nls.fluor.comnls.fluor.com/files/ANNUAL REPORT 2016.pdfAnnual Report 2016 Stichting Pensioenfonds Fluor Nederland. Page 3 of 89 . Table of Contents Annual report 5 1. Key figures 6

Annual Report 2016

Stichting Pensioenfonds Fluor Nederland

Annual Report 2016 Stichting Pensioenfonds Fluor Nederland

Page 3 of 89

Table of Contents

Annual report 5 1. Key figures 6 2. Board report 7 3. Report of the external review commission 35 4. Report of the accountability body 37

Annual accounts 39 5. Balance sheet as per 31 December 2016 40 6. Statement of income and expenditures over 2016 42 7. Cash flow statement over 2016 44 8. Explanatory notes to the 2016 annual accounts 45 9. Explanatory notes to the balance sheet 49 10. Explanatory notes to the statement of income and expenditures 63 11. Post-balance sheet events 70

Other information 71 Statutory clause on the determination of the balance of income and expenditures

72 Actuary’s statement 74 List of abbreviations 76


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Annual report Disclaimer: This Annual Report 2016 is a translation of the original Dutch “Jaarverslag 2016”. The original text in the “Jaarverslag” 2016 is leading. Note: The Audit report form the independent auditor is in the Dutch language and will not be published in this English version of the Annual Report


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1. Key figures

2016 2015 2014 2013 2012

Members (numbers)

Actives 682 711 744 806 771 Occupationally disabled 12 14 14 14 13

Subtotal 694 725 758 820 784 Former members 686 684 685 662 666 Retirees 590 574 556 536 519

Total number of members

1,970

1,983

1,999

2,018

1,969

Amounts x € 1,000 Investments for risk-based pension fund - Property investments 33,857 33,397 31,399 23,040 24,194 - Shares 116,478 103,522 100,019 97,888 85,619 - Fixed-yield securities 321,658 292,975 314,771 234,228 239,999 - Other investments (including

investment receivables)

26,579

23,731

32,428

27,242

25,361 - Total investments 498,572 453,625 478,617 382,398 375,173

General pension fund capital and reserves

39,144 31,283 70,361 53,401 38,327

Technical provisions 459,866 422,309 397,424 328,693 337,108

Funding ratio (%) 108.1 107.1 117.7 116.3 111.4 Policy funding ratio (%) 105.9 111.5 118.5 n/a n/a Market interest (interest rate

1.3 1.7 1.9 2.7 2.4

Indexation of pensions in payment (%)

- 0.6 1.7 - -

Premium contributions - Actual premium 12,832 11,782 12,468 11,012 11,002 - Cost-covering premium 14,978 15,296 14,353 12,937 11,645 - Cushioned premium 9,954 9,992 12,066 10,037 8,865

Pension benefit payments 12,683 11,377 11,206 10,910 10,285 Back-service purchase price 2,833 4,509 5,079 3,758 3,831 Pension administration costs 432 357 485 359 295 Per-member pension management costs (in whole euros)1

674

275

369

265

226

Investment results for risk-based pension fund

46,232

(13,428)

84,111

7,075

53,400

Investment yield (%) 9.99 (2.98) 21.60 1.76 16.27

Contribution-free amount (in whole euros)

18,370 17,930 17,750 17,300 16,900

1 The per-member pension management costs are defined as the pension administration costs divided by the sum of the active members plus retirees. In 2016, in addition to the pension administration costs the fund also bore the employer costs, consisting primarily of time spent by board members and the administrator of the fund on management and administrative activities.


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2. Report of the Management Board

All amounts in this report are given in whole euros, excepting where otherwise indicated.

2.1. General

2.1.1. Scope of the Fund

Stichting Pensioenfonds Fluor Nederland (the Fund, or SPFN) is the administrator of the final salary scheme of Fluor B.V., Fluor Consultants B.V. and Fluor Infrastructure B.V.

The Fund was founded in 1976, and has its registered office at Taurusavenue 155, Hoofddorp, The Netherlands. The Fund is registered in the trade register of the Chamber of Commerce under number 41222106. From the mission statement and vision statement set out below, the Fund derives its annual strategic goals on which it bases its management policy.

The Fund has the goal of paying, or arranging for the financial resources for the payment of, pensions and/or supplements on pensions to members, retirees, former members, and their surviving dependants and former partners in the cases and under the conditions as set out in detail in the pension regulations.

For a description of the pension scheme administered by the Fund in reporting year 2016, see the Foundation’s pension regulations, which can be found on the Fund’s website (http://pension.fluor.nl) under “Documents”.

2.1.2. Mission statement and policy principles of the fund board

Mission statement The board’s mission is to pay to all active, former and retired members a pension as set out in the articles of association and pension regulations of the Foundation (the Stichting Pensioenfonds Fluor Nederland). The board endeavours to fairly represent the interests of all stakeholders in the Fluor pension scheme, and to do this with detailed knowledge and expertise, in a reliable and trustworthy manner, at reasonable expense, and with a view to a bright future in proper consultation with all stakeholders.

Vision statement The board’s vision has been influenced by the closing of the Fund for new members as per 1 January 2014, coupled with legislative changes introduced since then and the regulatory guidelines enforced by the Dutch Central Bank (DNB). Within the relevant legal framework, the board strives to maintain the pension facilities at their current level, in observance of the following assumptions:

- The pension administration, asset management and reinsurance remain outsourced activities, with

quality of performance and process control requirements set out in the contracts. - As the Fund is diminishing in size, the investment mandate and risk management will be

adjusted to appropriate intervals. - In practice, the pension administration will maintain a focus on practicability, reliability and

costs, which may eventually lead to a simplification of the pension scheme and regular reviews of the pension administrator.

- Where desirable, external experts will be engaged to support board policy, with the board retaining ultimate responsibility at all times.

- Communication about the pension fund with members and retirees will be adapted to conform to the new legal requirements and the guidelines of the Federation of the Dutch Pension Funds, and taking advantage of electronic messaging where permitted.

- The Pension Funds Code (Code Pensioenfondsen) will be the basis for the assessment of the management’s performance.

http://pension.fluor.nl/


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2.1.3. Administrative organisation

Changes in composition of the Management Board

There were no changes on the board in 2016.

Mr P. Mali (employee representation) and Mr G. van der Schaaf (employer representation) both stepped down in accordance with the retirement schedule. The Works Council reappointed Mr Mali for a further three-year term on the board. Mr Van der Schaaf also stated that he was willing to remain a member of the Fund’s board, and so was automatically reappointed for a new term of three years. In addition, Mr Touw committed to staying on as chairman of the Fund after his retirement, in the interests of continuity within the Fund and with a view to upcoming developments (more details of which can be found elsewhere in this report).

Composition of the board

At the end of 2016, the members of the Fund’s board are:

Active members appointed by the Works Council: R. van Lohuizen secretary P. Mali board member, deputy secretary P. Pluimers board member

Appointed by the management: M. Blom board member B. de Hoog vice chair G. van der Schaaf board member A. Touw chairman

Retiree representative: F.J. van Heijningen board member


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Retirement schedule

After approval of the annual report over the reporting year:

2016: P. Pluimers, A. Touw, M. Blom 2017: B. de Hoog, R. van Lohuizen, F. van Heijningen 2018: P. Mali, G. van der Schaaf

Administrator

The Fund is administered by J. Vledder.

Auditor

KPMG Accountants N.V. is charged with the auditing of the Fund’s annual accounts. The auditor drafts an annual audit report and signs the reporting schedules, which must be filed with DNB before 1 July.

Consultants

KPMG advies and Triple A are tasked with technical, policy and market support. Legal support is provided by Loyens & Loeff. Ortec B.V. and Triple A are tasked with the Asset Liability Management Study (ALM), the feasibility test, the recovery plan, and various calculations underlying the reporting to DNB.

In view of the many reporting requirements and work required by DNB, the Netherlands Authority for the Financial Markets (AFM) and the pension fund, the board has opted to involve multiple parties in producing these reports. The advising actuary (Milliman Pensioenen) is also consulted for recommendations on complex actuarial issues.

Actuary

Milliman Pensioen & Actuarissen in Amsterdam is tasked with the drafting of the actuarial certificate.

Both the advising and certifying actuaries draft actuarial reports annually. The certifying actuary signs the reporting schedules that must be filed with DNB before 1 July. In May, the board meets with the certifying actuary, the accountant, the line management and the administrator to prepare the work involved in the year-end reporting.

Discharge of the Management Board

With the approval of the 2015 annual report, the Management Board was discharged for its management over the reporting year.

Articles

For reporting year 2016, the Fund is governed by the latest version of its articles (version 1 July 2014). These can be found on the Fund’s website (http://pension.fluor.nl) under “Documents”.

Pension scheme regulations

For the reporting year, the Fund’s pension scheme regulations (version 1 January 2015) apply. These regulations can also be found on the Fund’s website (http://pension.fluor.nl) under “Documents”.




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Accountability body

The Fund has an accountability body. This body’s annual report is included elsewhere in this report.

External Review Commission

The Fund selected VC-Holland as external review commission. In accordance with the Pension Fund Governance (Further Measures) Act (Wet Versterking bestuur Pensioenfondsen), the Fund is subject to annual review by an external review commission. The review cycle is a three-year cycle, with consecutive annual reviews over a period of three years, and in 2016, the second of the three was conducted. More on the results of this review can be found elsewhere in this report.

Sections E & J of the Federation of the Dutch Pension Funds

The Fund is a member of Section E of the Federation of the Dutch Pension Funds (Pensioenfederatie). As a consequence of attrition of the member funds within Section E and Section J, at the end of 2015 the Federation decided to merge Sections E and J. The merged section has approximately 15 member pension funds.

The section meets four times per year to discuss various pension-related topics. The member pension funds take turns hosting the meeting. Fluor has decided that starting 2016, the chairman of the Fund will participate in the section meeting, and in his absence the administrator will do the honours.

2.2. 2016 year in review

2.2.1. Management Board activities

2016 was an interesting and busy year for the board.

The major pension matters in 2016 were:

- further evaluation of the closing of the pension scheme to new members - year-end reporting activities for 2015 annual report - the policy funding ratio average funding level and reserve shortfall - new contract negotiations with Aegon on administration, asset management and reinsurance - the future of the pension fund - submission of the feasibility test 2016

Other issues with which the board was concerned in 2016 include:

- annual external review by VC-Holland - the Uniform Pension Statement (UPO) 2016 - updating of the Actuarial and Operating Memorandum (AOM) - self-evaluation meeting of the SPFN board on 28 October 2016 - update of the fund-specific code of conduct in consideration of the code of conduct of the Federation of the

Dutch Pension Funds - Asset Liability Management (ALM) Study conducted by Triple A - participation in the pension committee researching the future of the pension fund - update of the risk management plan

Elsewhere in this report, the chairpersons of the various working committees describe their activities and present the status of the action points still outstanding. In this work, the board and the working committees are supported by consultants as required.


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2.2.2. Legal documents

Also in 2016, work was done towards updating the Actuarial and Operating Memorandum (AOM). The AOM serves as the Fund’s business plan. Revision 11 reflects a number of changes dictated by the Pensions Act. Revision 11 of the AOM was submitted to regulatory body DNB, as legally required, at the end of December 2016. All changes were explained orally by the secretary to the accountability body. The accountability body advised positively on the changes to the AOM.

2.2.3. DNB and AFM

In 2015, under a new act of legislation (the Pension Communication Act (Wet Pensioencommunicatie)), the government introduced “Pensioen1-2-3”, an online application that explains the pension scheme in three layers, each addressing the material in an increasing level of detail. Pensioen1-2-3 also replaces the introductory letter that pension funds/insurers were formally required to issue to new members (although this last aspect is not relevant to our Fund, being that we have closed the Fund to new members). At the end of 2015, Aegon began making preparations to have Pensioen1-2-3 operational for SPFN members in June 2016.

In 2016, the AFM and DNB exercised regulatory supervision of the pension fund. The investment reports were given a strict evaluation using a Look-Through model. The reports raised a number of questions on the part of DNB, which, after consultation with the asset manager (Aegon), were answered satisfactorily. The reporting to DNB was produced by the administrator in cooperation with Aegon’s reporting division. DNB introduced revised, more stringent reporting guidelines effective for 2016. Reports must be submitted in a timely manner. Exceeding the deadline results in a warning the first time, followed by a fine.

The Fund must submit a funding ratio report monthly, and the FAF reporting (Financial Assessment Framework, on the investments and obligations) quarterly. The reporting concerning the premium and the reporting in regard to the pension regulations will follow in March. Additionally, a report on the feasibility test was produced in October 2016.

The reporting schedules were submitted to DNB on 23 June 2016. These pertain to the Fund’s financial reporting, and the information in them is supplemented with the 2015 annual report, the actuarial certification, and the audit statement. The Fund did not receive any additional questions from regulatory institutions based on the reporting schedules.

The AFM is primarily concerned with overseeing the information that the fund is required by law to provide to members, and also assesses the Fund’s performance in fulfilling its duty of care towards members accruing pension with investments. Because the Fund operates a final salary scheme, the latter does not apply.

Pensioen1-2-3 was introduced in 2015. In June 2016, this online application became operational for SPFN members on MijnAegon.nl. Pensioen1-2-3 covers the pension material in three layers, each in a progressively greater level of detail. Pensioen1-2-3 replaces the introductory letter that pension administrators were formerly required to issue to new members. This is not an issue for our Fund, being that the scheme has now been closed to new members. For more information, see the Communication Committee’s report.

2.2.4. Issue of Uniform Pension Overview (UPO)

In the third quarter of 2016, Aegon provided all active members in the pension scheme with a Uniform Pension Overview (UPO), the prescribed format for giving members, former members and retirees the information on their accrued old-age pension rights, partner pension, and “prospective pension”, the pension that a member would attain at retirement age upon continuation of the employment until that date. In 2015, the AFM decided to eliminate the requirement of stating the prospective pension on the UPO, effective from 2016. However, after significant criticism of this move, it was decided to keep this requirement for now.


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At present it is slated to continue until 2020. Whether after this year the prospective pension must still be reported on the UPO remains to be seen.

Policyholders of non-contributory pensions receive a pension statement once every five years. The most recent were provided in 2012, so these policyholders are due for their next UPO in 2017. Retired members receive an annual statement of the pension to be paid out to them. In 2017, the specification of the amounts to be paid by Aegon are listed on MijnAegon.nl.

2.2.5. From the administration

The Management Board is responsible for the Fund’s overall policy and reporting. The day-to-day management is set by the full complement of the board, with the line management (consisting of the chairman and the secretary), together with the administrator of the Fund, serving as direct contact point. The board has delegated a number of its authorities, in whole or in part, to the administrator or one or more of the working committees appointed by the board from amongst its members. The person to whom an authority is delegated is accountable to the board for the exercise of that authority.

The administrator organises the meetings with both the board and the accountability body. He drafts the agenda, produces the list of actions and resolutions, and keeps the board informed of the latest pension-related issues. He also meets every two weeks with the account manager of the pension administrator (Aegon) to discuss administrative lapses and action points.

In regard to administrative review, the administrator is tasked with administrative monitoring and informing the board of matters relating to: - DNB/AFM reporting obligations - change processing - feedback on consultation and monitoring activities performed by the actuary and accountant - information received from Aegon - asset management - the Fund’s website and MijnAegon.nl - current issues and legislative changes relating to pensions - training and seminars for which the administrator handles the registrations - administrative lapses - the annual report - external review commission

In 2016, there were two meetings between Aegon and the Fund, in which they discussed current matters, looked at the situation surrounding the extension of the contract in more detail, and briefly addressed the interactive list of action points discussed in the biweekly meeting between the administrator and the Aegon account manager.

In consultation with Aegon’s financial administration, the Fund drafts a timeline for the annual reporting requirements, indicating who delivers what input for the annual report, and when this must happen. This timeline is also shared with the actuary (Milliman) and the auditor (KPMG).

In 2016, the following change in the law was implemented in the pension scheme:

- The maximum pensionable salary was increased to €101,519.

There were also a number of pension meetings held in which the members in the final salary scheme were informed about the upcoming changes to the pension scheme for 2017. More information about these changes can be found in the Communication Committee’s report.

The most significant upcoming changes for 2017 are: - change to the partner pension, which will once again be fully capitalised


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- adjustment (lowering) of the accrual percentages for old-age pension that finance the capitalisation of the surviving dependants’ pension.

Aegon is tasked with the full extent of the administration of member records, and in this role is the first contact point for the member (making Aegon also the party with front-end responsibility). This is established contractually. In the event of questions, any employee may contact Aegon’s Pension Advising Center (PAC) by phone on +31 70 344 4999.

The PAC is the first-line contact point. Employees requiring more individual information can contact the administrator of the pension fund.

2.3. Working committees/status

2.3.1. ALM committee’s report

The ALM (Asset Liability Management) committee consists of six persons: B. de Hoog (chairman), M. Blom, R. van Lohuizen, P. Pluimers, A. Touw and J. Vledder.

This committee tracks the obligations, asset development and member portfolio development using a simulation model as well as a sensitivity analysis based on correlations between the individual components. A good example is the development of the market interest rate, which has an influence both on the valuation of the obligations and the value of the assets. The Fund uses ALM studies to gain insight into the development of the fund for funding ratio, expected indexation, etc. These studies serve as input into policy development and decision-making.

As of 1 January 2017 the fund is obliged to adjust the contracts as signed with the pension administration organisation (Aegon) and to split them into individual components. In order to keep the administration of the pension scheme affordable and workable, the administrator has indicated that several changes in the scheme were necessary. An ALM study was conducted by Ortec over 2016, with the primary object of mapping out the impact of the various alternatives proposed in relation to these changes. With the help of this ALM study, the board selected the alternative with the least drastic consequences on both the pension result of the individual member and the scheme itself.

In 2016, there were no changes made in the recovery plan or the template for recovery actions. In consultation with the DNB, the decision was made to postpone this to the first quarter of 2017, in order to bring the fund into line with the DNB’s standard procedures.

Ortec also conducted the feasibility test as required under the FAF (Financial Assessment Framework). The feasibility test is to be updated every year. In the second quarter, the results of this feasibility test were submitted to the DNB, including the required data and analyses. The results of this test were virtually identical to the results of the baseline test. These results gave no indication of any reason to initiate discussions with the social partners on the financial structure of the scheme.

Part of the feasibility test examines the value development of the pension within the scheme, including the expected indexation in accordance with the regulations and AOM. The result is compared against a notional career average pay scheme with guaranteed indexation using the same basic assumptions as the Fluor pension scheme. Asset management is calculated in exactly the same way. The fund sets the limits for the minimum expectable pension results and the possible deviation from that minimum in “bad weather” conditions. The lower limit is set at 100% at an actual funding ratio and 101% at a funding ratio without reserve shortfall. The potential deviation in the event of a “bad weather” scenario is set at 10%. The 2016 feasibility test demonstrated that the Fluor scheme offered virtually identical results (104%, and 104% in 2015) for the expectable pension as a notional career average pay scheme (100%). In a “bad


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weather” scenario, the deviation was shown to be approximately 9% (2015: 8%). The lower limit set by the board is 10%, putting the Fund in compliance with the feasibility test. The feasibility test is repeated every year, but with the starting situation of the year in question (funding ratio, asset position, composition of member portfolio, etc.).

At the end of the year, Ortec conducted an ALM study to determine the actuarial cost-covering premium against the background of the Fund’s current recovery situation. The board used the outcome of this study in the consultations with the Employer in regard to the premium to be received in 2017.

2.3.2. Recovery Plan committee’s report

The Recovery Plan committee consists of the following members: P. Pluimers (chairman), B. de Hoog, R. van Lohuizen, A. Touw and J. Vledder.

The Fund has been in a situation of recovery since the third quarter of 2015. In the fourth quarter of 2015, the fund submitted a recovery plan to DNB. According to the rules, every year after the initial date (i.e., in the fourth quarter), the Fund must submit an updated recovery plan. In February 2016 DNB indicated that it would agree to receiving the updated recovery plan in the first quarter of 2017. At the end of 2016, the Fund had not fully recovered, so an updated recovery plan will be submitted by 1 April 2017. The absolute funding ratio, a measurement of the relationship between the assets and the obligations of the Fund at a given moment, was 103.7% in January 2016, and developed positively over the course of the year to 108.0% in December, although the 12-month policy funding ratio fell from 111.6% at the start of 2016 to 105.9% in December 2016. DNB uses the level of funding ratio as an indicator of whether the fund is out of the recovery stage. The minimum 12-month policy funding ratio that the Fund needs to achieve to be out of recovery is 116.1%. DNB requires the Fund to maintain a buffer (required equity capital) of 16.1%, this figure being derived from the general and investment risks to which the fund is exposed. The Fund does not expect any drastic measures to be necessary to take the Fund out of the recovery stage (and will inform DNB as such in the recovery plan), although there is not expected to be any capacity for indexation of the pensions in payment for the coming years.

2.3.3. Communication committee’s report

The Communication committee consists of the following members: F.J. van Heijningen (chairman), B. de Hoog, M. Blom, J. Vledder

In 2016, the committee was actively engaged on the following topics: -in April 2016, the SPFN communication plan was adjusted to reflect the new Pension Communication Act (Wet Pensioencommunicatie), which went into effect in July 2015. This revision was intended primarily to expand digital communication and update the UPO. - in July 2016 Aegon placed the Pension1-2-3 application on the MijnAegon website, and after that time this overview of our pension system (three layers of information, in increasing level of detail), was available to all active members. All active members were notified in a message in June 2016. Over the course of 2017, Aegon will be making Pension1-2-3 accessible to retirees.

In 2016, there were multiple communications on the new contracts to be agreed with Aegon on administration, asset management and reinsurance as per 1 January 2017. This will necessitate a certain adjustment of the partner pension (PP), and the active members were consulted on this in November 2016. After consultation with the Employer, the employee representation and the Works Council, the underlying reasons and the details of this adjustment of the PP were explained in an extensive disclosure and detailed presentations in all four Dutch offices. Of the 691 participants with voting rights, 34.4% voted, of which 69.5% approved and 4.2% did not approve this adjustment of the PP, with 6.3% abstaining.


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In August 2016, a committee meeting on the implementation of the member survey was held. In 2016, five notices were sent to the active members.

2.3.4. Investment committee’s report

The Investment committee consists of five members: M. Blom, R. van Lohuizen, P. Pluimers, G. Van der Schaaf and A. Touw.

The committee is charged with the responsibility for (in sum) establishing the optimum investment mix in the mandate to the asset manager, monitoring and reporting the performance of the asset manager, and (where necessary) initiating corrective actions relating to asset management.

Twice per year, the committee has direct contact with the account manager of Aegon Asset Management (the current asset manager). In addition, the committee meets several times per year to discuss the situation on subjects such as asset allocation, risk profiles of the selected investment funds, and the performance of the various investment categories.

The Fund has largely covered the interest rate risk. At the end of 2015, the risk was covered for 70%. Although the committee has a mandate from the board to, in consideration of the low interest rates, gradually lower the risk coverage to 60% (more risk) in order to benefit from a potential future increase in interest rates, in 2016 the committee saw no reason to actually do so. Interest rate developments remain a cause for concern. As interest rates fall, the provision for the obligations increases. However, at the moment interest rates go up, this will cause a reverse effect and the assets will fall, keeping in line with the obligations. The coverage of the interest rate risk leads to a growth in assets in parallel with a growth in the obligations caused by the falling interest rates. Lowering of the coverage of the interest rate risk does, however, increase the total risk profile of the investment portfolio. The funding ratio based on market value exhibited a slight increase at the end of 2016 as compared to the end of 2015. As expected, the funding ratio decreased substantially under the influence of the 12-month average.

Given the fact that the Fluor pension fund remained in a recovery situation at the end of 2016, the risk profile of the investments cannot be increased.

The committee can look back with satisfaction on the performance of the Fund’s investments in 2016. In part due to the policy conducted concerning the interest rate coverage, the return was 9.99% (after expenses). At 6.25%, the return on the investment portfolio was essentially equal to the benchmark, while the interest rate coverage instrument contributed 3.74% to the total result.

Pursuant to the applicable regulations, as from 2017 the Fund must split the contract with Aegon into three separate contracts for asset management, insurance and administration. This made it necessary to convert the total investment portfolio. At this point, this conversion is essentially neutral, and has been successfully completed within the commitments made. Unfortunately, it was not possible to immediately step into the AEAM Mortgage Fund. According to the current expectations, this will be done gradually starting in mid-August 2017. The resources coming available from the old Aegon Mortgage Fund have been temporarily invested in fixed-yield securities. The risk profile of the new portfolio has gone down slightly.

As an expression of our commitment to responsible investment, the Fund adheres to the guidelines supported by Fluor Corporation. For example, Fluor endorses the principles of the UN Global Compact. The investments must be at least in accordance with the standards and values that Fluor adheres to, as set out in the Fluor sustainability report. Fluor’s selection of Aegon as asset manager means that Aegon must also be at least minimally compliant with the Fluor guidelines. Aegon fulfils this through its compliance with the Aegon N.V. Code of Conduct. For a more detailed description of Aegon’s responsible investment practices, see section 2.8.2.


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2.3.5. Administrative Organisation/Internal Audit committee’s report

The Administrative Organisation/Internal Audit committee has four members: P. Mali (chairman), B. de Hoog, P. Pluimers and J. Vledder.

In October 2016, the committee conducted a self-assessment and set out the results in a report. The object of this self-evaluation was to gain an understanding of how the board evaluates itself on the aspects of balance in its weighing of interests, definition of roles and tasks, succession planning, and professionalisation, and to identify points for improvement.

See the report for the results and action points.

2.3.6. Aegon Contract Extension committee’s report

The committee consists of the following members: A. Touw (chairman), M. Blom, B. de Hoog, F. van Heijningen, R. van Lohuizen, P. Pluimers and J. Vledder

In 2015, the running reinsurance contract with Aegon was extended for a period of two years. As from 1 January 2017, this contract form (reinsurance, administration and asset management in one contract) is no longer permitted. These must now be placed in three different contracts. In 2009, when the decision was made to not renew the contract with Fortis/ASR, it quickly became clear that there was not a lot of interest in the market for conducting the administration. The combination with the asset management and reinsurance ultimately led to the selection of Aegon. The board requested Triple A as consultant to support it in finding interested parties for the three contracts. It was readily apparent that there was little or no interest, and the parties that did express an interest presented a continuity risk in the opinion of the Fund. With the board’s approval, the committee then decided to negotiate with Aegon on splitting up the present contract into three separate contracts. At an early stage, Aegon indicated that the complexity of the scheme was an administrative problem. In particular, the surviving dependant’s pension, which over the course of the employment is capitalised at 50% and 50% insured on a risk basis with an obligatory exchange upon exit from employment and optional exchange upon retirement, was an issue. In order to address this and other issues, the board opted to capitalise the surviving dependants' pension at 100%. To make this change cost-neutral from an actuarial perspective, the future accrual for the old-age pension was lowered and the accrual of the partner pension was increased. The total pension result (old-age pension plus partner pension) remains the same for the member. This change goes into effect for 2017. The rights accrued up until the end of 2016 are converted into the new situation, in which the partner pension is 100% capitalised at the expense of the old-age pension. This is in accordance with the situation that would result after exchange of old age pension for partner pension upon retirement or exit from employment. This has the positive result that has from 2018 the UPO (for 2017) will show the correct information. Thereafter, the accrued pensions with retirement age of 65 will be converted to age 67.

2.3.7. Training/Expertise committee’s report

The Training/Expertise committee consists of three persons: P. Mali (chairman), A. Touw and J. Vledder.

In 2016 the following trainings were taken with SPO: Risk Management & Outsourcing, Financial Aspects & Pension Policy, Communication, Internal Governance in Practice, Asset Management, and Investment Policy.

2.3.8. Risk Management committee’s report:

The committee, consisting of the members: A. Touw (chairman), M. Blom, R. van Lohuizen and G. van der Schaaf, concerned itself this year primarily with the new pension contracts.


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In view of the complexity of the scheme and the absolute condition that the payment of the pensions cannot be delayed and must be correct, it was decided at an early stage to enter into discussions with Aegon on the options for splitting the existing contract into three new contracts. For a description of this contract change, see the report of the Contract Extension committee (2.3.6).

As from 1 January 2017, the Fund becomes legal owner of all assets. This means that not all assets can be transferred, and necessitates the sale and purchase of funds. In close consultation with Aegon Asset Management, a conversion plan has been drafted to keep the cost of purchase and sale as low as possible.

The Fund strives for a Total Risk Management Policy. The goal of total risk management is to offer a reasonable degree of certainty in regard to the achievement of the targets.

Total risk management depends on aspects such as:

- coordination of the desired risk that the Fund wishes to accept and the strategy in regard to risk aversion and ambition level;

- identification and control of risks; - minimising operational surprises and losses; - robust risk information in regard to the improvement of the leverage of the invested assets; - establishment of governance and procedures relating to risk management (structure of the

risk management function including setup, existence and functioning of tasks, authorities and responsibilities).

2.3.9. AOM committee’s report

The AOM (Actuarial and Operating Memorandum) committee consists of the following members: R. van Lohuizen (chairman), M. Blom, P. Mali, R. van Lohuizen, F.J. van Heijningen and J. Vledder.

The AOM was amended in 2016 (revision 11). One standard point is the establishment of the state pension offset, which has been set for 2016 (at €18,370).

Revision 11: The most significant point is the inclusion in the ABN of the description of the task of the compliance officer in regard to the governance of the Fund. A number of matters have been updated, such as the reference in the investment policy to “Prudent Person”. The basis for the determination of the obligations has been corrected to the Actuarial Association’s generation table 2014. Based on the reserve AOM situation, a reference to the recovery plan was added.

2.4. Miscellaneous

2.4.1. Pension news

As a pension year, 2016 was an interesting one full of challenges for the pension fund board.

Overall, interest rates remained low, and this is not beneficial to the pension obligations. The policy funding ratio (the progressive average over a period of 12 months) also continued to fall, because the relatively high funding ratios from 2015 have disappeared from the calculation, to be replaced by much lower funding ratios, as a result of low interest rates.

On 1 January 2016, the new retirement age of 65 years and 6 months went into effect, and as from 1 July it was increased again, to 65 years and 9 months. Meanwhile, more and more people of retirement age are choosing to continue to work, either full-time or part-time. Until recently this was something that was discouraged by various provisions of law, but the Working After Retirement Age Act (Wet werken na de AOW leeftijd), which went into effect on 1 January 2016, removed a number of impediments to doing so.

The Pension Communication Act (Wet Pensioencommunicatie) was introduced in phases starting on 15 July 2015. In the phase that went into effect on 1 January 2016, this act eliminated the requirement of pension administrators to report the attainable pension on the UPO; now, members must consult the government’s register of pensions instead.


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As from 1 July 2016, pension administrators have communicated with their members via Pensioen1-2-3. More information on this is provided in the Communication Commission’s report.

The Works Council now (since 1 October 2016) has more authority on pension-related issues. Employers now need to obtain the consent of the Works Council for changes to the pension scheme.

In 2016, the government and the Social and Economic Council of the Netherlands (Sociaal Economische Raad, SER) collaborated in exploring ways to revise the pension system. More information on these efforts will be given in the next annual report.

2.4.2. AIP scheme

The board has decided to leave the AIP policy for supplemental individual early retirement (Aanvullend Individuele Pensioenregeling) unchanged, so that it continues to go into payment at age 65. Approximately four months prior to the actual offer, Aegon will send members a message with a number of example calculations. You will receive the actual offer in the months in which you turn 65.

Starting 2015, upon retirement or early retirement you can only convert the AIP capital into a lifelong old-age pension in combination with a partner pension, or only into a lifelong old-age pension. Leaving a portion of the AIP capital in place and taking it later or deferring the AIP capital until reaching the general retirement age is no longer permitted.

2.4.3. The General Surviving Dependants Act (ANW)

Very important (verify your personal situation in regard to this subject) The surviving dependant’s benefit under the ANW, or General Surviving Dependants Act (Algemene nabestaandenwet), is a form of financial support that the government extends after the death of your partner (or to orphans).

The SVB, or Social Insurance Bank (Sociale Verzekeringsbank), pays the contribution for this benefit. It is important to note, however, that this benefit is subject to a number of conditions. For complete information on this benefit, consult the SVB’s website (www.svb.nl).

Information about this benefit can be requested from Human Resources or the administrator of the pension fund.

2.4.4. Indexation

For 2017 there is no room for indexation.

The biggest argument for this is the fact that at the end of 2016, the Fund was still in a state of recovery. Allocation of any indexation would increase the shortfall, and so is not permitted by the DNB. At the end of 2016, the policy funding ratio was 105.9%. The Fund’s Required Equity Capital (REQ) is 116.9%. Under the recovery plan, the Fund has ten years (starting 2015) to recover and return to a level at or above the REQ.

Indexation was discussed with the accountability body in the consultative meeting of December 2016. In that meeting, the decision made to not extend any indexation was based on preliminary figures. In early January 2017, the decision to not extend any conditional supplements in 2017 was made definitive.

http://www.svb.nl/


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2.5. Points for attention

2.5.1. Compliance with Pension Funds Code

What is the goal of the Pension Funds Code? It is important for pension funds to both improve their performance and make that performance more transparent, so the fund’s stakeholders can be confident that the fund is managing their pension assets properly and in consideration of the interests of all concerned. The Federation of the Dutch Pension Funds and the Dutch Labour Foundation (Stichting van de Arbeid) drafted the Pension Funds Code (hereinafter: the Code) to help them do so. The code makes the relationships within the pension fund and the communication with stakeholders more transparent, and helps funds to reinforce “proper pension fund governance”.

Who does the Code apply to? The Code is intended for all pension funds (sector pension funds, company pension funds and occupational pension funds) with their registered seats in the Netherlands. Where necessary, the Code distinguishes between different governance models: the equal representation model, the independent model and the one-tier board models (mixed model).

It is important to realise that the Code is not a goal in itself, but a means for helping pension funds to perform better. The Code is also intended to raise the confidence of the stakeholders in particular as well as society in general. Expertise, involvement and proper cooperation are the foundation of good governance in a pension fund. Good pension fund governance does not start and end with the fund board, but must extend to all bodies of the fund.

The Code addresses the role of the board, the accountability body (AB), the stakeholder body (SB), and the internal monitoring structures. The Code also addresses subjects such as total risk management, remuneration, diversity and responsible investment. In the Code, we also provide models for how appointment, dismissal and terms of office for members of the board and other bodies should be set up.

Code of Conduct and Remuneration The members of the board and the administrator have declared that they will adhere to the rules of the Model Code of Conduct drafted by the Federation of the Dutch Pension Funds. The members of the board receive no remuneration. Travel, accommodation and other expenses incurred in the interest of the Fund (where deemed so by the board) are reimbursed by the Fund.

Departures from the Code At present, the board places a higher priority on management experience on the part of board members than limiting the term of reappointment (according to the code, a maximum of two four-year terms). This has a negative effect on the aim for diversity (age, gender, etc.). In reappointing new board members, the Fund does strive for a reflection of the composition of the member portfolio.

2.5.2. Accountability for method of calculation (policy funding ratio)

The policy funding ratio is the average of the current latest ratios over the past 12 months. A pension fund needs to offer transparency into how these 12 monthly funding ratios are calculated. For the Fund, the funding ratio and policy funding ratio are reported by Aegon. The Fund’s Investment Committee verifies the funding ratio calculation monthly and adjusts it as needed. The administrator reports the funding ratio to the DNB each month, and also publishes it on the Fund website.


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2.5.3. Implementation costs

For reasons of transparency, the board is required by law to report the costs incurred in the implementation of the pension scheme in the management report. The explanation provided must distinguish between the costs of the implementation of the pension scheme (administrative), asset management costs and transaction costs. The administrative pension implementation costs include:

1. Defining and collecting premiums 2. Registration of pension claims and rights 3. Payment of pensions 4. Provision of information and communication with stakeholders 5. Board and internal bodies 6. Regulatory monitoring

The pension implementation costs (per member) are:

Amounts x € 1,000 2016 2015 Pension implementation costs (borne by Fund) 432 357 Pension implementation costs (borne by employer) 434 (n/a) Total 866 357

Number of active members and retirees, at year’s end 1,284 1,285 Pension implementation costs per member in euros 674 275

The costs to be borne by the fund are explained in note 10.5 of the annual accounts. The costs to be borne by the employer are primarily time spent by the board members and the administrator.

The cost of asset management and transaction costs are as follows:

2016 in

EUR x 1,000 % of average invested assets

2015 in EUR x 1,000

% of average invested assets

Administration costs 1,663 1,681 0.35% Other costs -367 -374 -0.08% Cost of asset management 1,296 0.26% 1,307 0.27% Transaction costs 49 0.01% 314 0.06% Total 1,345 0.27% 1,621 0.34%

The reconciliation with the costs in the annual accounts is as follows:

2016 2015 Cost included in the annual accounts -367 -374 Costs offset with indirect investment revenues 1,712 1,995 Total 1,345 1,621


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2.5.4. Compliance Officer

The Fund’s Compliance Officer, Mr. C.A.A.M. de Wit, is responsible for monitoring the integrity of the pension fund’s operations and culture, and ensuring that it is a culture in which all affiliated persons can be assumed to be acting at all times in accordance with applicable societal standards as well as legislation and regulations, both written and unwritten. The Compliance Officer must also monitor whether the board is adhering fully to the conditions of the Code and the fund-specific code of conduct derived from that Code.

The activities of the Compliance Officer include, but are not limited to:

1. Supervision of personal transactions 2. Ensuring confidentiality 3. Verification of compliance with obligation to disclose conflicts of interest or reputational risk 4. Monitoring of conflicts of interests

a) business gifts b) invitations c) ancillary positions d) business interests e) operating assets f) business relationships

5. Sanctioning violations of the code of conduct 6. Monitoring of the Whistleblower and Incident Management Procedures 7. Monitoring of the signing of the code of conduct

The following is the Compliance Officer’s report for reporting year 2016.

In 2015 the pension fund of Fluor Nederland appointed a Compliance Officer to oversee the integrity of the pension fund’s operations and culture, and to ensure that it is a culture in which all affiliated persons can be assumed to be acting at all times in accordance with applicable societal standards and legislation and regulations, both written and unwritten. In close consultation with the Fluor pension fund board, and using information from the Federation of the Dutch Pension Funds, in 2016 the fund produced definitive versions of the documents Compliance Officer Mandate, Compliance Officer Regulations, and an addendum to the Model Pension Funds Code of Conduct 2015.

This section reports on the status of compliance issues in 2016. The report covers the following subjects:

1. The structure and functioning of compliance within the Stichting Pensioenfonds Fluor Nederland 2. Compliance incidents

The first subject covers the following sub-areas:

• Signing of the code of conduct • Conflicts of interest (business gifts, invitations, ancillary positions, business interests,

operating assets, business relationships) • Personal transactions • Obligation to disclose conflicts of interest or reputational risk • Ensuring confidentiality • Whistleblower and Incident Management Procedures

With reference to the first subject, the Compliance Officer observed the following. The active board members are all employees of Fluor and as such are bound by Fluor’s Business and Ethical Code of Conduct. Like every other Fluor employee, all board members receive training on this subject annually and must sign a declaration undertaking the obligation to comply with the applicable provisions of the Fluor code of conduct.


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In addition, the pension fund board conducted an integrity risk analysis in 2015, and based on the results formulated a number of supplemental control measures. The majority of these measures were to be implemented in 2016, although it appears that this implementation is behind schedule. This, however, did not have any negative impact on the integrity of the operations in 2016.

Every affiliated person (including members of the board and the board as a body, as well as members of the accountability body) must, upon commencement of their position with the pension fund, sign the Model Code of Conduct of the Federation of the Dutch Pension Funds, signifying acceptance of the obligation to comply with all relevant rules of this code. Further, in the first board meeting of the new calendar year (or upon no longer being affiliated with the pension fund), every affiliated person must sign a statement declaring proper compliance with the applicable provisions of the Model Code of Conduct over the past year. The administrator of the pension fund has received and archived these signed declarations for 2016.

Affiliated persons must report personal transactions to the administrator of the pension fund. No personal transactions were reported to the administrator in 2016. Confidential information, such as personal and financial information of members of the fund, is only accessible to the administrator and the specific board members who require access to this information for the purposes of the performance of their work.

With regard to subject 2, compliance incidents, every affiliated person is obliged to report to both the board and the Compliance Officer any real or potential conflict of interest or reputational risk. This obligation has been communicated to and is known to the affiliated persons.

In 2016 there were no incidents reported to the board or the Compliance Officer.

2.5.5. Accounting and actuarial audits

The board received an audit report on reporting year 2016. This report revealed the following:

- cyber-incident prevention must be incorporated into the risk assessment cycle - in 2017, the pension fund board needs to begin discussions with the service organisation

(Aegon Levensverzekering N.V.) on the ISAE 3402 reporting

The board will be working the first of these two points into the risk management policy, and will be entering into discussions with Aegon on the ISAE 3402 reporting no later than the 3rd quarter of 2017.

The board also received an actuarial report on reporting year 2016 from both the advising and the certifying actuaries. Broadly, these reports present the following picture:

General recommendations:

- The AOM is not up to date, and will be updated by the board as quickly as possible. The calculation method used for the policy funding ratio must also be updated.

- The board will once again be reviewing the extent to which the current (partial) standard model has conformed and continues to conform to the pension fund’s risk profile. This point will be taken up in the third quarter of 2017.

Prudent Person recommendation

- The actuary observes that certain fund-relevant documents (AOM and minutes) lack substantiation of decisions. The board has indicated that it will be improving this in the coming financial year.

- The actuary observes that the risk attitude as identified in the ALM study is not entirely in line with the AOM. The risk management committee will be taking action on this point.


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A look ahead to DNB 2017 - The operational risks to the pension fund must be better defined. - In 2017, there will have to be more advanced focus on changing legislation and regulations (one

example being the changes in the risk management policy).

2.5.6. VAT

Due to changes in the law, as from 1 January 2015 approximately 150 pension funds that outsource their pension administration will no longer be VAT-exempt. Pension funds that have their administration conducted within their own institution, however, will still not be required to pay VAT. This means that primarily sector pension funds will remain exempt from the VAT obligation. State Secretary for Finance Eric Wiebes is currently considering this incongruity. We will be keeping you informed of the status.

2.6. Financial section

2.6.1. Financial position of the Fund

In the following, the board of Stichting Pensioenfonds Fluor Nederland provides a picture of the Fund’s financial position in the form of a number of tables. Below, you will find the summary of the Fund’s financial position, consisting of a table showing the change in funding ratio and an overview of the result broken down by component. The Fund’s funding ratio rose slightly, from 107.1% at the end of 2015 to 108.1% at the end of 2016. The Fund works with a nominal funding ratio. This does not include future indexation of pensions. A real funding ratio would take these potential indexations on pensions into account in the technical provisions. The real funding ratio at the end of 2016 has been set at 86.4% (2015: 90.3%).

Funding ratio The Fund’s financial position is calculated based on the funding ratio, which is equal to the ratio between the invested assets and the technical provisions.

AMOUNTS x €1,000 31 DECEMBER 2016 31 DECEMBER 2015

Funds invested in Fixed-yield securities 321,658 292,975

Shares 116,478 103,522

Property investments (indirect) 33,857 33,397

Other investments 27,461 24,397

Balance of receivables, other assets and other payables (444) (699)

Total (A) 499,010 453,592

Technical facilities Provision for pension obligations 457,033 417,801

Provision for back-service purchase price 2,833 4,509.

Total (B) 459,866 422,310

Special purpose reserve (C) 2,107 1,348

Funding ratio (A – C) /B 108.1% 107.1%


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Change in funding ratio If a pension fund’s policy funding ratio falls below the fund’s REQ, then within three months the fund is required to submit a recovery plan to the DNB, explaining how the Fund will get back to the strategic REQ derived from the policy funding ratio within a maximum of 10 years. In November 2015, based on the reserve shortfall, the Fund drafted a new recovery plan and submitted it to the DNB.

The table below shows the change in the funding ratio over 2016.

DESCRIPTION ACTUAL 2016

Funding ratio 31 December 2015 107.1%

Premium 0.2%

Benefits 0.2%

Supplement 0.0%

Interest rate futures structure -8.3%

Over-return 10.8%

Other -1.9%

Funding ratio 31 December 2016 108.1%


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2.6.2. Composition of the result in financial year 2016

The table below shows the result earned by the pension fund, broken down by component. Amounts given are in thousands of euros.

Description Note in

annual accounts

Income

Expenditures

POP Back-service

provision

(+) (-) (-) (-) Premiums Premium contributions

10.1

12,832

12,832 Actuarial premium pension accrual 10.6.1 8,415 -8,415 Actuarial premium back-service 10.6.1 4,509 -4,509 Change in provision for back-service purchase price 10.7. -1,676 1,676

Interest 1,584

Direct investment revenues 10.2.1 6,832 6,832 Indirect investment revenues 10.2.2 39,033 39,033 Costs of asset management 10.2.3 367 367 Interest addition to the pension obligations

10.6.3 -258 258

Effect of change in interest rate futures structure 10.6.6 38,321 -38,321 Supplements 8,169

Indexation and other supplements 10.6.2 0

Expenses Pension administration costs

10.5

432

-432 Withdrawal for pension implementation costs 10.6.5 -432 432

Technical result on mortality 0

Risk premium from pension obligations provision 1,261 -1,261 Risk premium from premium -331 331 Required for pension obligations provision -1,770 1,770

Technical result on occupational disability

10.6.9 840

Available from premium -197 197 Required for pension obligations provision 79 -79

Changes

10.6.9 118

Pension benefits (incl. buyout) 10.4 12,683 -12,683 Withdrawal for pension benefits 10.6.4 -12,683 12,683 Individual pension obligations taken over 10.8 91 91 Buyout of pension obligations taken over 10.6.7 143 -143 Individual pension obligations transferred 10.8 405 -405 Buyout of pension obligations transferred 10.6.7 -411 411 Technical result on other changes 10.6.9 -814 814

Special 768

Change of actuarial bases 10.6.8 3,401 -3,401

Other results Revenues from reinsurance

10.3

758

758 Other expenditures 10.9 975 -975

-217 Change in pension obligations provision 37,557 39,233 -1,676

Result for the financial year 7,861 7,861

In the result, you will find the breakdown of the result pertaining to financial year 2016 • The result on premiums depends very strongly on the interest rate futures structure at the start of

the financial year. The premium received in 2016 proved adequate to finance the pension accrual (including risk premiums).

• Unlike in 2015, interest was the best-performing source of results; in 2016 this item posted a positive result of €8,169K. While the result as a consequence of the interest rate futures structure was negative, it was more than compensated for by the investment revenues.

• The board decided against extending any indexation as from 1 January 2017, which makes the result on supplements zero.

• The release from premium is such that the result on expenditures is zero. The release from the Pension Obligations Provision is the periodic disbursements surcharge being released. The implementation costs rose as compared to 2016, which increased the release from premium.

• The result on mortality was positive in financial year 2016. The result on mortality is sensitive to incidents. The positive result on mortality in 2016 is the result of a positive result on both short and long-term longevity risk.

Result


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• For financial year 2016 the available premium relating to occupational disability proved adequate for coverage of the resulting damages, making the result on occupational disability positive.

• The result on changes was positive in financial year 2016. This result arises primarily from value transfers due to differences in the calculation bases used. Additionally, the result on changes includes rounding differences and differences in value dates. Positive result on changes and corrections is caused primarily by the decrease of the AIP capital.

2.7. Investment section

2.7.1. 2016 in review

General economic developments in 2016 2016 got off to a very rocky start. Poor economic figures from China and the depreciation of the renminbi sent stock exchanges worldwide tumbling. Investors fled to the relative safety of state bonds, which pushed already low interest rates around the world even lower.

At mid-year, Brexit shook the world. The UK’s shock choice had immediate repercussions on the financial markets. European exchanges fell by an average of over 8%, and the British pound shed over 5% in one day. In the weeks after the Brexit referendum, central banks came up with a variety of support packages.

In the third quarter, interest rates in the United States began to rise, driven by economic growth, a booming labour market and a touch of inflation. And all this also increased the chance of an interest rate hike by the American Federal Reserve in December, which caused investors to pull their money out of bonds and invest in higher-risk investment categories like shares. This made for very strong results on shares in the third quarter.

But the next surprise was just around the corner: in November, the United States elected Donald Trump as its new president. The financial markets had not seen this coming, and initially posted big losses in the wake of the election. But within a day, the sentiment had completely turned around. The financial markets were convinced that Trump, with his plans for more investment and lower taxes, has the recipe for boosting both economic growth and inflation. This expectation had a positive effect on share markets, and gains on these markets were strong in the fourth quarter. And at the same time, interest rates rose, forcing returns on bonds into negative territory.

Shares It was a year of surprises. In June, the Brexit referendum cast a shadow over the financial markets, and unleashed a dramatic drain of capital and investments related to the UK and European countries. A week before the referendum, the exchanges had bounced back on news that bookies were laying odds on the UK staying in the EU. But against all expectations, the British chose to leave. Meanwhile, America had its own surprise in store, and in November Donald Trump emerged as the newly elected president of the United States. But with the uncertainty of the election behind them, investors were finally able to look forward, and responded positively to Trump’s big promises of investments and reforms. European profit forecasts rose dramatically, and when the economic outlook around the world pushed interest rates up, investors dumped bonds en masse and rushed to buy shares. This rush pushed share prices up by over 10% in November and December. For North American shares, 2016 was positive. Volatility was fairly low in the early part of the year. After first-quarter losses, many investors reduced the risk in their portfolios, and so were only able to take limited profits from the second-quarter recovery. But volatility increased in April. An increase in the number of mergers and takeovers in May had a positive impact on the portfolio. But the second quarter ended with the shock outcome of the Brexit referendum, causing dramatic losses, particularly in financial shares.

In the third quarter, returns turned positive again. In both July and August, the publication of corporate figures had a positive effect on share prices.


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Ultimately, so did the outcome of the American presidential election, and on balance hedge fund managers reaped the benefits. This was mainly due to the strong turnaround on returns in share sectors.

Shares in emerging markets also did well in 2016. In the first weeks of the year, a falling renminbi against the American dollar, combined with a poor economic forecast for China, wreaked havoc on the financial markets. This sent share prices tumbling in China and other emerging markets. Due to the increased uncertainty, the American Federal Reserve lowered its expected number of interest rate hikes from four to two, while both the Bank of Japan and the European Central Bank (ECB) introduced negative interest rates. Markets and emerging economies responded with recovery.

The Nikkei finished the year in positive territory. But in the first months of the new year, concerns about the world economy (and China’s in particular) put pressure on the market. Recovery came in the second half of the year. A supportive monetary policy by the Bank of Japan and a better economic outlook pushed shares up. A weaker yen made Japanese shares more attractive to foreign buyers, and this was also an extra boost to share prices.

After a very volatile 2016, shares markets in Latin America closed the year up dramatically. The Latin American markets are closely tied to the results on the exchange in Brazil, which is heavily dependent on commodities prices and which in the early part of the year was beset by political unrest. Commodities prices rose by over 30%.

Fixed-yield securities In 2016 interest rates took a downward turn especially in Europe, as the continent wrestled with lacklustre growth and stubbornly low inflation. A number of developments in 2016, like Brexit, divisions in Europe in the face of the refugee crisis, and the American elections, troubled the bond markets. All these things made interest rates volatile, but they remained low.

The European Central Bank further expanded its buyback programme and lowered deposit interest rates by another -0.40%. In December, the ECB announced it would be relaxing and extending the programme. In 2016, ECB policy was a firm and persistent stimulus for growth in Europe. In America, the Federal Reserve waited long for convincing evidence that growth was solid enough before increasing interest rates the end of 2016. This moved the policies of the central banks further apart. The Fed rolled back its liberal policy, while the Bank of Japan moved forward with even more stimulus packages. Geopolitical tensions remained high. This is something investors are watching closely, particularly with an eye to upcoming elections in many European countries in 2017.

In July, the lowest negative interest rates were seen when the German 10-year interest rate fell below -0.20%. In the third quarter, interest rates stabilised, ultimately rising in the fourth quarter to 0.45%. Over the full year, the interest rate fell from 0.63% to 0.21%. Interest rate discrepancies between the countries of Europe were volatile, and on balance increased slightly as a result of the turmoil in the wake of Brexit and problems in southern Europe For corporate bonds, 2016 was better than could have been predicted at the end of 2015. Average return for creditworthiness dropped marginally over the year to 1.23%. The relevant benchmark for corporate bonds reached a yield of 4.73%.

The result of the Brexit referendum, the UK’s referendum on EU membership, produced chaos on the financial markets which thankfully was short-lived, and by summer’s end the market was churning on. Surplus in the market for new loans produced some stagnation in the months thereafter. But more significant was the unexpected election of Donald Trump as president of the United States. After some hesitation, the market decided that Trump’s fiscal stimulus policy was promising for economic growth in the coming years, and this turned investor confidence on the market generally bullish.


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In the market for corporate bonds, the best performance was seen in the energy-related sectors, thanks to recovery in energy prices over the course of the year. European nonfinancial companies profited from the ECB’s call for support, although the initial euphoria about the support programme gradually gave way to more realistic expectations. Bonds of banks that had to go without these direct stimulus packages did less well.

2016 turned out to be a fairly good year for high-yield bonds. That said, the sentiment among investors was quite dour in the first months of the year, this due to falling commodities prices, rising interest rates in the United States, and recurring concerns about a hard landing in China. All these things lead to negative returns of -4% by mid-February. But then, the ECB announced its program to buy up European corporate bonds, and the Federal Reserve in America postponed its interest rate hike. This turned sentiment around. On the whole, risk mark-ups went significantly lower this year (0.90% in Europe and 2.5% in the USA).

Decreasing fears of an interest rate hike in the United States and the announcement of further quantitative easing by the ECB sent money flowing back to emerging markets. The index for Emerging Market Debt came out at positive returns of over 13% in September. This return was primarily the result of falling interest rates in the developing countries. For Asset Backed Securities (ABS), the year started off weak. After the lowering of the interest rate and expansion of the ECB’s buyback program, signs of recovery began to appear in early March. The number of transactions and the trade in these securities increased over 2016, and this led to lower risk mark-ups in most ABS sectors.

In the second quarter, the market for ABS was stable to slightly positive. But as the quarter closed, the unexpected result of the Brexit referendum pushed volatility back up to high levels. After the initial shock, however, the positive sentiment came back fairly quickly, driven first and foremost by the British central bank’s announcement of a number of liquidity measures, and secondly by the early and unexpected redemption of a number of ABSs. At the end of the third quarter, the spreads in all sectors were back at levels lower than prior to the result of the Brexit referendum. In the last quarter, the ABS market was stable to slightly positive, and volumes in the market were getting larger. Alongside traditional issuers, there were also parties in the market that had purchased portfolios with bank loans during the crisis. They eagerly took advantage of the significantly improved market conditions to place their transactions.

2.7.2. Responsible investment

Stichting Pensioenfonds Fluor Nederland has a capital contract with Aegon Levensverzekering, plus a separate investment deposit placed in Aegon funds. These funds are managed by Aegon Asset Management. These investments must be in accordance with the standards and values that Aegon adheres to, as set out in the Code of Conduct of Aegon N.V. The Responsible Investment Policy explains what this specifically means for the investments. Aegon Asset Management adheres to a number of principles in areas such as human rights, the arms trade, health, labour law, and the environment.

Aegon maintains a complete ban on investments relating to the production, development and trade in controversial weapons, such as cluster bombs and landmines. Using detailed analysis results by a specialised external agency, Aegon drafts and exclusion list containing companies that are active in this area. Any investments in these companies are barred, including “passive indexation investments”. All investment portfolios are periodically reviewed for compliance with this exclusion policy. This puts Aegon in compliance with the Dutch legislation prohibiting direct support to companies producing, selling or distributing cluster bombs. Another category of investments for which there is an investment ban are state bonds and other forms of lending involving local authorities in countries with systematic human rights violations. The determination of whether a country falls under this category is made based on the rulings of the United Nations Security Council and sanctions imposed by the European Union. A list of all countries and companies that are excluded is published and available on www.aegon.nl/overaegon/verantwoord-beleggen.

http://www.aegon.nl/overaegon/verantwoord-beleggen


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The actions and conduct of companies must be in compliance with internationally supported conventions and treaties, most particularly the UN’s Universal Declaration of Human Rights, the Rio Declaration on Environment and Development, the United Nations Convention against Corruption, the UN Global Compact Principles, the International Labour Organization’s Declaration of Fundamental Principles and Rights at Work, and the OECD Guidelines for Multinational Enterprises. Aegon periodically monitors whether the companies in which it invests are meeting these standards. With the companies that are not, Aegon attempts to enter into a dialogue to change their behaviour; this is a process referred to as “engagement”. If despite multiple attempts through various angles, this dialogue does not achieve the desired result, then Aegon Asset Management will ultimately add the company to the list of exclusions.

Alongside exclusions and dialogue, another important part of responsible investment is integrating environmental, social and governance criteria (ESG) directly into the investment decisions and analyses. The factors relevant to this process of ESG integration are different for each individual sector and type of investment. Through a specialized external agency, all Aegon analysts and portfolio managers worldwide have access to evaluations on these ESG factors for virtually all companies and sectors. These evaluations are an integral part of the total investment process. Today, Aegon also sets ESG standards for countries outside the European Union.

The principles of responsible investment described above apply to all parts of the investment policy. Only in exceptional cases may there be practical objections that prevent all exclusions from being applied in every instance, for example in the case of financial instruments on an index and participation in a mixed fund by an external manager. Wherever external managers are involved, Aegon reviews environmental, social and governance factors in its due diligence investigations and asks these managers to account for their investment policy. If this reveals choices that are not in line with the principles of responsible investment, Aegon enters into dialogue with them.

2.7.3. Performance of the investment portfolio

The table below shows the performance in 2016 by investment category.

2016

Performance Benchmark AV

Worldwide shares 8.77 8.87 -0.08

Fixed-yield securities (excl. SLM) 5.61 4.39 1.17

Exchange-listed real estate 4.92 6.86 -1.81

Commodities 12.13 9.43 2.47

Global Tactical Asset Allocation 3.46 4.08 -0.59

Liquidities Total excl. SLM (weighted) 6.56 6.28 0.27

Total excl. SLM (weighted) after expenses 6.25 6.28 -0.03

AV = Added Value

2016.

Performance Benchmark AV

Strategic Liability Matching (SLM) 33.33 Total before expenses (weighted) 10.37 Total after expenses (weighted) 9.99

AV = Added Value

All investment categories in the Fund’s investment portfolio exhibited positive returns in 2016. The table above shows these returns. With 8.77% yield, shares did very well in 2016. The fund invests in worldwide shares and hedges the currency risk on the biggest currencies (US dollars, pounds sterling and Japanese yen). The return was slightly below the benchmark.


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Thanks to falling interest rates and risk mark-ups, fixed-yield securities are also doing very well, with returns of 5.61% (outperforming the benchmark). The biggest contributing factor here was the investment in Dutch mortgages, which earned nearly 9%. Tactical policy within the other fixed-interest securities also contributed to these returns.

Unlike 2015, 2016 was a good year for commodities. This was the best-performing investment category in the portfolio, at 12.25% returns in 2016.

The falling interest rate also increased the value of the interest rate hedging. This effect contributed almost 4% more to the total investment returns. Tactical policy proved very challenging in 2016, and added no value this year. On the total portfolio, this took an estimated toll of 0.06% on the returns.

2.8. Risk section

Risk management The board decided to further refine the Integral Risk Management Policy in 2016.

The goal of the Risk Management Handbook is twofold:

a) identifying the objectives, assumptions and methodologies of the risk management; b) achieving a demonstrably good level of risk management (in regard to the operations, the financial

position and outsourcing relationship of SPFN) in relation to the objectives of the Fund.

Integral risk management is a process that is facilitated by the management and applied in the formulation of the Fund’s strategy. It identifies potential events that could have an impact on the objectives of the pension fund, and is a tool for controlling risks to the point where they fit within the Fund’s desired risk aversion and ambition level.

The goal of total risk management is to offer a reasonable degree of certainty in regard to the achievement of the targets.

The strategic objectives of SPFN are:

a) an investment policy attuned to the policy framework (including risk aversion and ambition level) of SPFN. b) SPFN in a position to at least meet the nominal pension benefit payments. Additionally, SPFN also has

the ambition of increasing the pension benefit payments by inflation (conditional supplement). c) risk-management and internal governance compatible with the complexity of the investment portfolio

and pension scheme(s). This means that the Risk Management for the investments must be structured in a way that can meet the higher internal governance requirements as the complexity in the portfolio increases. For pension management, this means that the administration system and the procedures for internal monitoring and governance must be set up to facilitate administration and conduct the scheme correctly, completely, and in a timely manner (both on the collection and payment side).

d) the board in control of its own internal processes and outsourced processes for asset management and pension administration, including adequate risk controls. This means the board being able to establish that the policy is being implemented within the set frameworks and capable of making the necessary adjustments where this is not the case.

e) risk management subject to governance that is both effective and fully transparent. This means that the control measures must be effective and that where the tasks and responsibilities are placed must be clear.

Alongside the strategic objectives, there are also operational, reporting and compliance objectives defined.


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The regulatory bodies are: The Dutch Central Bank DNB (De Nederlandsche Bank), the Dutch Authority for the Financial Markets (Autoriteit Financiële Markten/AFM), the accountability body (AB) and the External Review Commission.

DNB reviews the pension scheme against the Dutch Pensions Act and other relevant legislation and regulations using a risk-based assessment and with random sampling as input. The DNB also reviews the performance of the Fund’s pension scheme with governance audits, topic-based investigations and investment analyses.

AFM reviews the Fund’s communication policy and, for pension funds that control their own investment policy, acts as monitoring body with regard to this policy. SPFN has outsourced the full scope of its investment management process, which means that it falls under the supervision of the DNB.

The following is a summary of the risks that the pension fund specifically took into account in 2016.

Insurance-technical risk The insurance-technical risk is the risk of payments not being able to be financed (either now or in the future) from premium and/or investment income as a result of incorrect and/or incomplete technical or other assumptions and fundamentals in the development and premium-setting of the product. This risk is adequately covered. The fund adheres to the most current survival table, and the assumptions and bases are analysed by the actuary annually. As of the end of 2016, the most current survival tables of the Actuarial Association’s tables (AG Generatietafel 2016) are being applied for the determination of the obligations.

Reinsurance agreement The Fund is reinsured under a capital contract. This insures the risks (for example, death of active members prior to retirement) with an insurance company, to which the Fund pays insurance premiums for this insurance. In the event of a cumulative positive technical result, this is divided (at the end of the term of the contract with the insurance company) at a ratio of 80% for the Fund and 20% for the reinsurer. In the event of a cumulative negative technical result, the reinsurer pays 100%. As such, the reinsurance contract functions as a stop-loss mechanism. The deposit report drafted by the insurer is the annual breakdown of the technical result. In 2014, the contract with Aegon was extended for a period of two years, to 1 January 2017.

Fundamentals for pension obligations As per the end of 2016, the Generation Table 2016 as produced by the Actuarial Association has been applied. Evaluation of the pension obligations also takes into account mortality experience derived from the table provided by the actuary (Milliman Pensioenen). Aegon provided the fundamentals for the market value reporting with regard to the reporting year to the Fund in early January. This form describes the basis for the actuarial interest, mortality table, age corrections and certain other actuarial information. This form is presented to the advising actuary for verification, and then signed and returned to Aegon. This information is the basis for the calculation of the obligations with regard to the annual accounting.

Operational risk Operational risk is the risk relating to the ineffective or insufficiently effective setup or performance of the process. The fund receives annual ISAE 3402 Type 2 reports for investments and pension and process implementation by Aegon. This reporting addresses the effectiveness of the process set up and performance in detail.

The operational risk is controlled by setting high quality standards on the organisations that are involved in the performance in areas such as internal organisations, procedures, processes, review, etc. These quality requirements are periodically reviewed by the board. Operational risks are limited to the maximum possible extent by extensive AOICs (administrative organisation and internal controls) with built-in review moments.


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The board has defined the following control measures to mitigate the active risk (source: the Fund’s risk management handbook):

Strategic Each year, in the investment plan the board establishes the active tracking error budget. This is the maximum tracking error (TE) that can be run with respect to the baseline portfolio. The concrete expression of the level of risk acceptance is the maximum tracking error for active management.

Tactical Whenever the current tracking error on active management falls within the permitted bandwidth, there will be no adjustment. In the event the ex-ante tracking error is exceeded, the asset manager will make a proposal to the board for adjustments in the portfolio to reduce the ex-ante tracking error to the level defined in the strategic investment plan.

Operational The asset manager monitors the tracking error on active management on a monthly basis, and reports to the board on this monitoring in monthly reports and quarterly reports. In the event the ex-ante tracking error is exceeded, the asset manager will make a proposal to the board for adjustments in the portfolio to reduce the ex-ante tracking error to the level defined in the strategic investment plan. Before any such proposal is actually implemented, it must be approved by the board.

Matching risk Matching risk is the risk of discrepancies between assets and liabilities in terms of interest rate basis, interest over typical maturity periods, base currency and sensitivity to developments in price level. The Fund’s goal is to cover approximately 70% of the interest rate risk and virtually all of the currency risk. The board will periodically review, partly in consideration of a new ALM study, whether the degree of coverage of the interest rate risk continues to be adequate.

Integrity risk The integrity risk is the risk that the integrity of the institution or the financial system is influenced as a result of mala fide, unethical conduct on the part of the organisation, employees or management, within the context of legislation and regulations, social norms, or the standards enforced within the institution. The board is held to the standards of Fluor’s ethical code of conduct. Further, the integrity and code of conduct are adequately reviewed by the actuary (through Prudent Person investments) and the auditor (through KPMG-Inquiries). In addition, the model code of conduct of the Federation of the Dutch Pension Funds must also be complied with. Every year all board members must sign a declaration attesting that they have complied with this code over the past year. In 2016, there was an extensive integrity risk analysis conducted with reference to the potential for conflicts of interest. The analysis revealed that in the current organisational structure of the Fund, with the existing control measures in place, there was a low risk and low potential impact in regard to integrity risks.

Credit risk Credit risk is the risk of a counterparty not fulfilling contractual or other agreed obligations. Obligations include loans and credit lines extended, receivables, and guarantees accepted. This section specifically addresses the credit risk in the physical portfolio of fixed-yield securities. SPFN defines credit risk as the risk factor S5 (credit risk) in the DNB's solvency formula. This is the risk of the value of the (bond) portfolio falling as the result of an increase in the credit spread.

2.9. Annual report

The Dutch text of the annual report 2016 is made available to all active and retired members on the Fund’s website, and can also be obtained by request at the administration office (room 1-033). The Fund also offers this English version of the annual report.


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2.10. The future

The decision to not allow any new members into the Pension Scheme as from 1 January 2014 entails, by definition, that the membership is getting older, and in the foreseeable future will shrink in numbers. This has an impact on the investments and the administration costs per member. The investment horizon becomes shorter, and this in turn requires that the risk acceptance be lowered, which would be expected to have a negative influence on the potential returns.

The implementation costs are also expected to rise as a result of changes in legislation and regulations, and will have to be spread out over a gradually declining number of members. As a “Defined Benefit Plan”, the benefit under the scheme is a committed benefit (benefit agreement). This means that according to American accounting rules, the employer must make a reservation for these benefits on the balance sheet. The employer(s) already indicated on multiple occasions that within the foreseeable future they will wish to close the scheme and place the rights accrued under it elsewhere.

The fund’s executive committee has already informed the DNB of this in a face-to-face meeting.

In 2016, a working group was formed to investigate the options for doing so. This working group was assembled from employer representatives and members of the Works Council, and the board of the fund was also asked to participate. Under the direction of a consultant, this working group explored the various options and came up with the following possibilities.

1) Accrual of future pension years This would most likely happen under a defined contribution scheme, but would happen outside the responsibility of the fund.

2) Indexation/back-service of accrued rights The Pensions Act allows the option to make a distinction in the amount of indexation between active members on the one hand and “sleepers” and retirees on the other. The selected indexation remains applicable for life, which means whether different indexations is a balanced solution remains very debatable.

3) Term The employer initially indicated a desired term for this process of several years. The agreement reached was that the accrued rights would ultimately be placed with an insurance company (buyout). The amount of the costs of placing these obligations will depend strongly on the agreed indexation, as well as the interest rates at the time. An intermediate solution could be placing the accrual of the new rights elsewhere and the Fund only adding the indexation to the accrued rights (“freeze”). The buyout becomes final at the moment that the employer determines that the interest rate level is favourable.

No decision has as yet been taken on the indexation, although it has been agreed that at the moment of the freeze, the amount of the indexation will be fixed and the buyout will have no effect on it.

Note: The indexation for “sleepers”/retirees will then change from conditional to unconditional. At the end of December, the employer officially informed the board of its desire to cancel the performance contract with effect from 31 December 2017.

The performance contract has a notice period of one year. Although the board and the employer do not agree on whether the pro forma cancellation was carried out correctly, the employer’s intention is clear. The board requested a consultant (Triple A) to provide financial and legal support in the discussions to be conducted with the employer and the Works Council (the social partners) in 2017.


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In the short term: The board will draft an action plan in 2017, documenting the necessary activities in observance of the DNB’s guidelines for such situations. The action plan will take into account multiple scenarios, including a consideration of the various different moments that the system could be applied.

An ALM will also be conducted to gain insight into the impact on the members of a potential buyout, as well as the effects of the continued existence of the fund either with or without continued new pension accrual.

The board takes the position that commitments for the existing pension rights must be adhered to, as already agreed by the employer when contracting the scheme for new employees, taking into account the balanced representation of the interests of the member groups. The board will enter into discussions with the employer on compensation for the potential diminishment of pension rights. This discussion will be in proper consultation with the Works Council. An element of a potential closure of the Fund is a survey of the active members, as is also established in the articles of the Fund. Prior to this survey, there will be proper provision of information, to give the employees clarity on what will happen with their accrued pension rights.

In the long term: Although the board’s primary assumption is that the fund will be liquidated through a buyout, it may be a number of years before this actually happens. The board will draft a policy for a situation of the fund continuing in either an open or closed form. This will include an analysis of the risks that will be faced in the event there is no performance contract or a performance contract in a modified form. What is clear is that the fund will, in due course, cease to exist in its present form, given that once the scheme is closed the fund will begin shrinking.

Hoofddorp, 28 June 2017 Stichting Pensioenfonds Fluor Nederland

The board

M. Blom F.J. van Heijningen B. de Hoog R. van Lohuizen P. Mali P. Pluimers G. van der Schaaf A. Touw


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3. Report of the external review commission

Between March and May 2017, VC-Holland conducted an audit that included asking the board a large number of questions concerning the Fund’s documents, asset management, vision, future, administration and pension contract.

Summary of the external review commission’s findings 2016

Introduction The board of Stichting Pensioenfonds Fluor (hereinafter: the Fund) engaged VC-Holland and the members of the external review commission (hereinafter: VC) to conduct the annual external review in the first half of 2017. The present review is the third annual external review in a three-year cycle of reviews, with the general standard external review having been conducted in 2014. The evaluation period of this external review continues to early 2017 for the information available to the VC concerning financial year 2016.

The VC has the task (stipulated by law) of supervising the policy of the board and the general activities within the Fund, as well as the process by which that policy comes about. The VC is charged, at a minimum, with the supervision of adequate risk management and a balanced weighing of interests by the board, and will account for the performance of its tasks to the AB and the employer, as well as in the annual report. The internal monitoring will be such that it contributes to effective and decisive functioning of the fund and to sound and proper operations.

For the performance of external reviews, VC-Holland has developed a working method that ultimately resulted in a report on the findings and a determination of the external review commission, explicitly addressing the statutory and other standards in relation to the performance of the internal monitoring.

Determination/Findings

Overall: The VC was able to establish that the board’s policy was balanced, and the process by which that policy came about and was implemented exhibited sufficient observance of the principles of due care. The operations can be described as well-managed and proper. The board is sufficiently in control with regard to the outsourced activities.

a. Follow-up on previous review The VC is of the opinion that within the fund, there is a structured process in place in regard to following up on the previous recommendations of the VC. The external review report is part of the consultations between the board and the accountability body (AB). The summary of the VC’s report is published in the annual report.

b. General matters The Fund follows the developments in legislation and regulations carefully, and anticipates any potential consequences for the Fund. The VC makes the recommendation to verify compliance with the tightened legislation and regulations governing reporting data breaches and security risks. The Fund is currently in a situation of a reserve shortfall. In the opinion of the board, recovery within the set term is possible. The results of the feasibility study in 2016 fall within the criteria previously defined at the determination of the risk attitude. For the employers contracting with the Fund, there is an obligation to make additional contributions if the Fund’s financial position is insufficient. The board devotes a great deal of attention to the developments that may be of impact on the future of the Fund. We recommend setting out this vision of the future of the Fund in a document containing the various scenario analyses, an action list with action plan, and a timeline. The VC also recommends spending more time on making the Fund’s activities more proactive and action-oriented. The external auditor and certifying actuary issued unqualified audit statements for 2015.

c. Governance The VC was able to establish that the governance structure within the Fund is adequate. It meets the standards pertaining to the general task and guaranteeing proper pension management. In the decision-making, the board considers a balanced weighing of interests.


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Within the Fund, operations are well-managed and upstanding. The relationship between the board and the AB is good, and the board ensures that the information provided is adequate. There are also regular consultations between the board and the AB. The board is sufficiently in control with regard to the outsourced activities. The outsourcing partners are evaluated regularly. Documentation of the outsourcing policy (from selection to termination) is desired. The VC makes the recommendation to review the Pension Funds Code for compliance by means of a complete code overview, with reference to the various documents of the Fund.

d. Suitability The VC has been able to determine that within the Fund, the required expertise and suitability has been covered in a systematic and structured way. There is an expertise plan and a suitability matrix. The VC recommends fine-tuning these documents and, where necessary, adding additional material, such as specific profiles and competences. A suitability plan is the basis for the evaluation of the existing and desired expertise, and also addresses continuing education. The time allotted is sufficient, and the Fund considers the promotion of diversity in the filling of vacancies in the Fund bodies, although the VC does observe that there is still room for improvement in the form of adding the intentions with regard to diversity to the profiles defined for vacancies. The board conducts periodic self-assessments and incorporates the results into the training policy.

e. Investments The Fund is in compliance with the standards pertaining to strategy, policy and general orientation, taking into account the ongoing process of ageing of the Fund’s membership as a result of the Fund being closed to new entrants. There is a consistency between the premises formulated by the Fund for performance of the investment process. The results of an ALM study served as the basis for the implementation of the investment policy. In 2016, an ALM study was conducted at the premium level 2017, taking into account the risk attitude defined by the Fund. The fund takes a critical view of the cost developments, as a result of which the costs are low. The cost reporting does not cover all cost components, and the VC calls for attention to this aspect. The investment process is sufficiently documented in several ways, including the AOM and an investment plan. The Investments committee has an advisory and monitoring task. The Fund follows the employer’s socially responsible investment policy. In general terms, the Fund is in compliance with the standards pertaining to operations and outsourcing. The reporting provided by the outsourcing partners is adequate for an independent assessment. The monitoring of the investment performance is adequate. The VC recommends documenting the process of monitoring of the periodic reporting and the internal review measures set out in this reporting.

f. Risks In general terms, the Fund is in compliance with the standards pertaining to operations and outsourcing. The risk management function is placed with a working group instituted by the board. Within the Fund, there is an integral risk management approach that offers adequate control of the risks. The VC recommends that the quality declaration issued by the outsourcing partners be further reviewed against the standards of the Fund itself. Attention will be given to this in 2017. The Fund has devoted attention to improvement of the control of the integrity risks. The VC recommends updating the Fund’s documentation relating to the risk management (AOM, IRM handbook). The Fund takes an active approach on controlling the tech-related risks.

g. Communications The VC has been able to determine that the Fund performs the communication policy adequately. In 2016, a number of further significant contributions in this area were made, such as the institution of pension consultation for members and an assessment of the effectiveness of the communications policy. The information to individuals is appropriate and in compliance with legislation and regulations. The Fund takes an active approach to the information to be published. In this respect, the VC recommends reviewing the information for publication against the relevant provisions of law and devoting extra attention to the financial position of the Fund and the potential impact thereof on the members.


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4. Report of the accountability body

This year, the accountability body had four meetings of its own and also met four times with the board.

4.1.1. Membership

The vacancy on the representation for the retirees that came open at the end of 2015 was filled by Mr P. Post. Another vacancy for the retirees opened in October 2016, when Mr Oldewarris stepped down, and this position has now been filled by Mr G. Mulder. With Mr J. Spiekermann’s departure in April 2016, a vacancy opened on the representation for the active members. This vacancy was filled in May 2016 by Mr N. Jacobs.

With that, at the end of 2016 the accountability body had the following

composition: For the members with pension entitlements For the retirees

E. Enzerink (deputy chairman) P. Koster (chairman) C. Woltering (secretary) P. Post D. D. Westerlaken-van Westen G. Mulder M. Jacobs (deputy secretary)

Since 1 May 2016, Mr J. Spiekermann has been acting as consultant to the accountability body.

4.1.2. Participation in working groups

Education/training The search for pension fund training programmes for the accountability body adequate to achieve “expertise level A” was completed this year. Over the course of 2016, the choice for a training programme was made, and next year the newly appointed members of the AB will take this training.

4.1.3. Consultation with the board

In 2016, the AB met with the board four times:

1. 3 March 2016 2. 26 May 2016 3. 13 October 2016 4. 8 December 2016

The main points discussed were the following:

1. The 2015 annual report (meeting of 26 May 2016) 2. The 2017 supplement policy (meeting of 8 December 2016)

On 18 August 2016 there was a special meeting with a delegation from the board and the AB concerning the adjustment of the system for the partner pension mechanism. Prior to this meeting (on 13 June 2016) a delegation from the AB attended a presentation by Ortec to the board. This presentation explained the various options for adjustment, with analysis.


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4.1.4. Advisory requests

The following advisory requests were handled by the AB in 2016:

Request no. Subject Response Members/AB Additional commentary by Members/AB

SPFN-aan-VO-2016- 001

Communication Plan Positive recommendations VO_ADV_2016_01

AB assumes that the annex “Information obligations” will be added to the communication plan to make a single, definitive document.

SPFN-aan-VO-2016- 002

AOM revision 11 Supplemental questions VO_ADV_2016_02

Positive recommendations VO_ADV_2016_03_ABTN

Answers to questions raised in working group bestuur_VO and the supplemental questions and in VO_ADV_2016_02, given in the AB meeting of 13 October 2016

Oral request for recommendations in meeting of 18 August 2016

Adjustment of partner pension

Positive recommendations VO_ADV_2016_03_OP_PP

AB supports management resolution for partner pension at 100% capital basis

Request for recommendations in meeting of 8 December 2016

Supplements to pensions as per 1 January 2017

No objection In AB meeting of 8 December 2016.

4.1.5. Evaluation and recommendation

In order to arrive at an evaluation of the actions of the board, the AB first presented a number of specific points for attention to the board in the letter with reference “VO_SPFN_2016_02_Aanvraag informatie Jaarverslag 2016”.

In order to assess the actions of the board, the AB evaluated the following subjects:

- Future of the Fund - Recommendations of VC-Holland - Motivations for determination of the contribution-free amount - Transition of form of Aegon contracts - Adjustment of partner pension including consultation

However, the accountability body makes the following recommendations:

1. For the future, the accountability body expects to be informed in a timely manner of any upcoming

changes in regard to the future of the Fund. 2. In regard to the transition of Aegon contract forms, over the course of the regular meetings the

board kept the accountability body informed of the selected approach, the obtaining of external expertise and the progress of the process/negotiations. However, there was no detailed written documentation of the process. The accountability body urges the board to provide this documentation as soon as possible. The accountability body also recommends that this transition be a subject for the upcoming external review process.

On the basis of (in part) the topics referred to above, the accountability body concludes that the board engaged in prudent and responsible decision-making and policy choices, in observance of an adequate degree of due care and balance in the waiting of interests, in accordance with the Fund's policy framework.


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Annual accounts


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5. Balance sheet as per 31 December 2016

(Amounts in EUR x 1000, after profit appropriation)

Assets 31/12/2016 31/12/2015

Investments for risk-based pension fund

Property investments 9.2.1 33,856 33,397

Shares 9.2.2 116,478 103,522

Fixed-yield securities 8.2.3 321,658 292,975

Other investments 9.2.4 27,461 24,397

Investment receivables and payables 9.2.5 (881) (666)

498,572 453,625

Receivables and prepayments & accrued income

Other receivables 9.4.1 2,284 1,908

Total assets 500,856

455,533


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Liabilities 31/12/2016 31/12/2015

General pension fund capital and reserves

General reserves 9.5.1 (40,687) (37,943) Special purpose reserves 9.5.2 2,107 1,349 Other reserves 9.5.3 77,724 67,877

39,144 31,283

Technical facilities Provision for pension obligations at pension fund’s risk

9.6.1 457,033 417,800

Other technical provisions 9.6.2 2,833 4,509

459,866 422,309

Other liabilities, accruals and deferred income

Liabilities under reinsurance 9.7.1 1,745 1,748 Other debts 9.7.2 101 193

1,846 1,941

Total liabilities

500,856

455,533


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6. Statement of income and expenditures over 2016

(amounts in EUR x 1000)

Statement of Income and Expenditures 2016 2015

INCOME

Premium contributions 10.1 12,832 11,782 Investment results for risk-based pension fund 10.2 46,232 (13,427) Revenues from reinsurance 10.3 758 1,348

Total income

59,822

(297)

EXPENDITURES

Pension benefit payments 10.4. 12,683 11,377 Pension administration costs 10.5 432 357

- Pension accrual 10.6.1 12,924 13,282 - Indexation and other supplements 10.6.2 0 0 - Interest supplement 10.6.3 (258) 645 - Withdrawal for pension benefits 10.6.4 (12,683) (11,377) - Withdrawal for pension implementation costs 10.6.5 (432) (357) - Market interest rate change 10.6.6 38,321 25,330 - Change based on transfer of rights 10.6.7 (268) (465) - Change based on actuarial

assumptions 10.6.8 3,401 0.

- Other change in pension obligations provision

10.6.9 (1,772) (1,603)

Change in provision for pension obligations for risk-based pension fund

39,233 25,455

Change in other technical provisions 10.7 (1,676) (569) Balance of transfer of rights 10.8 314 450 Other expenditures 10.9 975 1,712

Total expenditures

51,961

38,782

Balance of income and expenditures

7,861

(39,079)


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Profit appropriation 2016 2015

Change in General Reserves

(2,744)

(66,572) Change in Special Purpose Reserves 758 1,349 Change in Other Reserves 9,847 26,144

Total profit appropriation 7,861 (39,079)


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7. Cash flow statement over 2016

(amounts in EUR x 1000)

2016 2015

Cash flow from pension activities

Premiums received 12,907 94

Received in connection with transfer of rights

0 119

Pension benefits paid (12,188) (11,697)

Paid in connection with transfer of rights (405) (478)

Pension implementation costs paid 106 53

Amounts paid to reinsurer (1,712) 0

Benefit payments received from reinsurer 0 383

(1,292) (11,526)

Cash flow from investment activities

Sales and redemption of investments 29,070 111,612

Direct investment revenues received 11,979 16,437

Purchases of investments (40,297) (127,382)

Costs of asset management paid 325 21

1,077 688

Net cash flow (215) (10,838)

Cash and cash equivalents at start of year (666) 10,172

Cash and cash equivalents at end of year (881) (666)


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8. Explanatory notes to the 2016 annual accounts

8.1. General

The purpose of Stichting Pensioenfonds Fluor Nederland, with its registered office in Haarlemmermeer and office in Hoofddorp (hereinafter “the Fund”) is to provide, both now and in the future, pension and surviving dependants’ benefits to retirees and their survivors; the Fund also provides benefits to occupationally disabled members.

The annual accounts are drafted in accordance with the legal requirements of Title 9 of Book 2, Dutch Civil Code, and the Annual Reporting Guidelines issued by the Dutch Accounting Standards Board. The figures given in the annual accounts are in thousands of euros. The annual accounts have been drafted by the board in consideration of the principle of continuity. On 28 June 2017, the board drafted and adopted the annual accounts.

Investments and pension obligations are valuated at market value. The other assets and liabilities are evaluated at the price of acquisition or manufacture. Where no specific valuation base is indicated, valuation is at acquisition price.

The balance sheet, statement of income and expenditures, and cash flow statement include references to the explanatory notes.

8.2. Inclusion in balance sheet or statement of income and expenditures

An asset is included on the balance sheet when it is likely that the future economic benefits will accrue to the pension fund and the value of the asset can be reliably determined.

A liability is included on the balance sheet when it is likely that the settlement of the liability will involve a payout from resources of the pension fund and the amount of the liability can be reliably determined.

Income is included on the statement of income and expenditures where the economic potential has increased, paired with the increase of an asset or the reduction of a liability, and the amount thereof can be reliably determined.

Expenditures are included on the statement of income and expenditures where the economic potential has been reduced, paired with the reduction of an asset or the increase of the liability, and the amount thereof can be reliably determined.

8.3. Foreign currency

Assets and liabilities in foreign currency are converted to euros at the rate applicable on the balance sheet date. This valuation is a component of the valuation at market value. Income and expenditures resulting from transactions and foreign currency are converted at the rate on the transaction date.

8.4. Estimates and assumptions

In the application of the fundamentals and the rules for the drafting of the annual accounts, the board of the pension fund makes a number of determinations and estimates that can be material to the amounts given in the annual accounts. Where necessary for providing the insight required under article 2:362(1), Dutch Civil Code, the nature of these determinations and estimates, including the underlying assumptions, are set out in the explanatory notes to the annual accounts items in question.


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8.5. Change of estimates

In September 2016, the Actuarial Association published a new prognosis table for 2016. The pension fund has decided to use this new generation table for the evaluation of its pension obligations. As a result of the transition from the prognosis table 2014 to the prognosis table 2016, the pension obligation provision for financial year 2016 was increased by €736K. Alongside the transition for the survival table, new fund-specific correction factors for mortality experience were also defined for the Fund. The transition from the ESP1 correction factors for mortality experience to the Milliman 2016 correction factors resulted in an increase of the pension obligation provision for financial year 2016 by €2,665K. The new fund-specific correction factors for mortality experience are substantiated in Milliman’s 2016 fundamentals review.

8.6. Taxes

The activities of the pension fund are exempt from taxation within the framework of corporation tax.

8.7. Investments for risk-based pension fund

8.7.1. General

Results accounting All earned and unearned results are accounted for directly in the statement of income and expenditures.

Participations in investment funds The fund has invested all its resources in investment funds. The investments in participations of Aegon investment funds are evaluated at market value, being the intrinsic value of the participation. For all participations, this value is determined every day that the Dutch exchange is open, with the exception of the Aegon mortgage fund (Aegon Hypothekenfonds), the value of which is established once per month. The Aegon investment funds invest in shares, bonds, derivatives, futures, property, commodities and alternative investments such as hedge funds and private equity. These underlying investments are valuated at their price on the exchange or, failing a price listing, at their appraised value based on the most recent annual report or other recent information. The valuation of the investment is determined based on information supplied by an independent party.

For the underlying investments that are not exchange-listed, the value is determined on the basis of statements of an independent third party or, if such statements are not available, on the basis of internal models that are reviewed annually by the external auditor. The market value of a mortgage is determined by discounting the future contractual cash flows, taking into account early redemption by the customer. The alternatives are valued on the basis of information obtained from the administrator of the underlying funds.

8.8. Receivables and prepayments & accrued income

Any necessary bad debt provision is deducted from this balance sheet item.

8.9. Technical provisions

8.9.1. Provision for pension obligations

The provision for pension obligations is valuated on the basis of the interest rate futures structure published by the DNB on 31 December. The value is determined on the basis of the cash value of the best assessment of future cash flows linked to the unconditional pension obligations on the balance sheet date. Unconditional pension obligations are the accrued nominal claims and the unconditional commitments for indexation. The provision for pension obligations is calculated based on the assumption of the Fund regulations applicable on the balance sheet date and the claims acquired over the elapsed membership years. Each year


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the board determines whether the accrued pension claims will be indexed. All indexation decisions that were definitive on the balance sheet date were incorporated into the calculation. Future salary developments are not considered.

The calculation of the provision takes into account contribution-free pension accrual in connection with occupational disability based on the cash value of premiums for which contribution exemption is granted on the basis of occupational disability. The actuarial assumptions are based on fundamentals acceptable to the regulatory body, in consideration of the predictable trend in chances of survival.

The most significant actuarial fundamentals and assumptions are:

a. the interest rate is based on the nominal interest rate futures structure as published by the DNB at the end

of the year;

b. the mortality risk is derived from the Actuarial Association's generation table for 2016, with starting year 2017 (2015: generation table 2014, with starting year 2016), including the mortality experience according to the Milliman correction table (2015: mortality experience according to correction table of the Dutch Association of Insurers ESP1);

c. for the partner pension, the assumption is that the partner is three years younger than the insured man,

and three years older than the insured woman;

d. the partner frequencies (including marriage partners and registered partners) are established in accordance with the fifth CRC report. After the start date of the old age pension, the exchangeable partner pension is reserved in accordance with the paid partner system. The mix factors for gender-neutral rate for purchase of pension at age 65 from expiring capital for members in the AIP scheme is, for old-age pension and surviving dependants’ pension:

Old-age pension Partner pension Men 0.8194 0.9304 Women 0.1806 0.0696

e. A mark-up of 2.08% for future implementation costs.

Normally, the pensions will be indexed based on the development in the Consumer Price Index figures as calculated by Statistics Netherlands (Centraal Bureau voor de Statistiek/CBS). Indexation takes place insofar as the Fund has sufficient means to do so (article 18 of the Fund regulations).

8.9.2. Other technical provisions

Back-service provision The back-service purchase price provision is the amount still to be paid as per the balance sheet date for salary adjustments in the reporting year that are incorporated into the subsequent reporting year in the pension obligations provision. The amount of this provision is approximated as per 31 December 2016 based on the fundamentals of the Fund.

8.10. Cash flow statement

The cash flow statement has been drawn up according to the direct method.

8.11. Funding ratios

The (nominal) funding ratio is equal to the pension assets expressed in a percentage of the technical provisions. The pension assets are equal to the total of the assets minus other liabilities, accruals and deferred income and under deduction of the balance of the special-purpose reserves.


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The policy funding ratio is calculated in accordance with section 133a of the Pensions Act and is equal to the progressive average of the reported nominal funding ratios over the past 12 months.

The actual funding ratio is calculated in accordance with article 133b of the Pensions Act. The realistic funding ratio is the ratio between the policy funding ratio and the funding ratio needed to extend a full conditional supplement based on value stability. If this funding ratio is at least 100%, the Fund meets the requirements for extending a full conditional supplement where the standard for indexation is price inflation.


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9. Explanatory notes to the balance sheet

9.1. General

Investment in premium-paying enterprise(s) The Fund has no investments in premium-paying enterprises.

Hedging transactions The Aegon funds use derivatives with the object of facilitating effective and efficient implementation of the investment policy and covering the investment risks.

Securities lending and collateral management The Aegon funds indirectly use Security Lending and Collateral Management with the object of facilitating effective and efficient implementation of the investment policy.

As from 1 January 2017, the legal ownership of the investments of Aegon Levensverzekeringen N.V. was transferred to the fund. Until 1 January 2017 the investments were placed in a capital contract with Aegon Levensverzekeringen N.V., as a result of which it became legal owner of the investments.

9.2. Investments for risk-based pension fund

9.2.1. Property investments

The development of this item was as follows:

31/12/2016 31/12/2015 Balance as at start of FY 33,397 31,399 Purchases 1,937 5,663 Sales (2,913) (6,606) Capital gains 1,435 2,941

Balance as at end of FY 33,856 33,397

The investments in property consist entirely of participations in the AEGON Vastgoed Fund International (€33.9mn). This is a participation in an international property fund.

9.2.2. Shares


31/12/2016 31/12/2015 Balance as at start of FY 103,522 100,019 Purchases 5,066 4,059 Sales (1,245) (2,677) Capital gains 9,135 2,121


The investments in shares consist entirely of participations in the AEGON World Equity Fund (EUR) (€116.5mn). This is a participation in a worldwide share fund.


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9.2.3. Fixed-yield securities


31/12/2016 31/12/2015 Balance as at start of FY 292,975 314,771 Skimming and additional deposits in Strategic Liability Matching Fund

(5,148)

(2,870)

Purchases 32,166 104,378 Sales (24,465) (101,601) Capital gains 26,130 (21,703)


The Strategic Liability Matching (SLM) investment fund uses interest rate swaps to coordinate the interest rate sensitivity of the investments to the interest rate sensitivity of investments. Rules to govern additional deposits and skimming have been set contractually. The Fund has granted the asset manager the authority for additional deposits and skimming where necessary, depending on the value development of the participation. The results from skimming are normally reinvested in state bonds. Additional deposits are, in the first instance, made from the revenues from the sale of state bonds. Where these revenues are not sufficient, other investments are sold. If the investment fund is unable to meet its additional deposit obligations, all the Fund’s participations in the SLM investment funds are sold.

The investments in fixed-yield securities consist of participations in seven investment funds of Aegon Asset Management. The risk profile is as follows:

Amounts x €1 million 31/12/2016 31/12/2015

Government bonds Eurozone 73.3 75.3 European corporate bonds 64.4 58.5 Emerging market bonds 6.6 5.9 Worldwide high-yield bonds 6.8 5.7 Dutch mortgages 55.4 49.7 Absolute return investments 54.1 50.2 Strategic Liability Matching Fund 64.2 47.6

Total 321.7 293.0

9.2.4. Other investments


31/12/2016 31/12/2015 Balance as at start of FY 24,397 22,256 Purchases 1,161 13,442 Sales (431) (574) Capital gains 2,334 (10,727)


The other investments are participations in the AEGON Global Commodity Fund (EUR) (€22.3m) and AEGON Global TAA+ Fund (€5.2m).


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The AEGON Global TAA+ Fund is an “overlay structure” (relatively high exposure on a relatively low value) with the goal of establishing a connection between the tactical policy of the asset manager and the Fund’s portfolio. GTAA invests primarily in cash equivalents and derivatives.

9.2.5. Investment receivables and payables

This item can be broken down as follows:

31/12/2016 31/12/2015 Liquid assets (with respect to investments) (881) (666)

Balance as at end of FY (881) (666)

The term of this liability is less than one year.

9.3. Risks of financial instruments

In the explanations of the investment risks that follow, a “see-through” method is used. This means looking past the participations in the investment funds themselves into the risk profile of the investments within the investment funds. For investments in externally managed investment funds, the “see-through method” information is not available. These investments are presented separately in the following risk explanations as “External investment funds”. By this the Fund intends to provide a transparent view of the risks associated with its chosen investments.

9.3.1. Price risk

The components of the price risk are explained below.

Currency risk Most share funds invest in shares listed in a currency other than the euro, which means they are exposed to currency risk. Only in the hedged variant of an investment fund is the currency risk largely covered.

The state bond funds only include investments denominated in euros, which means that they have no exposure to currency risk. The other funds may include investments with a denomination in non-euro European currencies, but all these positions should be hedged for the euro, so these investment funds are exposed to only a limited currency risk.

Being that high-yield and emerging market bonds may be listed in currency other than the euro, these investment funds are subject to currency risk. These positions are normally hedged for the euro, so these investment funds are exposed to only a limited currency risk.

Because all investments are denominated in euros, the Strategic Liability Matching fund is not exposed to any currency risk.

The commodities funds consist of instruments that are either in euro or hedged for the euro, so here again, the currency risk is covered.

The investments in the Aegon property fund may be listed in currency other than the euro, as a result of which these investments are exposed to currency risk. The investment in the TKP property fund may be listed in currency other than the euro. The exposure to the pound sterling is covered by means of currency contracts. For all other non-euro investments, there may be exposure to a significant currency risk.


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The breakdown of the investments by currency is as follows:

Amounts x €1 million 2016 % 2015 % Euro 464 93 422 93 Hong Kong dollar 7 2 8 2 US dollar (9) (2) (6) (1) Other currency 37 7 30 6

Balance as at end of FY

499

100

454

100

Interest rate risk All share funds are exposed to interest rate risk, because fluctuations in interest rates can affect the price of shares.

All bond funds are exposed to interest rate risk, and moreover this interest rate risk increases over the term of the bond. Only within state bond funds and the tactical overlay fund are active positions also taken to profit from expected changes in interest rate. High-yield and emerging market debt funds are exposed to interest rate risk, and moreover this interest rate risk increases over the term of the bond. Fluctuations in interest rates influence the price of fixed-yield products such as bonds and swaps. Within the Strategic Liability Matching fund there is no active policy pursued to profit from expected changes in interest rate. Because fluctuations in interest rates can influence the price of swaps, all commodities are exposed to interest rate risk.

The breakdown of the investments by interest rate revision date or redemption date (whichever is earlier) and the average effective interest rate is as follows:

Amounts x €1 million 2016 2015 Shorter than one year (29) 15

1-5 years 36 (15)

6-10 years 96 90

Longer than 10 years 241 236

Non interest-bearing instruments 143 118

External investment funds 12 10

Balance as at end of FY

499

454

The table shows the distribution of the interest rate risk of the total portfolio, also taking into account interest rate swaps. A negative market value in the field “Shorter than one year” is the result of the short legs of these interest rate swaps. Generally, in an interest rate swap a short interest rate (the short leg) is exchanged for a long interest rate (the long leg) in order to hedge the interest rate risk of the pension obligations. The short interest rate that is paid, the “short leg”, therefore has a negative market value and a term shorter than one year.

Market risk All bonds will always run risks on the market in the event of major price swings, due to (among other factors) major changes in the interest rate, spreads, or currency differences.

Commodities investments are always subject to market risk, because of the chance of significant price swings due to (among other factors) major changes in the interest rate or currency differences. Property investments are always subject to market risk, because of the chance of significant price swings due to (among other factors) major changes in the interest rate or currency differences.


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In accordance with the index, commodities funds have significant exposure towards the energy sector, and in particular the oil industry. In addition, swaps are only entered into with a limited list of approved counterparties, which creates exposure to concentration risk.

The breakdown of the investments by geographic area is as follows:

Amounts x €1 million 2016 % 2015 % United States 86 17 79 18 Netherlands 83 17 126 28 Germany 59 12 59 13 France 50 10 43 10 Other countries 221 44 147 31

Balance as at end of FY 499 100 454 100

The breakdown of the investments by sector is as follows:

2016 % 2015 % Financial institutions 104 21 121 27 Government 135 27 113 25 Non-cyclical consumer goods 38 8 33 7 Other sectors 222 44 187 41


9.3.2. Credit risk A component of the credit risk specific to investment activities is the settlement risk. This pertains to the risk that parties with which the Fund enters into transactions will prove no longer capable of performing their end of the transaction, as a result of which the Fund would suffer financial losses.

The breakdown of the fixed-yield securities by rating is as follows:

2016 % 2015 % AAA 94 29 86 29

AA+/AA/AA- 119 37 63 22

A+/A/A- 37 11 77 26

BBB+/BBB/BBB- 50 16 43 15

BB+/BB/BB- 5 2 5 2

B+/B/B- 6 2 4 1

CCC+/CCC/CCC- 1 0 1 0

CC+/CC/CC- 0 0 0 0

D 0 0 0 0

Other financial instruments 10 3 14 5


The portfolio includes financial instruments that are sensitive to changes in the creditworthiness of the issuing institution. The A, AA and AAA ratings are an indication of good to outstanding creditworthiness. At a rating of BBB or lower, the risk of default increases. The portfolio is exposed to a significant credit risk.

The portfolio includes investment in the Aegon Hypotheken Fonds, which invests in Dutch mortgages. The rating of these mortgages is established on the basis of an internal rating model.


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This model assumes the expected loss per individual mortgage, with the input for the calculation coming from rating agency Moody’s. The plausibility of this valuation is then tested against two control calculations. The first control calculation is based on the expected loss assuming historic performance of Saecure transactions (historic securitisation transactions of Aegon). The second control calculation is based on the expected loss of a proxy RMBS (basket of mortgages).

The total credit risk differs from the market value of the portfolio as a result of the use of derivatives known as credit default swaps. With credit default swaps, the credit risk may be hedged on a counterparty, or an extra credit risk on a counterparty may be taken on. The calculation of the total credit risk in the table above takes into account the underlying value (exposure value) of the credit derivatives instead of the market value of these derivatives. This gives a better insight into the total credit risk of the portfolio.

9.3.3. Liquidity risk

The liquidity risk is the risk that investments are not able to be converted into liquid assets in a timely manner and/or at an acceptable price, as a result of which the Fund would be unable to meet its obligations under financial instruments in the short term. This risk is mitigated by allowing sufficient room in the strategic and tactical investment policy for liquidity positions.

9.3.4. Concentration risk

All share funds and property funds have a good spread.

Most bond funds have a good spread in the portfolio, with issuer limits and the concentration of irregularities maximised in relation to the benchmark. The benchmark for the state bond funds, on the other hand, is made up of a limited number of different issuing authorities, and consequently this fund’s portfolio is exposed to a concentration risk.

The HighYield and Emerging Market Debt funds have a good spread in the portfolio, with issuer limits and the concentration of irregularities maximised in relation to the benchmark. The Strategic Liability Matching fund only enters into swaps with a limited list of approved counterparties, which creates exposure to concentration risk. The mortgage fund invests only in mortgages with Dutch homes as collateral. This creates a concentration risk. This risk is limited by maximising the geographic spread within the Netherlands. The GTAA fund has a portfolio with a broad spread.

The table below shows all positions in the portfolio representing greater than 2% of the balance sheet total at the end of the reporting year:

Amounts x €1 million 2016 % 2015 % Federal Republic of Germany 47 9 42 9 Republic of France 33 7 28 6 State of the Netherlands 27 5 21 5 Blue Square Capital Management LLC 12 2 10 2 ING Bank N.V. 11 2 9 2


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9.3.5. Breakdown by valuation level

Based on this differentiation and gradations in the valuation methods, the investments must be classified under three different valuation levels:

Level 1: The value of the investment is based on directly observable market listings of identical

investments in an active market. Level 2: Current value is established based on valuation models using observable market data. Level 3: The value is determined using valuation models that do not use observable market data.

The table below shows the breakdown by valuation level:

2016 % 2015 % Level 1 0 0 0 0 Level 2 444 89 404 89 Level 3 55 11 50 11


The investment funds are classified as level 2 or 3, depending on the underlying investments. Virtually all Aegon investment funds have a daily intrinsic value determination, daily entry and exit moments, and primarily listed securities in the portfolio. This gives the investment fund more of the character of a level 1 investment. Because the investment funds themselves are not listed, the Aegon investment funds are classified as level 2. Exceptions to this are the mortgage funds and the property funds, which contain primarily level 3 investments.

9.3.6. Operational risk

Operational risk is the risk of incorrect resolution of transactions, errors in data processing, loss of information, fraud, and the like. Such risks are controlled by setting high quality standards on the organisations that are involved in the performance in areas such as internal organisations, procedures, processes, review, quality of the IT systems, etc. These quality requirements are periodically reviewed by the board. Operational risks are limited to the maximum possible extent by extensive AOICs with built-in review moments. However, no matter how strict the protocols are, human error can always happen.

9.3.7. System risk

System risk is the risk of the global financial system (the international financial markets) failing to continue to function as intended, as a result of which the investment funds in which the Fund participates could become no longer marketable or (in the worst case) even become worthless. This risk is not something that the Fund (or any other party in the market) can control.

9.4. Receivables and prepayments & accrued income

9.4.1. Other receivables


31/12/2016 31/12/2015 Premiums receivable 177 559 Technical profit-sharing receivable 2,107 1,349



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The claims receivable of €177K consist of an amount of €76K in connection with the final settlement of the employer and employee premium over 2016 that was paid in January 2017, and a further €101K in costs still to be paid in connection with the drafting and auditing of the annual report and the DNB reporting schedules. These costs will be invoiced in the coming reporting year and paid by the employer.

The Fund entered into a performance contract with Aegon Levensverzekering N.V., which goes into effect on 1 January 2009 and has a term of 5 years. This contract is in the form of a separated investment deposit with technical profit-sharing. The performance contract was extended for a further period of 3 years, until 1 January 2017. Under that extension, the technical profit-sharing percentage was increased from 70% to 80%. With effect from 1 January 2015, the fees for reinsurance were changed from Group 2003 to Pension Table 2010. This change also involved conversion of the corresponding provision. The other conditions were not changed.

The current profit-sharing period began on 1 January 2009 and continues until 1 January 2017. If the balance of the results adjusted for interest is positive at the end of this period, then 80% of this balance will be paid to the pension fund. If the balance is negative, then Aegon carries the entire negative balance. In connection with the coverage of the run-off risk, the technical profit-sharing will only be paid out to the Fund on 1 January 2019, after settlement of the results in connection with the premium waiver as a result of occupational disability in the years 2017 and 2018.

9.5. General pension fund capital and reserves

9.5.1. General reserves

The general reserves are added to the result earned, after deduction of the contribution to the other reserves.

The development of the general reserve is:

31/12/2016 31/12/2015 Balance as at start of FY (37,943) 28,629. Change via profit appropriation (2,744) (66,572)

Balance as at end of FY (40,687) (37,943)

9.5.2. Special purpose reserves The special purpose reserve is a reserve for technical profit-sharing. This is made up of the deferred claim against Aegon in connection with technical profit-sharing. This special purpose reserve is not included in the Fund’s nominal funding ratio.

The changes in the technical profit-sharing reserve were as follows:

31/12/2016 31/12/2015 Balance as at start of FY 1,349 0 Change via profit appropriation 758 1,349


9.5.3. Other reserves This item is a reserve for investment and actuarial risks. The amount of this reserve is equal to the Required Equity Capital calculated annually on the basis of the solvency test.


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The change in this item was as follows:

31/12/2016 03/12/2015 Balance as at start of FY 67,877 41,733 Change via profit appropriation 9,847 26,144


9.5.4. Solvency and recovery plan

Solvency The solvency of the Fund is as follows:

31/12/2016 31/12/2015 Minimum Required Equity Capital 18,953 20,693 Required Equity Capital 77,724 67,877

Funding ratios The funding ratios of the Fund are as follows:

31/12/2016 31/12/2015 Nominal funding ratio 108.1% 107.1% Policy funding ratio 105.9% 111.5% Realistic funding ratio 86.4% 90.3%

Recovery plan The required buffer for the Fund based on the strategic mix was, at 31 December 2016, equal to 16.9% of the technical provisions. With a policy funding ratio of 105.9% as at 31 December 2016, the Fund was in a state of the reserve shortfall. On 27 March 2017 the Fund submitted a recovery plan, and received the decision from DNB on 24 May 2017.

Required Equity Capital (REQ):

DESCRIPTION (AMOUNTS X €1 MILLION)

31 DECEMBER 2016

31 DECEMBER 2015

S1 Interest rate risk 5.7 7.2

S2 Variable yield securities risk 54.9 48.5

S3 Currency risk 26.3 5.1

S4 Commodities risk 12.3 11.2

S5 Credit risk 18.1 17.5

S6 Insurance-technical risk 17.4 16.0

S7 Liquidity risk 0.0 0.0

S8 Concentration risk 14.0 16.0

S9 Operational risk 0.0 0.0

S10 Active administration risk 0.0 0.0

Diversification effect and iteration (71.0) (53.7)

Required Equity Capital 77.7 67.9

Expressed as percentage of technical provision 16.9% 16.1%


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The REQ is determined on the basis of the standard model defined by the DNB. The board of the Fund investigated whether the risk profile differs from the standard risk profile. On the basis of this investigation, the fund concluded that it may continue to apply the standard model, adding a buffer for S8 (concentration risk).

The concentration risk (S8) is not included in the standard model, but has been added by the Fund. The buffer maintained for this risk is equal to 10% of the market value of the investment in question. There is a concentration risk when the investments of an issuing institution exceeds 2% of the balance sheet total. This pertains primarily to investment in state bonds of certain countries.

S7 Liquidity risk: This risk is mitigated by allowing sufficient room in the strategic and tactical investment policy for liquidity positions. In financial year 2016, it became apparent that the premium received was approximately equal to the payments made. In the future, the payments to be made will increase, and this in combination with the closing of the Fund to new members may lead to a liquidity problem. For the time being, the board is mitigating this risk by taking it into account in the investment policy.

The table below shows the expected pension benefit payments for the coming 10 years.

YEAR (AMOUNTS X € 1 MILLION)

EXPECTED DISBURSEMENTS FOR

PENSION BENEFITS

2017 12.5

2018 13.0

2019 13.5

2020 13.8

2021 14.0

2022 14.4

2023 14.7

2024 14.9

2025 15.0

2026 15.0

S9 Operational risk: This risk is controlled by setting high quality standards on the organisations that are involved in the performance in areas such as internal organisations, procedures, processes, review, etc. These quality requirements are periodically reviewed by the board. Operational risks are limited to the maximum possible extent by extensive AOICs (administrative organisation and internal controls) with built-in review moments.

S10 Active administration risk: The board has defined control measures to mitigate the active risk (see the Fund’s risk management handbook).


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9.6. Technical provisions

The technical provisions include the following pension schemes:

• Basic scheme • Pension excess scheme • AIP scheme

The basic scheme applies to the portion of the salary from 1 to 3 times the contribution-free amount. Accrual of the old-age pension is on a capital basis. The accrual of pension claims is: • for old-age pensions 1.657% per year • back-service: 1.657% over rights accrued in the past • for partner pensions: 50% capitalised (after 1 January 2005)

The pension excess scheme applies to the portion of the salary from 3 to 8 times the contribution-free amount, with the pensionable salary maximised for tax purposes at €101,519 (2015: €100,000). Accrual of the old-age pension is on a capital basis.

The accrual of pension claims is: • for old-age pensions 1.3% per year • back-service: 1.3% over rights accrued in the past (after 1 January 2005) • for partner pensions: 50% capitalised (after 1 January 2005)

Alongside the group pension scheme, the Fund administers a supplemental individual pension scheme, the AIP (Aanvullend Individuele Pensioen) scheme. The AIP scheme has been closed to new members since 1 January 2004, and likewise from that date it has not been possible to pay in any further sums to the AIP scheme.

Generally, members are able to access these claims on the first day of the month in which he or she turns 65, at which point they may be used for the purchase of a lifelong pension. The regulations of the AIP scheme were adjusted to this situation in 2005.

The capital released upon the death of the member must be used by the partner and/or children as a purchase price for one or more pensions. Within the AIP scheme, no supplements are granted on pensions in payment.

9.6.1. Provision for pension obligations at pension fund’s risk

The provision for pension obligations at the pension fund’s risk is broken down by member categories as follows:

31/12/2016 31/12/2015 Active members 196,818 176,484 Members occupationally disabled 5,349 4,555 Former members 48,249 45,581 Pension-entitled persons 194,902 179,467 AIP scheme 2,433 3,229

Net pension obligations provision 447,751 409,316 Payment provision 9,282 8,484



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The change in the provision for pension obligations at the pension fund’s risk can be broken down as follows:

31/12/2016 31/12/2015 Balance as at start of FY 417,800 392,345 Pension accrual 12,924 13,282 Indexation and other supplements 0 0 Interest supplement (258) 645 Withdrawal for pension benefits (12,683) (11,377) Withdrawal for pension implementation costs (432) (357) Market interest rate change 38,321 25,330 Change based on transfer of rights (268) (465) Change of actuarial bases 3,401 0 Other changes (1,772) (1,603)


9.6.2. Other technical provisions

This item is the back-service provision. The change in this item was as follows:

31/12/2016 31/12/2015 Balance as at start of FY 4,509 5,078 Allocation 2,833 4,509 Application for actuarial back-service premium (4,509) (5,078)


9.7. Other liabilities, accruals and deferred income

9.7.1. Liabilities under reinsurance This item can be broken down as follows:

31/12/2016 31/12/2015 To be deducted by Aegon to the separated investment deposit

1,745

1,748

9.7.2. Other liabilities


31/12/2016 31/12/2015 Advances on pension obligations taken over

0 91

Auditor costs to be paid 31 31 Actuary costs to be paid 37 36 Administrative fee to be paid 33 35

Balance as at end of FY 101 193


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9.8. Assets and liabilities not included in the balance sheet

9.8.1. Indexation not granted; indexation goal The indexation ambition is 100% of the increase in the Consumer Price Index (CPI). In the years 2009-2013 and 2016, the Fund’s financial position did not allow the Funds to offer any indexation. If the Fund’s financial permission permits, the board may resolve to grant compensatory indexation at a later date.

9.8.2. Outsourcing

As of 1 January 2017, the Fund has three separate contracts running: with Aegon Asset Management (for the asset management), Aegon Administratieve Dienstverlening B.V. (for the administration), and Aegon Levensverzekeringen N.V. (for the risk insurances). The administration contract has a duration of five years, with a notice period of 2 months. If the contract is terminated within its 5-year term because the Fund is at risk of being liquidated, then Aegon will seek compensation for this termination, being the initial expenses not earned back over the term of the contract plus the costs of winding up of the contract. The annual fee for the performance of the pension administration and the drafting of the annual report and reporting schedules is a total of approximately €170,000, excluding VAT.

9.8.3. Security and guarantees received

Additional deposit obligation of the employer The performance contract stipulates an obligation on the part of the employer to make additional deposits to cover any shortfall in the event of under-coverage. The board’s policy is intended to avoid appealing to these compensation conditions to the extent possible.

9.8.4. Investment obligation

The Fund is contractually obliged to purchase €55 million in participations in an Aegon mortgage fund.


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10. Explanatory notes to the statement of income and expenditures

10.1. Premium contributions


2016 2015 Employer portion 9,777 8,722 Employee portion 3,055 3,060

Total 12,832 11,782

The available assets in 2016 are based on a premium of 25.25% of the tax-allowable maximum salary figure. This 25.25% includes a one-time extra deposit of 2.85% (€1,414K) as compared to 2015, when the premium percentage was 22.4%.

The cost covering premium, actual premium and offset premium are as follows:

2016 2015 Actual premium 12,832 11,782 Cost-covering premium 14,978 15,296 Cushioned premium 9,954 9,992

The actual premium to be allocated to the financial year is accounted for as income. The composition of the cost-covering premium is as follows:

2016 2015 Actuarial premiums of active members 12,756 13,162 Cost mark-up (minus release of periodic

168 120

Solvency mark-up 2,054 2,014

Total 14,978 15,296

In 2016, the total premium was lower than the actual cost-covering premium. However, that Fund uses a cushioning mechanism for the calculation of the cost-covering premium, as a result of which the actual cost-covering premium may come out lower than the premium received. This method of calculating the cushioned cost-covering premium was changed in 2015. The fund uses cushioning and applies the expected portfolio yield. This method meets the requirements set for the application of a cushioning mechanism.

In any given year it may happen that the actual premium is lower than the cost-covering premium based on the interest rate structure at the start of that year.

The table below provides a breakdown of the cushioned cost-covering premium:

2016 2015 Actuarial premiums of active members including factored-in calculation of supplement

9,786 9,872

Cost mark-up (minus release of periodic

168 120 Solvency mark-up 0 0

Total 9,954 9,992


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The calculation of the cushioned cost-covering premium 2016 is based on the expected yield with deduction of inflation method. In this calculation, the solvency mark-up can be disregarded. The cushioned cost-covering premium must take into account a mark-up for the future-proof granting of supplement/indexation in the amount of at least the expected price inflation. If this mark-up is higher than the mark-up for the required equity capital, then the mark-up for indexation is applied instead of the mark-up for the required equity capital. For this the higher of the two mark-ups applies.

10.2. Investment results for risk-based pension fund

This item is broken down as follows:

2016 2015 Direct investment revenues 6,832 13,567 Indirect investment revenues 39,033 (27,368) Costs of asset management 367 374

Total 46,232 (13,427)

10.2.1. Direct investment revenues


2016 2015 Interest revenues on fixed-yield securities 6,832 13,565 Cash and cash equivalents 0 1 Other revenues from deposit 0 1

Direct investment revenues 6,832 13,567

10.2.2. Indirect investment revenues


2016 2015 Capital gains on property investments 1,435 2,941 Capital gains on shares 9,135 2,121 Capital gains on fixed-yield securities 26,130 (21,703) Capital gains on other investments 2,333 (10,727)

Indirect investment revenues 39,033 (27,368)

The administration costs and transaction costs are accounted for in the indirect investment revenues. For details, see section 2.5.3 of the board report.


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10.2.3. Costs of asset management


2016 2015 Fixed administration costs (20) (21) Volume discount for variable administration costs 387 395

Costs of asset management 367 374

The volume discount is extended on the variable administration costs deducted from the participation values of the investment funds. These variable administration costs are a component of the indirect investment revenues.

10.3. Revenues from reinsurance


2016 2015 Technical profit-sharing 758 1,348

The Fund has a profit-sharing of 80% in the (cumulative) technical result.

10.4. Pension benefit payments

The totals paid out to retired members in the reporting year were:

2016 2015 Old-age pension 9,798 9,392 Pre-pension 5 5 Surviving dependants' pension 1,983 1,863 Orphan’s pension 43 40 AIP capital 854 70 Buyouts to members 0 7

Total 12,683 11,377


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10.5. Pension administration costs


2016 2015 Audit costs – KPMG audit of annual report and DNB reporting schedules

42 24

Accountancy costs – advisory activities 0 22 Actuarial costs 50 35 Management costs 0 0 Consultancy costs 66 29 Administration costs compensation 173 170 Other costs 101 77

Total 432 357

In accordance with section 96 of the Pensions Act, the Fund states that it was not subject to any fines or penalties in the reporting year 2016.

As the specification above shows, the cost reimbursements charged by KPMG Accountants N.V. pertained in part to fees for the statutory audit of the annual accounts and reporting schedules and partly to advisory activities.

As from 2015, the employer paid the invoices for the costs of pension implementation incurred by the Fund.

10.6. Change in provision for pension obligations for risk-based pension fund

The following is an explanation of the various components of the change in the provision for pension obligations for the risk-based pension fund.

10.6.1. Pension accrual

The pension accrual is the cash value of the pension claims allocated in the financial year. This can be broken down as follows:

2016 2015 Actuarial premium pension accrual 8,415 8,204 Actuarial premium back-service 4,509 5,078

Total pension accrual 12,924 13,282

10.6.2. Indexation and other supplements

The Fund also strives to adjust the pensions in payment and the contribution-free pension entitlements (former members) annually for the change in the price index. It must be noted that this indexation is conditional in nature, meaning that there is no entitlement to indexation and that it is not certain whether or to what extent future indexation can be granted. Any shortfall in the indexation may theoretically be compensated in the longer term. There was no annual indexation granted on 1 January 2016 or on 1 January 2017.


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10.6.3. Interest supplement

The pension obligations were adjusted for interest at a rate of 0.06% negative interest (last year: 0.159% (positive)).

10.6.4. Withdrawal for pension benefits

The decrease of the provision under this title is the amount released for the financing of the pension benefits in the reporting period.

This can be broken down as follows:

2016 2015 Benefits (12,683) (11,370) Buy-out of small pensions 0. (7)

Total payments (12,683) (11,377)

10.6.5. Withdrawal for pension implementation costs

The decrease of the provision under this title is the amount released for the financing of the pension benefits in the reporting period.

10.6.6. Market interest rate change

Each year, on 31 December, the market value of the technical provision is recalculated by applying the current interest rate futures structure for pension funds as published by the DNB. The effect of the change of the interest rate futures structure is accounted for under the title of market interest rate change. Based on the modified duration of the technical provision as per 31 December 2016 of 19.0 (2015: 17.0), the interest rate futures structure is approximately equal to a fixed actuarial interest rate of 1.3% (2015: 1.7%).

10.6.7. Change based on transfer of rights

The balance of the actuarial purchase prices required for the pension obligations taken over and the release of the provision pertaining to the amount released for the financing of transferred pension obligations is shown below.

The balance can be broken down as follows:

2016 2015 Buyout of pension obligations taken over 143. 28. Buyout of pension obligations transferred

(411) (493)

Total (268) (465)

10.6.8. Change of actuarial bases

Each year, the actuarial fundamentals and/or methods used for the calculation of the current value of the pension obligations are assessed and, where appropriate, revised. This involves the use of internal and external actuarial expertise, such as a comparison of assumptions in regard to mortality, longevity, occupational disability, etc. against actual observations for the population as a whole and the population of the Fund.


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Establishing that the provision for pension obligations is adequate is a process that relies on estimates and evaluations by the board of the Fund, and as such has a certain degree of inherent uncertainty. The impact of these changes is accounted for in the result at the moment that the actuarial assumptions are revised.

10.6.9. Other changes


2016 2015 Technical result on mortality (840) (1,421) Technical result on occupational disability (118) (184) Technical result on changes (814) 2

Total (1,772) (1,603)

10.7. Change in other technical provisions


2016 2015 Change in provision for back-service purchase price (1,676) (569)

10.8. Balance of transfer of rights


2016 2015 Individual pension obligations taken over (91) (28) Individual pension obligations transferred 405 478

Total 314 450

The increase in the pension obligations provision in connection with the pension obligations taken over and the release from the pension obligations provision in connection with the transferred pension obligations are accounted for in the item Change in provision for pension obligations “Change based on transfer of rights”.

10.9. Other expenditures


2016 2015 Reinsurer’s share in (positive) technical result 975 1,655

Correction on payment from AIP capital sums in 2014

0 57

Total 975 1,712


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10.10. Number of employees The Fund has no employees. The activities are performed by the personnel of the employer. The costs of this work are not charged on to the Fund, and are borne by the employer.

10.11. Associated parties

10.11.1. Identity of associated parties

There is a relationship between the associated parties: the fund and the sponsor, the affiliated enterprises, and their executives.

10.11.2. Board

The board is tasked with the determination of the policy and the day-to-day affairs within the Fund. The board members receive no remuneration for their activities. All board members are also members in the pension scheme implemented by the Fund, at the same conditions as all other members. Two board members have qualified for receiving benefits.

10.11.3. Accountability body

The accountability body is tasked with the supervision of the board. The total remuneration for the members of the accountability body over the year 2016 was zero (2015: zero).

10.11.4. Affiliated enterprises

Stichting Pensioenfonds Fluor Nederland (SPFN) has entered into a contract with Fluor B.V., Fluor Consultants B.V. and Fluor Infrastructure B.V. that regulates these entities’ relationship with each other. This contract regulates aspects such as the maximum premiums these enterprises need to pay and within what timeframe.

Every year, the board establishes the amount of the premiums for the coming year, which must not exceed the maximum premium as set out in the performance contract.

The contract establishes the methodology of calculating the premium for the employer; this depends in part on the total salary sum and the average weighted age of the members.

A significant clause in the performance contract is the employer’s guarantee to, upon demand by the DNB at any time that the total holdings are less than the total liabilities, immediately make supplemental deposits to the pension fund to eliminate the shortfall. This clause was inserted when the employer asked the pension fund to invest in more higher-risk investment products (such as shares) than state bonds.

When the pension scheme was closed to new members, article 15 was added to the performance contract. This article stipulates in part that this closing will have no negative impact on the members and that the costs that can be linked to the closing of the scheme by the Fund will be submitted to the company for compensation. This clause adds that the company must bear these costs within reason.


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11. Post-balance sheet events

As a consequence of the termination of the capital contract as per the balance sheet date, the legal ownership of the investments transferred from Aegon to the pension funds. Investments in certain pension funds (the Strategic Liability Matching Fund being an exception) cannot be continued for tax reasons. The intention was for the transition to the new investment funds to be, to the extent possible, with preservation of the investment categories. This, however, was not possible for the investment in the mortgage fund. As a result, the Fund is temporarily investing in state bonds. The Fund is contractually obliged to purchase participations in the amount of €55 million.

Hoofddorp, 28 June 2017

Stichting Pensioenfonds Fluor Nederland

The Board M. Blom F.J. van Heijningen B. de Hoog R. van Lohuizen P. Mali P. Pluimers G. van der Schaaf A. Touw


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Other information


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Statutory clause on the determination of the balance of income and expenditures

The articles of the Fund have no clause on the appropriation of the balance of income and expenditures. The specifics of profit appropriation are detailed in the AOM.

The profit appropriation for 2016 is set out in chapter 5, “Statement of income and expenditures over 2016”.


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Actuary’s statement

Assignment Stichting Pensioenfonds Fluor Nederland in Hoofddorp commissioned Milliman Pensioenen v.o.f. to issue an actuarial certification as defined in the Pensions Act for the financial year 2016.

Independence As certifying actuary, I am independent of Stichting Pensioenfonds Fluor Nederland as required by section 148 of the Pensions Act. I perform no other work for the pension fund. Because Milliman Pensioenen v.o.f. maintains a code of conduct approved by the regulatory body, other actuaries and experts affiliated with Milliman Pensioenen v.o.f. are permitted to perform different activities for the pension fund.

Data The data on which my review is based was provided by and generated under the responsibility of the board of the pension fund. I based my review of the technical provisions and evaluation of the asset position on the financial information underlying the annual accounts.

Coordination with accountant On the basis of the Guide used by me and the accountant, we coordinated on the work and the expectations for the audit of the financial year. For the review of the technical provisions and for the evaluation of the asset position as a whole, I set the materiality at 4,500. I agreed with the accountant to report any irregularities observed above 225. These arrangements are documented, and the results of my findings have been discussed with the accountant. Further, I used the base data investigated by the accountant in the course of the audit of the annual accounts. The pension fund’s accountant informed me of the findings of the accounting audit in regard to the reliability (material accuracy and completeness) of the base data and the other assumptions relevant to my evaluation.

Activities To perform my assignment I investigated, in accordance with my statutory responsibility as described in section 147 of the Pensions Act, whether the pension fund was in compliance with sections 126 to 140 of the Pensions Act. The base data provided by the pension fund was such that I accepted said data as the starting point for the calculations I evaluated.

As part of the activities for the assignment, I investigated a number of questions, including whether:

- the technical provisions, the required minimum equity capital and the required equity capital have been adequately established;

- the cost-covering premium meets the requirements set in the law; - the investment policy is in accordance with the Prudent Person rule.

Further, I formed an opinion on the pension fund’s asset position, basing this on the obligations undertaken up to and including the balance sheet date and the resources available at that moment, and in consideration of the financial policy of the pension fund. I conducted my review in a manner that would lead to a reasonable degree of certainty that the results contain no inaccuracies of a material significance. The activities described and their performance are in accordance with the standards and conventions applicable within the Royal Actuarial Association, and in my opinion constitute a sound basis for my opinion.


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Opinion Taken as a whole, the technical provisions have been adequately established, in accordance with the calculation rules and assumptions described. The pension fund’s equity capital is, on the balance sheet date, lower than the legally required equity capital, but not lower than the legally required minimum equity capital. In observance of the foregoing, I have ascertained to my satisfaction that the pension fund is in compliance with articles 126 to 140 of the Pensions Act, with the exception of article 132. The pension fund does not have the required equity capital.

The policy funding ratio of the pension fund on the balance sheet date is lower than the funding ratio at the required equity capital, but still at least equal to the funding ratio at the required minimum equity capital. My opinion on the asset position of Stichting Pensioenfonds Fluor Nederland is based on the obligations undertaken up to and including the balance sheet date and the resources available at that moment. The asset position of Stichting Pensioenfonds Fluor Nederland is in my opinion not adequate, because the equity capital on hand is lower than the required equity capital.

Amsterdam, 28 June 2017

R.K. Sagoenie, AAG affiliated with Milliman Pensioenen v.o.f.


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List of abbreviations

AOM Actuarial and Operating Memorandum AFM The Dutch Authority for the Financial Markets (Autoriteit Financiële Markten) AIP Supplemental Individual Pension (Aanvullend Individueel Pensioen) APP Supplemental Pension Plan (Aanvullend Pensioen Plan) ALM Asset & Liability Management ANW General Surviving Dependants Act (Algemene Nabestaanden Wet) Code the Pension Funds Code of the Federation of the Dutch Pension Funds DNB the Dutch Central Bank (De Nederlandsche Bank) FAF Financial Assessment Framework PAC Pension Advising Center (Aegon) SPFN Stichting Pensioenfonds Fluor Nederland UPO Uniform Pension Overview WVBP Pension Governance (Further Measures) Act (Wet Versterking Bestuur Pensioenfondsen)