business plan for 2004 - EDP

8 Pension Fund
The Group companies that have subscribed to the
“Acordo Colectivo de Trabalho” complement their
workers’ deferred benefits granted by the official
welfare institutions in accordance with the current
pension benefit plan.
Present value of future liabilities for these benefits is
financed by a closed pension fund and by specific
provisions.
The performance of the fund was positive in 2003,
reversing the trend seen in recent years as a result of the
performance of the markets in general and also of the
investment policy defined in the sequence of a study
and of the respective strategic allocation.
The flexible retirement programme implemented during
2003 involving conversion of the pre-retirements of
previous years into Social Security pensions, pursuant to
Decree-Law 9/99, allowed a reduction of the fund’s
liabilities.
Having as its main objective the strengthening of the
management of the Pension Fund, the stability and
security of its assets and the optimisation of the returns
on its assets taking into account a level of return and
risk profile, EDP will undertake the studies required to
implement new models covering the following areas:
• Balance sheet management
A strategic benchmark will be defined for the Pension
Fund. The strategic benchmark represents the longterm
structure of the asset portfolio, which, taking into
account the profile of the liabilities assumed by the
fund, allows the pursuit under optimised conditions of
the objectives that will be defined for its management,
particularly contributions, level of financing and
investment restrictions.
Implementation of a strategic benchmark should help
to bring about the main objective implicit in the
management of the fund – the guarantee of meeting
the commitments assumed with the beneficiaries and
participants at the lowest financial cost – taking into
account the criteria that EDP defines in respect of
establishing the level of risk that it wants to assume.
The strategic benchmark will preferably be established
through an Asset Liability Modelling (ALM) study.
This instrument will allow the optimum structure of
the fund’s asset portfolio to be determined, taking into
account the assumed liability curve and established
objectives.
Three major objectives have been identified for the use
of an Asset Liability Model:
1) to help in establishing a long-term investment
strategy using a benchmark for the fund, taking into
account the present and future liabilities structure;
2) to provide an explicit understanding of the
implications of the different investment strategies
and different scenarios of evolution of the liabilities;
and
3) to construct a management tool allowing EDP and
the management entities to participate in the
definition of a financing plan for the fund.