Delegates in Fifth Committee Discuss Financial Status of United Nations Joint Staff Pension Fund, Ongoing Arbitration Case Involving Capital Master Plan
Delegates in the Fifth Committee (Administrative and Budgetary) today considered the financial status of the $77.9 billion United Nations Joint Staff Pension Fund and the $2.16 billion capital master plan, with the latter drawing concerns over rising closeout costs due to an arbitration case with the plan’s construction manager.
Cuba’s delegate, speaking for the “Group of 77” and China, asked for more information on the measures Secretariat officials are using to mitigate the risks of current market volatility and its impact on the Pension Fund, whose assets had dropped by $13.6 billion as of December 2022, compared to the prior year. The Group also would like more information on efforts to reduce overpayments and to improve recovery of funds. Turning to the Board of Auditors’ 35 outstanding recommendations as of 31 December 2021, he stressed the importance of the Pension Fund and member organizations implementing all the Board’s recommendations in a timely manner, also seeking detailed annual updates to explain any delays.
Annick Vanhoutte, Chair of the United Nations Joint Staff Pension Board, introduced the Pension Board’s report, which covered the work of its three sessions in 2023, including the Pension Fund’s administrative expenses for 2024.
Johannes Huisman, Director of the Programme Planning and Budget Division of the Department of Management Strategy, Policy and Compliance’s Office of Programme Planning, Finance and Budget in the Department of Management Strategy, Policy and Compliance, introduced the Secretary-General’s report that details the programme budget implications on the regular budget that arise from the Pension Board’s report.
Xue Wen Hu, Director of External Audit (China) and Chair of the Audit Operations Committee of the Board of Auditors, introduced the Board’s report on the Pension Fund, which included the financial report and audited financial statements for the year ended 31 December 2022. The Board issued an unqualified audit opinion, confirming that the Pension Fund’s financial statements were presented fairly, in all material respects. Abdallah Bachar Bong, Chair of the Advisory Committee on Administrative and Budgetary Questions (ACABQ), introduced the Advisory Committee’s related report.
The capital master plan — the largest and most comprehensive construction and renovation project undertaken by the United Nations — was the meeting’s first order of business. Chandramouli Ramanathan, United Nations Controller and Assistant Secretary-General for Programme Planning, Finance and Budget in the Department of Management Strategy, Policy and Compliance, introduced the Secretary-General’s twenty-first annual progress report on the plan’s implementation. All construction work and related administrative closeout activities have been completed. However the Organization remains engaged in an arbitration case with Skanska, the plan’s construction manager. Mr. Bachar Bong introduced the Advisory Committee’s related report.
Cuba’s representative, speaking again for the Group of 77 and China, said the Group is concerned that the project’s financial closeout is again delayed by the ongoing arbitration case, with resulting legal fees estimated at $225,000 for July–December 2023. He pointed that this would escalate cumulative legal expenditures to $10.7 million by December 2023 — a “worrying trend that affects the return of any financial residual balance to Member States”.
In the final order of business, Mr. Huisman introduced the Secretary-General’s report on revised estimates resulting from resolutions and decisions adopted by the Economic and Social Council at its 2023 session. Mr. Bachar Bong presented the Advisory Committee’s related report.
Capital Master Plan
CHANDRAMOULI RAMANATHAN, United Nations Controller and Assistant Secretary-General for Programme Planning, Finance and Budget in the Department of Management Strategy, Policy and Compliance, introduced the Secretary-General’s twenty-first annual progress report on the implementation of the capital master plan (document A/78/318). The report provides an update on the project’s status since the last Secretariat report and addresses issues raised by the Advisory Committee on Administrative and Budgetary Questions (ACABQ) in its most recent report. The Organization remains engaged in an arbitration case with the construction manager for the plan, and a hearing on the merits of the second phase of the case was held in October 2022. A decision is expected to be released by the arbitral tribunal in the fourth quarter of 2023.
The estimated final cost of the project remains unchanged, at $2.16 billion, as legal expenses for the arbitration cases are funded from the liquidation of commitments, he said. As indicated in previous reports, the final unused balance of the project can be determined only after the end of the remaining arbitration proceedings and after all liabilities are settled. At that time, the Secretary-General will report on the final balance and submit proposals for the General Assembly’s approval regarding the return of any final residual balance to Member States, he said. As reflected in the report, the two remaining Board of Auditors’ recommendations remain under implementation pending the outcome of the ongoing arbitration case and the completion of the project to bring the United Nations Headquarters facilities in compliance with the 2010 Americans with Disabilities Act Standards for Accessible Design.
ABDALLAH BACHAR BONG, Chair of the Advisory Committee on Administrative and Budgetary Questions (ACABQ), introducing its related report (document A/78/557), said the Secretary-General’s report indicated that the arbitral tribunal’s issuance of its final decision on the first phase of arbitration in June 2020 resulted in a net payment of $3.61 million by the United Nations. ACABQ trusts that more detailed information on the second and, if applicable, third phases of the arbitration proceedings will be provided to the General Assembly at the time of its consideration of the present report. He noted the full commitment of the approved $2.15 billion for the project, as well as its unchanged final estimate, adding that, aside from invoices relating to the ongoing arbitration cases and the associated legal fees, all contracts have been closed and all payments finalized.
To date, the accumulated legal expenses for the arbitration cases total $10.48 million, with an estimated additional amount of $225,000 required from July to December 2023, he noted. “The Committee recalls its concerns regarding the increasing legal expenses and reiterates that the Secretary-General should undertake further efforts to limit the financial liability of the Organization to the fullest extent possible,” he said. Further, the General Assembly should request the Secretary-General to undertake a comprehensive review of the implementation of the project, its overall management, coordination and oversight, particularly the design and construction phases, and the compliance with the general Conditions of Contract and the Financial Regulations and Rules of the United Nations. This is to ensure accountability and transparency, enhance project governance and limit the financial liability of the Organization.
RICHARD TUR DE LA CONCEPCIÓN (Cuba), speaking on behalf of the “Group of 77” and China, noted that except for those related to the single outstanding arbitration case, all construction work and related administrative closeout activities have been completed, with approved funding of the capital master plan project at $2.15 billion and the final consolidated requirement at $2.31 billion, if the portion funded by the support account for peacekeeping operations is taken into consideration. The Group is therefore concerned that, again, the financial closeout of the project will be delayed on account of the ongoing arbitration case with the resultant legal fees estimated at $225,000 for July–December. He pointed that this would escalate cumulative legal expenditure to $10.7 million by December — a “worrying trend that affects the return of any financial residual balance to Member States”. He commended the effort of the Office of Legal Affairs in defending the Organization’s interest in arbitration proceedings to prevent the United Nations from incurring avoidable expenses.
The Group concurs with the Advisory Committee’s recommendations that the Secretary-General assess how to mitigate the cost of ongoing proceedings and limit the Organization’s financial liability to “the fullest extent possible”, he said. It hopes to receive more information and clarification on arbitration proceedings and plans to assess the need for a comprehensive review of the implementation of the project with a view to ensuring accountability and transparency, enhancing governance, and limiting financial liability. He noted that the full scope of the three-year accessibility programme was completed in 2023 with the aim to bring the United Nations Headquarter facilities in line with the 2010 Americans with Disabilities Act. The Group wishes to receive updated information on the matter of Standards for Accessible Design, he said.
United Nations Joint Staff Pension Fund
ANNICK VANHOUTTE, Chair of the United Nations Joint Staff Pension Board, introduced the Pension Board’s report on the work of its seventy-third, seventy-fourth and seventy-fifth sessions in 2023 and administrative expenses of the United Nations Joint Staff Pension Fund for 2024 (document A/78/329). The Pension Board reviews the results of the actuarial valuations, which every two years assess the Pension Fund’s current solvency and the future level of contributions required to fund benefits. On the recommendation of the Committee of Actuaries, the Pension Board agreed that an assumed real rate of return on investments of 3.4 per cent should be used. This is a small change from recent actuarial valuations that have used an assumed real rate of return on investments of 3.5 per cent, she noted. It reflects growing evidence that, due to various global factors, future long-term real investment returns may not be as high as they have been in the past.
The Pension Board also noted the many achievements of the first phase of the Pension Administration’s modernization strategy, which was endorsed by the Board and the Assembly in 2020, she said. The Board welcomed the strategy’s new phase for 2024 and beyond, which focuses on modernizing the Pension Administration systems, she said, adding that the Pension Administration’s 2024 budget proposal is consistent with this new strategic plan. Turning to the Pension Fund’s investments, she said that, as of 31 December 2022, the Fund’s net assets available for benefits were valued at $77.9 billion, a decrease of $13.6 billion from $91.5 billion as of 31 December 2021. Regarding the absolute return goals, she said the annualized nominal rate of return for the 50-year period ending 31 December 2022 was 8.04 per cent. This represented an annual real rate of return of 3.92 per cent, after adjustment for the United States Consumer Price Index, above the long-term objective of 3.5 per cent.
The 15-year annualized real rate of return was 2.18 per cent, which included two major market downturns: the global financial crisis and the evolution of the global pandemic. “It is a fact that 2022 was a challenging year in terms of investment performance. However, when compared to our peers, we have been as effective, at a substantially lower cost per assets under management, over a five-year period,” she said. Since 1 January, the assets’ value has regained 4.75 per cent, reaching more than $81.6 billion as of 30 September. Regarding the Pension Fund’s administrative expenses, she said the Board endorsed budget estimates for 2024 of $140.5 million, after recosting, of which $8.4 million is attributed to the cost of services provided by the Fund to the United Nations Staff Pension Committee, chargeable to the United Nations.
The Board also endorsed the proposed staffing resources for 2024, comprising 443 posts and 20 general temporary assistance positions, to be considered by the Advisory Committee and then approved by the Assembly. The 2024 budget proposal was reviewed by the Pension Board’s Budget Committee in June 2023 and then reviewed and endorsed by the Pension Board at its seventy-fifth session in July 2023. She said the Board continues to deliver on its role and mandate. “I am especially proud that it managed to achieve such results by consensus, which clearly demonstrates the importance that the entire UN System, encompassing the Fund’s member organizations, attaches to our Pension Fund,” she said, adding the Pension Board will conduct a full review of all adopted reform proposals in July 2025.
JOHANNES HUISMAN, Director of the Programme Planning and Budget Division of the Office of Programme Planning, Finance, and Budget in the Department of Management Strategy, Policy and Compliance, introducing the Secretary-General’s report (document A/C.5/78/4) on the programme budget implications for the regular budget arising from the report of the Pension Board said the overall resources amounting to $8.4 million represent the estimated costs of services related to the Pension Committee provided by the Pension Fund to the Organization. Of this amount, $5.2 million represents the portion of the regular budget, with the $3.2 million balance representing the portion of the funds and programmes, based on the latest data on the number of participants in the Fund. He said that the estimate for the regular budget share of the costs directly chargeable to the United Nations for services related to the Pension Committee under Section 1 — Overall policymaking, direction, and coordination — of the 2024 proposed programme budget would amount to $5.2 million. This reflects a $293,000 reduction compared with the preliminary estimate of $5.5 million included in the proposed programme budget for 2024, pending the finalization of the Pension Fund budget for 2024 and the recommendations of the Pension Board thereon.
XUE WEN HU, Director of External Audit (China) and Chair of the Audit Operations Committee of the Board of Auditors, introduced the Board’s report on the United Nations Joint Staff Pension Fund and the financial report and audited financial statements for the year ended 31 December 2022 (document A/78/5/Add.16). The Board issued an unqualified audit opinion confirming that the Pension Fund’s financial statements present fairly, in all material respects, the net assets available for its benefits as at 31 December 2022; the changes in net assets available for benefits; and its cash flows for the year then ended. This is in accordance with the International Public Sector Accounting Standards (IPSAS) and International Accounting Standard 26, he said. The audit included a general review of the financial systems and internal controls, a test examination of accounting records, and other supporting evidence that the Board of Auditors considered necessary to form an opinion on the financial statements.
In the Pension Fund’s report, seven recommendations were issued to the Office of Investment Management and two to the Pension Administration. As key findings for that Office, the Board reviewed the implementation of the recommendations of the Task Force on Climate-related Financial Disclosures. It observed that the sustainable investment approach was not addressed by the Office’s Internal Investment Committee. In addition, the sustainable investment team designed a workplan to address the sustainable investing strategy, but without detailing the specific activities, staff responsible, goals, benchmarks and deadlines for compliance with the broad topics laid out in its 2022-2023 strategic plan. The Board also reviewed the Office’s environmental, social and governance reports for the first and second quarters of 2022 for equities issued. He said this showed that there were securities with reports indicating that they had the highest carbon emissions and low Morgan Stanley Capital International environmental, social and governance ratings.
AMALIA IRINA PUFULESCU (Romania), Vice Chair of the Fifth Committee, then drew the delegates’ attention to the Report of the Chief Executive of Pension Administration and the Representative of the Secretary-General for the investment of the assets of the Fund titled “Implementation of the recommendations of the Board of Auditors contained in its report for the year ended 31 December 2022 on the United Nations Joint Staff Pension Fund” (document A/78/323).
Mr. BACHAR BONG, ACABQ Chair, introducing ACABQ’s related report (document A/78/7/Add.7) on the Pension Fund, said the ACABQ agrees with the recommendations of the Board of Auditors on administrative performance matters, particularly the need to reduce overpayments as well as improve recovery of funds, and emphasizes the importance of expeditious implementation. On Pension Administration in the 2024 proposed budget, the Advisory Committee is not convinced that the best strategy for promoting business transformation and a data-driven organization is by creating multiple units pursuing different approaches. It therefore recommends against creating the business intelligence team until further information and assessment on the operation of the existing units is provided. Not convinced that the proposed increase in resources for the Legal Team of the Office of Investment Management is justified from the information provided on workload statistics and increased complexity of the work performed, the Advisory Committee recommends against the Legal Officer (P-4) and Investment Officer (P-3) posts, and the conversion from general temporary positions of the six positions established in 2022.
He said it also expects more details on the determination of the costs of the Pension Committee, cost-sharing methodology and actual expenses in the next report, also hoping that efforts will be made to minimize the recurring costs. He underscored the need for the Pension Fund to continually ensure equitable geographical representation and gender balance in appointments and nominations at all levels, while using the opportunity of vacant posts to address any such imbalance. The Fund should further refine key performance indicators and workload statistics and enhance the link between budget requirements, performance of its administration and investments. The Pension Administration’s investments in new initiatives as well as increased resource requirements should not only improve services provided to clients but should also result in efficiency gains. Turning to investments’ management, he hoped that the updated information on the viability of using derivative instruments together with information on the Fund by country, geographical region, currencies, and assets will be provided to the General Assembly.
Mr. TUR, speaking again for the Group of 77 and China, said the Group notes that as of December 2022, the Pension Fund’s total assets dropped $13.16 billion compared to 2021, and its market value dropped by $13.6 billion compared to the prior year. The Group would like more information on the measures used to mitigate the risks of current market volatility and its impact on the Pension Fund, as well as efforts to reduce overpayments and to improve recovery of funds. Turning to the Board of Auditors’ 35 outstanding recommendations as of 31 December 2021, the Group noted that 29 had been fully implemented and six were under implementation. The Group once again stresses the importance of the implementation of all Board recommendations by the Pension Funds and member organizations in a timely manner, he said, also seeking detailed annual updates to explain any delays.
He also noted the creation of a Business Intelligence Team, which would promote business transformation and data-driven organization for the Pension Administration. The Group looked forward to additional information on the Team’s purpose, how it complements or overlaps with existing units, and the establishment of new posts. The Group calls on the Pension Fund to continue to ensure equitable geographical representation and gender balance in its appointments and nominations. It also encourages the Secretary-General and the Office of the Investment Committee to constantly exercise fiduciary responsibility over the Pension Fund’s assets and their investments, considering the four main criteria of safety, profitability, liquidity and convertibility. It should also give more relevance to the impact of the investments, he stressed. The Group supports further diversification of the Pension Fund’s investments in developing countries and emerging markets and seeks updated information on investments by country and region as well as by type of asset.
DANIIL A. DEVYATKIN (Russian Federation) noted that the seventy-fifth session of the Pension Board was held from 24 to 28 July 2023 at the headquarters of the International Maritime Organization in London. He regretted that the United Kingdom Government did not issue entry visas to two Russian citizens to participate in the event. One was a board member from the General Assembly, Dmitry Chumakov; the other was a representative of the governing body of the Food and Agriculture Organization of the United Nations (FAO)and the World Food Programme (WFP), Denis Cherednichenko. This failure to issue entry visas is an egregious example of how a single Member State, in this case the United Kingdom as the event’s host country, purposely refused to fulfil its obligations to ensure the unhindered participation of representatives of all Member States in meetings held under the auspices of the United Nations.
Revised Estimates from Economic and Social Council Resolutions/Decisions
Mr. HUISMAN, Director of the Programme Planning and Budget Division of the Office of Programme Planning, Finance and Budget, in the Department of Management Strategy, Policy and Compliance, introducing the Secretary-General’s report (A/78/334) on revised estimates resulting from resolutions and decisions adopted by the Economic and Social Council at its 2023 session, said the report provides details of estimated additional resource requirements for 2024 on four resolutions adopted by the Council. They include resolution 2023/17, on reinforcing the role of the African Institute for Economic Development and Planning to assist members of the Economic Commission for Africa (ECA) in strengthening development planning and improving their capacity to formulate and manage effective public sector policies for structural transformation and sustainable development; resolution 2023/20, a request to strengthen the role of the secretariat of the Economic Commission for Europe (ECE) in supporting its member States to build resilient energy systems and modernize resource management systems; resolution 2023/21, on implementation of the rapid-response mechanism for the protection of environmental defenders under the Convention on Access to Information, Public Participation in Decision-making and Access to Justice in Environmental Matters (Aarhus Convention); and resolution 2023/30, on the Joint United Nations Programme on HIV/AIDS.
He noted that the concerned resolutions amount to requirements of $1.42 million (net of staff assessment in the amount of $131,300) and represent a charge against the contingency fund for 2024. The requirement of $131,300 includes resources for two new posts to implement the mandates in line with Council resolutions 2023/20 and 2023/21. He requested the General Assembly approve the additional 2024 appropriation and the establishment of the two positions.
Mr. BACHAR BONG, ACABQ Chair, introducing the Advisory Committee’s related report (document A/78/7/Add.8), said regarding the implications of resolution 2023/17, the Advisory Committee considers more appropriate the recruitment of a National Professional Officer position in lieu of a professional-level position for the role of Training Officer and recommends adjustments to a number of non-post requirements under section 18, Economic and social development in Africa, namely: consultants, travel of staff, and general operating expenses. It is aware of the important arrears of the African Institute for Economic Development and Planning and emphasizes the need to continually mobilize private and extrabudgetary resources to support the Institute and work actively with member States in this regard. On the implications of resolutions 2023/20 and 2023/21, he said that in the absence of a detailed workload analysis, ACABQ recommends the establishment of general temporary assistant positions in lieu of one P-4 and one P-3 post proposed under the Economic development in Europe section. The Advisory Committee also recommends adjustments to resources proposed for consultants and staff travel.
Subject to its comments on resolutions 2023/17, 20 and 21, the Advisory Committee recommends approval of additional appropriations of $969,900 under section 18, $468,300 under section 20, and $3,800 under section 29E, Administration, Geneva, of the proposed programme budget for 2024, which would represent a charge against the contingency fund. Furthermore, implementation of the requests contained in the above resolutions would require an additional appropriation of $149,400 under section 36, Staff assessment, of the proposed programme budget for 2024, to be offset fully under income section 1, Income from staff assessment. On the implications of resolution 2023/30, the Advisory Committee recommends absorption of the proposed requirement within the overall resources that would be made available under section 2, General Assembly and Economic and Social Council affairs and conference management, of the 2024 proposed programme budget.
Mr. TUR, taking the floor for a third time on behalf of the Group of 77 and China, said the Group’s primary position is to ensure that mandates approved by United Nations intergovernmental bodies are given adequate resources to ensure their successful implementation. “It is the responsibility of the Fifth Committee to fulfil this mandate,” he added. The Group welcomes resolution 2023/17 and notes that the Secretary-General’s report provides a breakdown of the additional resources required to implement the resolution, for which no provisions were made in the 2024 proposed programme budget. The Group will follow discussions on this matter and evaluate the Advisory Committee’s recommendations to ensure that the African Institute for Economic Development and Planning has adequate resources, in line with resolution 2023/17.