss & Prussen, Luxembourg, who has reviewed the summary of the Luxembourg law position in these slides

Part 1: Introduction: Why Bother? 1

Part 1: Introduction: Current Position Diagram 1 Multinational Employer Group Pension Fund 1 Pension Fund 2 Pension Fund 3 Custodian 1 Custodian 2 Custodian 3 Investment Manager 1. 1 Investment Manager 2. 1 Investment Manager 3. 1 Investment Manager 1. 2 Investment Manager 2. 2 Investment Manager 3. 2 Investment Manager 1. 3 Investment Manager 2. 3 Investment Manager 3. 3 2

Part 1: Introduction: Desired Position* Diagram 2 EU Employer Group Pension Fund 2 Pension Fund 1 Pooling Vehicle Equity Sub. Fund Equity Manager 1 Equity Manager 2 Sub-Custodian 1 Pension Fund 3 Custodian Bond Sub-Fund Bond Manager 1 Bond Manager 2 Sub-Custodian 2 *Assumes no U. S. plan participation 3

Part 1: Introduction: U. S. Master Trust Structure Diagram 3 U. S. Employer U. S. Pension Fund 1 Investment Committee U. S. Pension Fund 2 U. S. Pension Fund 3 Master Trustee Equity Sub. Fund Equity Manager 1 Equity Manager 2 Sub-Custodian 1 Bond Sub-Fund Bond Manager 1 Bond Manager 2 Sub-Custodian 2 4

Part 1: Introduction: Desired Position with U. S. multinational overlay Diagram 4 U. S. Parent Company EU Company 1 EU Company 2 U. S. Company 1 U. S. Company 2 EU Pension Fund 1 EU Pension Fund 2 U. S. Pension Fund 1 U. S. Pension Fund 2 Investment Committee Master Trust Management Company Pooling Vehicle Equity Sub-Fund Equity Manager 1 Equity Manager 2 Sub-Custodian 1 Custodian/Master Custodian Bond Sub-Fund Bond Manager 1 Bond Manager 2 Sub-Custodian 2 * If the parent of the multinational employer group is a U. S. entity, the developing model addresses ERISA by structuring the pooling vehicle and the commingled sub-funds to comply with ERISA (a “safe harbor” approach). If the parent of the multinational employer group is a non-U. S. entity and a “safe harbor” approach is not adopted, the pooled vehicle and the commingled investment sub-funds could be subject to ERISA if 25% or more of their respective assets are attributable to U. S. benefit plans. 5

Part 1: Introduction: Hoped-for efficiencies Source of Efficiency 1. 2. Investment management fees Custodian Existing Position Use of Pooling Vehicle 1. 1 Each pension fund appoints its own investment managers 1. 2 More investment management agreements, so more management time and legal fees and higher management fees 1. 3 Multiple investment managers 1. 1 Reduction in number of investment managers 2. 1 Each fund appoints its own custodian 2. 2 More custodian agreements, so more management time and legal fees and higher custody fees 2. 3 Multiple custodians 2. 1 Reduction in number of custodians 2. 2 Reduction in number of custody agreements 1. 2 Reduction in number of investment management agreements Comment 1. 1 Possible for sponsoring employer group to achieve number of the savings if pension funds used the same investment managers (as fees can be negotiated on a bulk basis) 1. 3 Volume discount on investment management fees. Savings in legal fees and management time 2. 1 Possible for sponsoring employer group to achieve number of the savings if pension funds used the same custodian managers (as fees can be negotiated on a bulk basis) 2. 3 Volume discount on custodian fees. Saving in legal fees and management time 6

Part 1: Introduction: Hoped-for efficiencies (cont'd) Source of Efficiency 3. Governance Existing Position 3. 1 Higher consumption of management time in relation to investment matters for each of the different pension funds 3. 2 Dilution of available internal investment knowledge and expertise 3. 3 Duplication of purchase of investment consulting services Use of Pooling Vehicle 3. 1 Group investment expertise can be focused in governance committee of pooling vehicle Comment Pooling vehicle has a clear advantage (if not outweighed by disadvantages) 3. 2 Better use of management time 3. 3 De-duplication of investment consulting advice 4. Reduction in dealing costs 4. 1 Each pension fund will have to buy or sell investments separately 4. 2 In some cases, one pension fund will be selling the same shares (to raise cash) at the same time as the other pension fund is buying shares 4. 1 Transactions are, by definition, aggregated via pooling vehicle 4. 2 Funds wishing to withdraw cash can net against funds wishing to invest cash with only the net position then giving rise to a transaction external to the pooling vehicle in buying or selling investments Pooling vehicle has a clear advantage 7

Part 1: Introduction: But watch out for potential inefficiencies – – Pooling may increase legal compliance responsibilities and risk due to overlay of different legal systems (e. g. , E. U. IORP and U. S. ERISA); complicates administration of pooling vehicle and increases legal risk and cost Possible disconnect between local country finance and HR functions and parent entity personnel responsible for pooling vehicle investment decisions Concentration of assets within the pooling vehicle structure could decrease diversification and increase risk exposure in a turbulent economy Not a “holy grail”; can’t freely apply overfunding in one plan to offset liability in another 8

Part 2: Introduction to types of pooling vehicles 9

Types of pooling vehicles Country Name of vehicle Brief description of vehicle 1. Belgium Organisme de placement collectif institutionnel (OPC) Tax transparent fund for collective investments. Structured as a UCITS or a common investment fund (FCP). New vehicle since 18 December 2007. Very flexible regime. Access restricted to institutional and professional investors. May be set up by only 1 investor. 2. Ireland Common contractual fund (CCF) A tax transparent vehicle. Contract based (not a separate legal entity). Established by a management company under which investors by contractual arrangements participate and share in the property of the fund as coowners of the assets of the fund. The CCF must comply with the investment objective, policies set for it and the restrictions of the UCITS or non-UCITS rules applicable to it. The assets of the CCF are held by a custodian. The custodian is a party to the Deed of Constitution. 10

Types of pooling vehicles (cont'd) Country 3. Luxembourg Name of vehicle Fonds commun de placement (FCP) Brief description of vehicle Tax transparent fund for collective investment. Contract based (not a separate legal entity). Established by a management company under which investors by contractual arrangements participate and share in the property of the FCP as co-owners of the assets of the FCP (but the co-owners have limited liability in the sense that they can only lose the amount invested in the FCP). The assets of the FCP are held by a custodian which is normally party to the management regulations as its appointment by the management company is a precondition for any participant subscribing in it. Note: Can be established: – under Part I of the Luxembourg law of 20 th December, 2002 regarding undertakings for collective investment to qualify as an Undertaking for Collective Investment in Transferable Securities ("UCITS") under the EU Directive 85/611/EC (as amended), or – under Part II of the 2002 law, or – under the law of 13 th February, 2007 regarding Specialised Investment Funds. 11

Types of pooling vehicles (cont'd) Country Name of vehicle Brief description of vehicle 4. The Netherlands Fonds voor Gemene Rekening (FGR) Tax transparent mutual fund for collective investments 5. UK Pension fund pooling vehicle (PFPV) See Note 1 Must be established as a trust which would amount to a "unit trust scheme" (but which is then de-natured as a unit trust scheme for tax purposes by the Income Tax (Pension Funds Pooling Schemes) Regulations 1996. Unitholders are limited to UK registered pension schemes, "Section 615 funds" and recognised overseas pensions schemes. Operator (usual trustee) of a PFPV will require authorisation to undertake this activity under the Financial Services and Markets Act 2000. In practice, cannot invest directly in land or buildings, tangible assets (e. g. works of art or gold bars) or insurance contracts Investments in limited partnerships may be possible so long as the property of the limited partnership is one in which a PFPV could invest in directly Note 1: The PFPV has not, in practice, been used for a cross-border pension fund asset pooling and so is not considered further (because of problems with tax transparency in relation to non-UK investments and non-UK tax authorities. 12

Types of pooling vehicles (cont'd) Country 6. USA Name of vehicle Brief description of vehicle – No specific vehicle for crossborder pension investing has been established; no prohibition against cross-border pooled investments exists either. See Note 2. – U. S. employers typically use a master trust to commingle assets of group’s U. S. plans for investment. – Some U. S. based global custodians are developing vehicles for global pooling. – In the master trust structure, an ERISA fiduciary (typically an investment committee appointed by the parent entity) directs the master trustee as to the sub-funds to be established, appoints the investment manager of each sub-fund allocates assets on a plan by plan basis among the sub-funds. All of the assets in the master trust are treated as “plan assets” under ERISA – A recent Advisory Opinion published by the U. S. Department of Labor has been referenced as evidencing regulatory approval of a new cross-border investment vehicle. Others assert that the Advisory Opinion represents no change. For a U. S. multinational entity, the developing global pooling structure adopts a “safe harbor” approach treating all commingled subfunds as subject to ERISA, e. g. ðERISA’s “indicia of ownership” rules restrict how investments may be held outside of the U. S. ; ðERISA’s “plan asset” rules apply; ðERISA’s prohibited transaction rules apply; and ðall managers of the sub-funds are “investment managers” as defined under ERISA. Note 2: A US master trust may only hold assets of certain US retirement arrangements (i. e. code section 401(a) tax qualified plans, IRAs and governmental plans) to benefit from US tax exemptions 13

Part 3: Legal and tax constraints 14

Legal and tax constraints: overview – Can the pension fund invest in the pooling vehicle? – Restrictions on marketing the pooling vehicle to the pension fund – Constraints imposed by the legal structure of the pooling vehicle – Constraints imposed by the regulatory regime of the country of establishment of the pooling vehicle – Tax hurdles – Legal risk 15

Constraint 1: Can the pension fund invest in the pooling vehicle? EU Multinational EU Pension Fund 2 EU Pension Fund 1 Other assets Units (see Note 1) U. S. Pension Fund* Trust or Master Trust* Other assets EU established pooling vehicle Equity Sub-Fund Equity Manager 1 Equity Manager 2 Sub-Custodian 1 Investment Committee Custodian/Master Custodian Bond Sub-Fund Bond Manager 1 Bond Manager 2 Sub-Custodian 2 Note 1: The pooling vehicle can issue 2 or more different classes of units linked to different sub-funds established by the pooling vehicle to allow each investing pension fund to choose an asset allocation suitable to its investment strategies. *Note 2: ERISA does not prohibit cross-border investing, however, if a U. S. plan participates in this structure and a “safe-harbor” ERISA compliant structure is not adopted, separate analysis would be necessary to determine whether 25% or more of the assets in the pooling vehicle (and each sub-fund) comes from one or more U. S. benefit plans. 16

Constraint 1: Can the pension fund invest in the pooling vehicle? (cont'd) Country of establishment of pension fund Restrictions as to type of investment that may be held Restrictions as to percentage of portfolio invested in particular investments Currency restrictions Other 1. Belgium None specific – prudent man rule UCITS – restrictions may be applicable Investments in the sponsoring company: max 5% Maximum 10% in companies belonging to same group None No 2. Ireland None if QIF* Yes, if UCITS (limitations under UCITS Directives – e. g. no property or commodities) QIF – None UCITS – investment restrictions None No * A Qualifying Investor Fund where the minimum investment is € 250, 000 and the investor has assets of € 25, 000. 17

Constraint 1: Can the pension fund invest in the pooling vehicle? (cont'd) 3. Country of establishment of pension fund Restrictions as to type of investment that may be held Restrictions as to percentage of portfolio invested in particular investments The Netherlands None specific as far as the investment portfolio as a whole is prudent UCITS restrictions may be applicable None specific, but there are limitations to (in) direct investments in the sponsoring company Currency restrictions None Other No Note 1: Watch out for Article 18(1)(c) of the IORP Directive (which applies to EU established pension funds): “assets shall be predominantly invested on regulated markets” Note 2: EU established pension funds will need to comply with Article 18 of the IORP Directive as implemented in the EU country in question 18

Constraint 1: Can the pension fund invest in the pooling vehicle? (cont'd) Country of establishment of pension fund 4. UK Restrictions as to type of investment that may be held Restrictions as to percentage of portfolio invested in particular investments None specific – prudent person rule applies. However, necessary to make sure that general restrictions imposed by Article 18 of IORP Directive (2003/41/EC) as implemented into UK legislation None specific, but there are limitations to (in) direct investments in the sponsoring company (including person connected or associated with a sponsoring company) Currency restrictions None Other No Note 1: Watch out for Article 18(1)(c) of the IORP Directive (which applies to EU established pension funds): “assets shall be predominantly invested on regulated markets” Note 2: EU established pension funds will need to comply with Article 18 of the IORP Directive as implemented in the EU country in question 19

Constraint 1: Can the pension fund invest in the pooling vehicle? (cont'd) 5. Country of establishment of pension fund Restrictions as to type of investment that may be held Restrictions as to percentage of portfolio invested in particular investments Currency restrictions Other US ERISA fiduciaries have a duty to act prudently (a comparable fiduciary standard); no specific statutory or regulatory list of approved investments a plan may hold ERISA fiduciaries have a duty to diversify plan investments; there are no specific statutory or regulatory restrictions as to the percentage of a portfolio that can be invested in particular assets There are no specific currency restrictions, but ERISA fiduciaries are subject to fiduciary standards of prudence, diversification, etc – A pooling vehicle and commingled subfunds may be subject to ERISA if 25% or more of their respective assets are attributable to U. S. pension plans – Some multinational employers with U. S. parent companies have unilaterally adopted a structure whereby all assets invested via the pooling vehicle are treated as subject to ERISA (a “safe harbor” approach) 20

Constraint 1: Can the pension fund invest in the pooling vehicle? Due process to follow before investing: Country of establishment of pension fund Amend statement of investment principles? Obtain investment advice Other regulatory requirements 1. Belgium Probably, depends upon content of strategic investment plan of the fund No If SIP to be amended: prior advice of works council, health committee or trade union delegation of sponsoring company 2. Ireland Yes Not on fund's side 3. The Netherlands Probably, depends upon content of strategic investment plan of the fund No No 4. UK Yes (Section 36 of the Pensions Act 1995) Comply with UK Financial Services and Markets Act 2000: Needs to be a strategic decision (not day to day) or fall within "with advice" exception Comment 21

Constraint 1: Can the pension fund invest in the pooling vehicle? (cont'd) Due process to follow before investing: Country of establishment of pension fund 5. USA Amend statement of investment principles? Obtain investment advice Allocation of Fiduciary Responsibility Prudence, diversification and other requirements must be satisfied. This requires appropriate process and consideration including, for example, adopting appropriate investment guidelines The sub-funds should be managed by an “investment manager” as defined under ERISA. Also, the “management company” could be an ERISA fiduciary Under ERISA, fiduciary responsibility can attach by designation or by operation. U. S. pension plans typically designate a “named fiduciary” to establish the plan’s investment structure, asset allocation, selection of managers, etc – For a U. S. multinational, it is logical for: (i) the global custodian function being exercised by the “master trustee” to be expanded as described herein; and (ii) the model for the pooling vehicle structured to comply at all levels with ERISA. In addition, note that: Ø if a U. S. plan designates a U. S. named fiduciary, but actual investment control of its assets is exercised by non-U. S. corporate executives, these non-U. S. individuals also could have ERISA fiduciary responsibility and potential liability Ø if the U. S. plan designates non-U. S. corporate individual or entity as its named fiduciary, the designee will be subject to ERISA fiduciary standards with respect to the decision to invest through the pooling vehicle 22

Constraint 2: Restrictions on marketing the pooling vehicle to the pension fund Comment 1. Belgium No Pension funds = institutional investors Shares of OPC must be and remain registered. 2. Ireland No restriction for company sponsored CCF. Third Party marketing QIFs would have to be privately placed pursuant to local private placement rules. UCITS would have to be registered for sale in the relevant jurisdictions Irish funds have been privately placed worldwide 3. Luxembourg UCITS requirement to comply with local marketing rules/ restrictions applicable in the countries of distribution. Luxembourg law restrictions apply if marketed to Luxembourg established pension funds 3. 1 No additional Luxembourg law restrictions apply to marketing the UCITS to pension funds established in countries outside of Luxembourg. 3. 2 If the pension fund pooling vehicle was to be marketed also to a pension fund established in Luxembourg, there is unlikely to be any additional restrictions, as the contact would be a one to one contact. 23

Constraint 2: Restrictions on marketing the pooling vehicle to the pension fund (cont'd) Restrictions on marketing the pooling vehicle to the pension fund Comment 4. The Netherlands No For example, assets of the Italian Pensplan are invested in closed FGR of the APG Group 5. UK Financial Services Market Act 2000, Sections 21 and 238 includes restrictions on invitations to invest in collective investment schemes or otherwise engage in investment activity. Necessary to fall within exemption available for issue of promotional materials to "high value trust" The pooling vehicle will generally be a collective investment scheme for UK Financial Services and Markets Act 2000 purposes High value trusts are those with assets in excess of £ 10 million 6. USA There are no statutory or regulatory restrictions on marketing investments to pension plans. The decision to invest the pension plan’s assets in the pooled vehicle would be a fiduciary decision under ERISA Marketing typically is considered in the context of managers seeking investment by the U. S. plan in their products Note: The general rule is that country of location of pension fund sets the rules on marketing restrictions to that pension fund. 24

Constraint 3: Constraints imposed by the legal structure of the pooling vehicle Country of establishment of pension fund Does the vehicle have a separate legal personality? Is the vehicle tax transparent? Restrictions on operation of pooling vehicle Nature of supervisory regime In specie transfers in and out allowed? 1. Belgium FCP: no UCIT: yes FCP: Yes – exempt from corporate income tax on income and/or capital gains. UCIT: Yes No quantitative limits or riskspreading rules apply. Permitted investment assets restricted to financial instruments and liquid assets (should be broadened in near future). See Deed of Constitution. No direct prudential control by CBFA (indirect control through control on custodian, management firm of OPC and pension fund – direct control on scope of activities: no public offers) Registration with Belgian Tax Ministry (no control on content of documents) External auditor/ audit firm Yes, possible subject to contractual provisions 2. Ireland No Yes Deed of Constitution will set these out IFSRA (Irish statutory regulator of financial services industry) Yes 25

Constraint 3: Constraints imposed by the legal structure of the pooling vehicle (cont'd) Country of establishment of pension fund 3. Luxembourg Does the vehicle have a separate legal personality? No. Is the vehicle tax transparent? Restrictions on operation of pooling vehicle Nature of supervisory regime Yes, from a Luxembourg perspective and accepted as such in the main jurisdictions Deed of constitution will set these out CSSF (Commission de Surveillance du Secteur Financier) In specie transfers in and out allowed? Yes 26

Constraint 3: Constraints imposed by the legal structure of the pooling vehicle (cont'd) Country of establishment of pension fund 4. The Netherlands Does the vehicle have a separate legal personality? No, based on contractual arrangement Is the vehicle tax transparent? Yes Restrictions on operation of pooling vehicle Deed of Constitution will set these out Nature of supervisory regime In specie transfers in and out allowed? Possible supervision by AFM (Authority Financial Markets) and DNB (Dutch Central Bank) if it involves outsourcing by Dutch pension funds No supervision if participation is only offered to qualified investors within the meaning of the Prospectus Directive Yes, possibly made subject to approval of other participants 27

Constraint 3: Constraints imposed by the legal structure of the pooling vehicle (cont'd) 5. Country of establishment of pension fund Does the vehicle have a separate legal personality? Is the vehicle tax transparent? Restrictions on operation of pooling vehicle Nature of supervisory regime In specie transfers in and out allowed? USA There is no separate vehicle under US law designed for crossborder pooling of pension assets. Yes; the pooling vehicle should be transparent (e. g. a partnership for U. S. tax purposes) Pension plans participating in the master trust must be limited to US plans to benefit from tax exemption available for master trust (see Note 1) N/A; if considered to hold plan assets, pooling vehicle will be subject to ERISA (the Internal Revenue Code for tax considerations) Yes, but subject to prohibited transaction* rules under ERISA and the Internal Revenue Code A US master trust may only hold assets of certain US retirement arrangements (i. e. code section 401(a) tax qualified plans, IRAs and governmental plans to benefit from US tax exemptions *Securities and other laws also can be applicable Note 1: A US master trust may only hold assets of certain US retirement arrangements (i. e. code section 401(a) tax qualified plans, IRAs and governmental plans) to benefit from US tax exemptions 28

Constraint 4: Constraints imposed by the regulatory regime of the country of establishment of the pooling vehicle Country of establishment of pension fund Minimum capital requirement Authorisation for starting business? Need for prospectus/ listing particulars? Limits on controls available to sponsoring employer Limits on controls available to investors Governance structure 1. Belgium None – Upon confirmation of its registration with Belgian Tax Ministry No – Information brochure is enough Through pension fund and SIP See contract/ Deed of constitution – Board of Directors or Manager Custodian 2. Ireland QIF: € 250, 000 – minimum investment; € 25 m per investor. UCITS: no minimum investment IFSRA approval* Yes, prospectus Usually imposed under Deed of Constitution – Board of Directors of Management Company *Changes to structure require prior approval, e. g. Investment Managers 29

Constraint 4: Constraints imposed by the regulatory regime of the country of establishment of the pooling vehicle (cont'd) Country of establishment of pension fund Minimum capital requirement Authorisation for starting business? Need for prospectus/ listing particulars? Limits on controls available to sponsoring employer Limits on controls available to investors Governance structure 3. Luxembourg Minimum net assets € 1, 250, 000 (to be reached within 6 months of authorisation) CSSF must authorise the Management Company of the FCP. CSSF must approve the Deed of Constitution Yes. Prospectus required Usually imposed under Deed of Constitution. But direct control not usually possible Deed of Constitution Board of directors of Management Company 4. The Netherlands None No Custodian is in control If separate custodians, segregated liability General assembly and Manager. Custodian 5. USA No global pooling vehicles developed under U. S. law. N/A N/A N/A 30

Constraint 5: Tax hurdles: Country of establishment of pooling vehicle Income Tax Capital Gains Tax VAT on management fees Stamp Duty Other Taxes Fiscal transparency of the investment vehicle Double tax treaties: Country of establishment of investment vehicle 1. Belgium FCP : Nil UCIT : Yes – Subject to corporate income tax but on alternative tax basis (normally, tax=0); Full credit for Belgian dividend and interest withholding tax on dividend and interest received Nil on management fees Nil Reduced annual tax on collective investmen t funds of 1. 01% per year Yes UCIT: eligible for treaty benefits and reduced withholding tax rates under Belgium's tax treaty network e. g. : US 2. Ireland Nil Nil on management company fees. Yes on Investment Managers fees Nil Yes N/A vehicle tax transparent. Each investor should have to look to tax treaties of its own home jurisdiction 31

Constraint 5: Tax hurdles: Country of establishment of pooling vehicle (cont'd) Income Tax 3. Luxembourg Nil Capital Gains Tax Nil VAT on management fees Exempt (as management services in relation to collective investment scheme) Stamp Duty Nil Other Taxes Fiscal transparency of the investment vehicle Double tax treaties: Country of establishment of investment vehicle Capital duty, previously € 1, 250, was abolished with effect from 1 st January, 2009 Taxe d'abonment: (a) Exemption if only pension funds of companies in the same corporate group invest (but see Note 1) Yes, in Luxembourg. But need to check position of local tax authorities of: - investors, and - investment FCP does not benefit from Luxembourg double tax treaties if it is accepted as tax transparent Instead, investors/ investments need to look at double tax treaties between country of investor and country of investment Note 1: If the pooling vehicle is established as a SIF, exemption will also apply if investors are all pension funds (whether or not in the same group). 32

Constraint 5: Tax hurdles: Country of establishment of pooling vehicle (cont'd) Income Tax Capital Gains Tax VAT on management fees Stamp Duty Luxembourg (cont'd) 4. The Netherlands Other Taxes Fiscal transparency of the investment vehicle Double tax treaties: Country of establishment of investment vehicle Yes Treaties with Austria, Belgium, Denmark, Norway, South Africa, UK and Taiwan. Memorandum of understanding with US (b) 0. 01% p. a. , if only pension funds (not falling in (a) above) invest, payable quarterly on net asset value FCP Nil Exempt from VAT if management services collective investment funds Nil 33

Constraint 5: Tax hurdles: Country of establishment of pooling vehicle (cont'd) Income Tax 5. USA N/A; but note that US income tax could apply at the US trust level if a subfund engages in transactions involving leverage or active operation of a business (rather than passive investment) Capital Gains Tax N/A VAT on management fees N/A Stamp Duty N/A Other Taxes N/A Fiscal transparency of the investment vehicle Double tax treaties: Country of establishment of investment vehicle Should qualify under US tax rules (e. g. , as a partnership) Check tax treaties between country of plan and country of investment with respect to taxes at the subfund level, e. g. , (withholding of dividends at the source) 34

Constraint 5: Tax hurdles (cont'd) The existing position Taxes in country of investor? Pension Fund 2 Pension Fund 1 Taxes in country of investment? Equities Belgium Ireland The Netherlands Equities UK US Belgium Ireland The Netherlands UK US 35

Constraint 5: Tax hurdles (cont'd) The position on investment pooling Taxes in country of investor? Pension Fund 1 Pension Fund 2 Units Taxes in country of pooling vehicle? Pooling vehicle Taxes in country of investment? Equities Belgium Ireland The Netherlands UK US 36

Constraint 6: Legal risk Country of establishment of pension fund Assets more remote (custody, monitoring and reporting) Extra country risk (nationalisation/ expropriation, exchange control) Complexity 1. Belgium In theory, yes. But, in practice, no (at least in normal circumstances) Not particularly complex 2. Ireland In theory, yes. But, in practice, no (at least in normal circumstances) Not particularly complex 3. The Netherlands In theory, yes. But, in practice, no (at least in normal circumstances) Not particularly complex 4. UK In theory, yes. But, in practice, no (at least in normal circumstances) Not particularly complex 5. USA If plan assets and ERISA Fiduciary making decision is applies, indication of subject to prudence and other ownership and other ERISA standards. requirements must be met. ERISA is complex; with Internal Revenue Code and other legal overlaps. 37

Constraint 6: Legal risk (cont'd) The existing position Belgium Ireland Pension Fund 1 Pension Fund 2 Equities The Netherlands UK US Belgium Ireland The Netherlands UK US 38

Constraint 6: Legal risk (cont'd) The position on investment pooling Legal risk: Country of investor EU Pension Fund 1 EU Pension Fund 2 Units Legal risk: country of establishment of pooling vehicle Pooling vehicle Legal risk: country of location of investment Equities Belgium Ireland The Netherlands UK US 39

Conclusions – Cross-border pension fund asset pooling has happened (e. g. Unilever Group Pension Funds) – Easier to achieve than cross-border pension fund asset and liability pooling (at least for legacy pension funds) – So long as pooled assets are sufficiently large, efficiencies are available – Possible to achieve improvements in governance for the participating group pension funds through better concentration of available expertise within the sponsoring employer group – Additional compliance and administration to the extent plans subject to other legal systems (e. g. U. S. and ERISA) are to be included in the global pooling structure 40