Em­ploy­ers re­think as leg­isla­tive ground shifts

Irish Examiner - Supplement - - PENSIONS - Kyran Fitzger­ald

The re­struc­tur­ing of com­pany pen­sions has been a live topic ever since the late 1990s as it be­gan to be­come clear that for a va­ri­ety of rea­sons, a grow­ing num­ber of em­ploy­ers could no longer af­ford to live up to the obli­ga­tion en­tered into by them to pro­vide tra­di­tional gold­plated, cop­per- fas­tened de­fined pen­sion ar­range­ments to em­ploy­ees on retirement.

The great fi­nan­cial melt­down in 2008 pro­vided a fur­ther dra­matic im­pe­tus to this process of change. Many firms were faced with fi­nan­cial melt down just at the point when pen­sion schemes were fall­ing fur­ther and fur­ther into the red.

Over time, the num­ber of tra­di­tional de­fined ben­e­fit ar­range­ments has shrunk greatly in num­ber and pen­sion re­struc­tur­ings have in­creased in num­ber and range. Be­lat­edly, the trade union move­ment has awo­ken to the threat posed to its mem­bers’ in­ter­ests as once proud com­pa­nies tum­bled into in­sol­vency or at least into dif­fi­culty.

Pen­sion­ers, de­ferred pen­sion­ers and ‘ac­tive’ pen­sion scheme mem­bers have all found them­selves in the cross hairs while trus­tees, charged with pro­tect­ing the in­ter­ests of scheme ben­e­fi­cia­ries have been un­der grow­ing pres­sure.

Scheme mem­bers not al­ready in re­ceipt of pen­sions have borne the brunt of changes in­tro­duced, a par­tic­u­larly strik­ing ex­am­ple be­ing that in Water ford Glass.

Em­ploy­ees who lost out in the 2009 liq­ui­da­tion of the busi­ness were forced to take a le­gal case to Europe be­fore a com­pro­mise deal was reached af­ter sev­eral years.

The govern­ment stepped in in­tro­duc­ing leg­is­la­tion to re­bal­ance the po­si­tion as between ex­ist­ing pen­sion re­cip­i­ents, and ac­tive, or de­ferred mem­bers ( peo­ple who have moved on to other em­ploy­ments while re­main­ing in the work­force ).

More re­cently, In­de­pen­dent News & Me­dia found it­self mak­ing the news in a man­ner hardly fore­seen, a few years back, when the trus­tees of its two pen­sion schemes were faced with a pro­posal to re­duce sig­nif­i­cantly the size of the com­pany’s retirement pack­ages.

The com­pany had en­tered into a re­struc­tur­ing agree­ment in 2013. Un­der this deal, the com­pany was to put €61m into the main scheme in re­turn for staff agree­ing to a 39% cut in their ac­crued ben­e­fits. By last De­cem­ber, just over €31m re­mained to be paid, ac­cord­ing to In­dus­trial Re­la­tions News.

The‘ sec­ond bite of the cherry’ re­struc­tur­ing plan was too much for the INM trus­tees and staff. Protests en­sued.

The trus­tees sought im­proved terms and a com­pro­mise was reached which ap­par­ently pro­tects the al­ready re­duced po­si­tion of the scheme mem­bers.

Un­der the com­pro­mise, an ex­tra €50m is to be paid in by the em­ployer over a six-year pe­riod.

Sadly, the sit­u­a­tion at INM is far from unique, par­tic­u­larly in the many sec­tors now fac­ing into eco­nomic and fi­nan­cial gales as a mix of in­ter­na­tional events, such as Brexit and tech­no­log­i­cal trans­for­ma­tion threaten to up end busi­ness mod­els.

The sit­u­a­tion is by no means one that is unique to Ire­land. Pen­sion funds are be­ing re­struc­tured world­wide, an in­ter­est­ing re­cent ex­am­ple be­ing that con­cluded by Ta ta Steel, the own­ers of Bri­tish Steel.

Last month, a new deal was signed off between Tata, the trus­tees of the Bri­tish Steel pen­sion scheme, the UK pen­sions reg­u­la­tor and the Pen­sions Pro­tec­tion Fund which is act­ing as a ‘lifeboat’ for failed UK retirement schemes. Un­der the deal, the In­dian group Tata, has agreed to in­ject £ 550m (€615m) into the £15bn scheme.

A new de­fined ben­e­fit scheme is be­ing set up which pro­vides for re­duced guar­an­teed pay outs to re­tirees. It is also agreed that a one third stake in Tata UK will be held by the pen­sion trus­tees on be­half of the mem­bers.

A key con­sid­er­a­tion for many em­ploy­ers is that where com­pany schemes’ li­a­bil­i­ties ex­ceed the as­sets to a con­sid­er­able ex­tent, not merely do they run the risk of fac­ing le­gal ac­tion from the reg­u­la­tor or the trus­tees, but they also face the prospect of would- be busi­ness part­ners, lenders or takeover suit­ors be­ing de­terred. Pen­sion schemes that are fi­nan­cially un­der­wa­ter can no longer be hid­den away like the prover­bial mad rel­a­tive in the at­tic.

In Ire­land, the ruc­tions at INM — fol­low­ing on from sim­i­lar problems at Aer Lin­gus a few years back — have sparked a po­lit­i­cal re­ac­tion.

Al­ready, the Pen­sions Act 1990 im­poses an obli­ga­tion on the em­ployer and the trus­tees to en­sure that there are suf­fi­cient as­sets in the scheme to meet on­go­ing fund­ing re­quire­ments. There is an onus on the trus­tees to have the scheme ac­tu­ar­i­ally val­ued at least once ev­ery three years so as to en­sure that the min­i­mum fund­ing stan­dard is be­ing reached.

Since mid- 2012, trus­tees have been obliged to sub­mit an­nual data re­turns.

In 2009, the So­cial Wel­fare & Pen­sions Act gave the Pen­sions Board (now Author­ity ) power to di­rect that the ben­e­fits of‘ ac­tive’ ,de­ferred mem­bers and pen­sion­ers be re­duced in cer­tain cir­cum­stances.

Now, the leg­isla­tive pen­du­lum ap­pears to be swing­ing back in the di­rec­tion of pen­sion­ers and other scheme mem­bers.

Late last year, Fianna Fail’s so­cial wel­fare spokesman, Wil­lie O’Dea, TD in­tro­duced a pri­vate mem­bers’ bill with cross party sup­port. This pro­vides, among other things for an ap­peal mech­a­nism to be avail­able to mem­bers when the process of wind­ing up their de­fined ben­e­fit scheme has been ini­ti­ated.

The bill would also make it il­le­gal for a sol­vent com­pany to wind up a pen­sion scheme with­out the con­sent of the Pen­sions Author­ity.

It is also pro­posed that where a scheme’s li­a­bil­i­ties ex­ceeds its as­sets, the deficit should be treated as a debt owed by the com­pany, with the pos­si­bil­ity that con­sent to any changes be with­held un­til the short­fall is made up to the trus­tees.

In May of this year, the for­mer Min­is­ter of So­cial Pro­tec­tion (now Taoiseach) Leo Varadk ar, pub­lished what was then de­scribed as a ‘ gen­eral scheme’ or ini­tial draft of a new So­cial Wel­fare Pen­sions Bill 2017. This sug­gested that em­ploy­ers would be re­quired to give a year’s no­tice be­fore ceas­ing con­tri­bu­tions into a de­fined ben­e­fit scheme and the em­ployer would also be re­quired to en­ter into ne­go­ti­a­tions with the trus­tees in cases where the min­i­mum fund­ing stan­dard is not be­ing sat­is­fied.

In July, the full ver­sion of the Bill was pub­lished. Ac­cord­ing to solic­i­tors, Arthur Cox, no ref­er­ence to a 12 month no­tice pe­riod re­quire­ment or to the pro­posal that a fund deficit be treated as com­pany debt was in­cluded in this up­dated ver­sion.

The Bill will now be de­bated by TDs and Sen­a­tors so fur­ther re­vi­sions can be ex­pected. What seems clear is that the problems will not go away. The chal­lenges which are posed by Brexit are con­sid­er­able and one ex­pert — David France of A& L Good­body solic­i­tors—has warned that“fund­ing dif­fi­cul­ties may trig­ger fresh scheme re­views.”

Re­struc­tur­ing of schemes will con­tinue to be a fea­ture of life, with in­vest­ment re­turns no longer suf­fi­cient to meet prom­ises re­gard­ing in­come in retirement made to mem­bers.

The best one can hope for is that the grad­ual re­duc­tion in ben­e­fits, re­lated in large part to ad­vances in life ex­pectancy, can be han­dled in a man­ner that is hu­mane.

Lawyers ad­vise that in the ab­sence of mem­ber con­sent to re­struc­tur­ing pro­pos­als, a di­rec­tion from the pen­sions author­ity will be re­quired.

The par­ties in­volved may need to con­sider var­i­ous op­tions rang­ing from an in­crease in ac­tive mem­ber con­tri­bu­tions, a ces­sa­tion of fu­ture ac­crual of ben­e­fits and a freeze or cap on pen­sions.

In too many cases, top man­age­ment have pro­tected their own retirement nest eggs while throw­ing their em­ploy­ees and re­tirees to the wolves, hav­ing en­joyed, in the good years, the ben­e­fits of a lapse in con­tri­bu­tions.

Such ap­proaches are in­creas­ingly dis­cred­ited. The is­sue of pen­sion pro­vi­sion is now a hot IR is­sue and by ex­ten­sion a hot po­lit­i­cal one, also. It is only right and proper that this should be the case.

How­ever, a care­ful bal­anc­ing act is re­quired. The fu­ture of es­sen­tially sol­vent busi­ness en­ti­ties should not be put at risk by an ex­ces­sively rigid ap­proach to the man­age­ment of ris­ing pen­sion fund li­a­bil­i­ties,

It is in no one’s in­ter­est that con­flict is al­lowed to fester to the point where the par­ties find them­selves in the courts and rack­ing up huge ex­penses.

Fail­ing de­fined ben­e­fit pen­sions are be­ing re­struc­tured world­wide; in the UK, pen­sion trus­tees Tata are to in­ject £550m into the £15bn Bri­tish Steel pen­sion scheme.

Newspapers in English

Newspapers from Ireland

© PressReader. All rights reserved.