Norway Pension to Exclude UK Security Firm G4S

Norges Bank, the central bank of Norway, has decided to exclude UK security services company G4S from its $1.11 trillion Government Pension Fund Global because of the “unacceptable risk that the company contributes to or is responsible for serious systematic human rights violations.”

The bank’s executive board made the exclusion decision based on a recommendation from the central bank’s Council on Ethics. It also said that before excluding a company, it first considers whether the use of other measures, such as exercising ownership rights, may be better suited. With G4S, however, the board said it concluded that no other measures were appropriate.

G4S provides security services in more than 90 countries but the Council on Ethics focused on the company’s operations in Qatar and the United Arab Emirates, where its employees are mostly migrant workers.

The Council on Ethics said its investigations of GS4 found that employees were required to pay recruitment fees to work for the company. Workers have taken out loans in their home country to pay the fees. It said that when the GS4 workers arrive in Qatar and the United Arab Emirates they must spend a significant part of their salary to pay off this debt, and have little chance of leaving.

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Many workers also have received far lower wages than they were promised. In the United Arab Emirates the workers even had their passports confiscated. The Council also uncovered that GS4’s employees in the region worked long days but did not receive overtime payments and were also subject to harassment.

“These regulations, along with the use of recruitment fees and misleading information about working conditions, have been condemned internationally as making migrant workers vulnerable to exploitation,” said the Council in its recommendation to exclude G4S. “G4S therefore operates within a regulatory framework that limits workers’ freedom of action.”

The Council said that G4S has acknowledged that the risk of human rights abuses is high in Qatar and the United Arab Emirates. The company said it has implemented measures to improve the situation, such as setting a cap on recruitment fees in the Emirates.

“Nevertheless, the company has given no indications that it will stop the charging of recruitment fees,” said the Council. “Nor has the company pointed to any measures to prevent misleading information being given about wages and working conditions. Furthermore, it does not allow its workers in Qatar to change employer.”

The move follows a real estate acquisition more than 8,000 miles away. On Monday, the bank said in a statement that Norway’s sovereign wealth fund and property investment group Prologis have agreed to jointly buy a $1.99 billion logistics real estate portfolio. The portfolio includes 127 US properties in Southern California, San Francisco, Seattle, and Dallas.

The bank paid $896 million for a 45% stake in the portfolio, while Prologis owns 55% and will run the properties. The bank manages the country’s $1.1 trillion sovereign wealth fund.

The new real estate portfolio includes the logistics centers and office buildings in New York, Tokyo, London, and Paris. The acquisition is part of Prologis’ merger agreement to acquire Industrial Property Trust.

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Tags: Council on Ethics, divest, exclude, Exclusion, Government Pension Fund Global, GS4, Norges Bank, Norway

Steel producer AK Steel has purchased a group annuity contract from Massachusetts Mutual Life Insurance Company to transfer approximately $615 million of its pension obligations.

The contract permanently transfers the responsibility to pay pension benefit obligations for approximately 4,250 retirees from the company’s pension plan, according to the company’s SEC filing. AK Steel said there will be no change to the pension benefits for any plan participant, and that the transaction was funded entirely with pension plan assets. The company expects to record a non-cash pension settlement charge of approximately $25 million in the fourth quarter as a result of the transfer.

The deal brings AK Steel’s total amount of pension obligations transferred to approximately $1.1 billion in aggregate since 2016, representing nearly 20,000 retirees. The company said the changes reduce financial risks to the company and lowers administrative costs, while allowing it to continue to meet its pension commitments.

“This is another important step in de-risking our balance sheet, while continuing to demonstrate our commitment to ensuring our retirees’ benefits are secure,” AK Steel CEO Roger Newport said in a statement.

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As of Mar. 1, MassMutual will begin making benefit payments and will provide administrative services to the specific plan participants.

Sales for US single-premium pension buy-out products topped $7.7 billion during the third quarter of 2019, according to the Secure Retirement Institute (formerly LIMRA SRI). That is up 23% from the third quarter of 2018. It was the 19th consecutive quarter of sales that exceeded $1 billion.

Year-to-date pension buy-out sales as of the end of the third quarter were $16.7 billion, which was up 4% from the first nine months of 2018. There were 111 new buy-out contracts sold during the quarter to raise the year-to-date total to 301, compared with 281 contracts sold during the first three quarters of 2018. Half of the companies reported an increase in contracts sold. The Secure Retirement Institute said the number of contracts sold has risen during each of the past six years, and is on pace for a seventh this year.

“This quarter marked the highest third-quarter sales for pension buy-out products since we have been tracking this market (in 1986),” Mark Paracer, the Secure Retirement Institute’s assistant research director, said in a release. “While there was a substantial contract reported this quarter, we also saw a high number of mid-sized contracts that drove the overall growth.”

Paracer said that new research shows that four in 10 plan sponsors are “very interested” in a pension risk transfer transaction, which is why he expects the buy-out market to continue to expand.

Total group annuity risk transfer sales in the third quarter 2019 hit $7.9 billion, 22% higher than during the third quarter 2018. For the first three quarters of 2019, total group annuity risk transfer sales were $18.1 billion, 9% higher than results for the prior-year period.