Nearly 1,300 members of the Petrotrin Employees Pension Plan (PEPP) aged 50 and over are expected to retire on December 1 and become entitled to lump-sum pension payments totalling $1 billion—but that may be until the 2040s when the PEPP may run out of benefits.
“The key word is ‘may....’” Energy Minister Franklin Khan advised in the Senate yesterday.
“However, the PEPP has comfortably enough assets to cover benefit payments well into the 2040’s according to the actuarial projections. Beyond that, there may be a deficit but it’s too early in the game to speak that type of language. As we speak, the workers are comfortable.”
Khan gave the information in reply to Opposition questions on the pension fund following concerns raised by the plan’s trustee, Republic Bank, about a deficit regarding the plan—the latest concern in fallout issues regarding the Petrotrin restructuring.
Khan said the actuary’s longer-term analysis indicated that the PEPP may run out of funds to meet benefit payments in the 2040s and thus additional funding may be required if the PEPP is to meet all benefit entitlements in the 2040s.
“Petrotrin and the Trustee (Republic Bank) are discussing this. The sponsor is committed to ensuring that the plan’s obligations are met in the future,” he added.
Khan explained that the PEPP being fully funded would only be the case if Petrotrin and PEPP were ongoing entities.
“The restructuring of PEPP and termination of all employees changes everything, in that benefit payments are accelerated significantly by the early retirement of all qualifying members. It isn’t possible to wind up the PEPP and secure benefits by buying annuities—as suggested by Republic Bank—because the insurance market has nowhere near sufficient capacity,”
Khan added, “The 2.7 billion deficit quoted by Republic Bank was predicated on annuity buy-out taking place and this is irrelevant. There is thus no alternative other than the PEPP being run off as a closed fund, meeting benefit payments from its assets, as and when they fall due.”
Khan’s Energy Ministry has noted that the actuary had advised that whilst it is not certain the PEPP’s funds will be exhausted before all of the benefit payments have been paid, there is a “significant possibility that this will be the case unless additional funds are injected into PEPP at some point.” Petrotrin and Republic Bank are in discussions on what needs to be put into place to provide these additional funds should they be needed, the ministry also noted.
On steps being taken by Government to ensure there will be no future deficit in the PEPP—having regard to the fact all employees have been terminated—Khan said, “The plan is well funded, it can meet its obligations fully well into the 2040s, based on actuary projections.
“The actuary says that based on what securities you have, how they perform over the long term, that those are grey areas, so the current projection is that the fund will be able to fund all of its current obligations well into the 2040s.”
Khan said he didn’t know of any moves to change the composition and functions of the current PEPP.
On another query, Khan said three spot sales of Petrotrin’s crude oil have been awarded to Trafigur—a major international trader—Exxon Mobil Sales and Shell. Major international traders, refiners and integrated oil companies were invited to participate in purchase and the company with the most competitive bid would have been awarded the cargo.
Invitation to bid went to 27 companies. Bids were assessed by an evaluation team comprising senior executives. Criteria for evaluation of the bids included the buyer’s ability to lift the cargo, competitive commodity pricing, attractive commercial and payment terms.
Khan said all three cargoes were shipped to the three awardees and bids were invited for delivery of two cargoes next month.
“The price we got for the three bids was based on the West Texas Intermediate (oil price). It was WTI plus $2,” he added.
The package size for the crude oil shipment was approximately 500,000 barrels of oil. Khan said he didn’t know who the executive members evaluated the bids were.
“That’s Petrotrin’s business, they have a marketing arm. They do that as matter of course—not everything have corruption in it, but under all yuh it used to be like that,” Khan told protesting UNC Senators.
In a release yesterday, Petrotrin also assured the PEPP was solid, adding all of the concerns raised by Republic Bank are being or have been addressed. The company said it had met with the Pension Plan Management Committee and the trustees (Republic Bank) to determine the best way forward and it was agreed the plan would not be wound up, as to do so would be impractical.
Petrotrin said it is committed to ensuring that the plan’s obligations are met.