COMPANIES will be put into examinership by their owners to escape their pension deficits and protect employees, a leading pensions expert predicted.
The failure of Social Protection Minister Joan Burton to change the rules to give greater protection to those yet to retire was one of the reasons why companies might consider examinership, Samantha McConnell, of IFG Corporate Pensions, said.
The so-called priority order in wind-up means that pensioners in a scheme have first call on the assets of the defined-benefit plan, with those yet to hit retirement age getting what is left.
Along with this, the recent judgment in the Waterford Crystal case in the European Court of Justice will prompt companies to think about radical ways to protect the pensions of current employees, she added.
She said companies were now in an impossible situation and would be forced to think about examinership.
Examinership is a process in Irish law where the protection of the court is obtained to assist the survival of a company. It allows a company to restructure with the approval of the High Court.
Ms McConnell explained: "Employers know that if they wind up their scheme and the scheme is in deficit, active members – those members still working for the company – will lose out relative to pensioners because of the unchanged priority order.
"It appears, however, that members would still be better off if employers wound up the company, as it currently stands."
Ms McConnell said that based on the Waterford Crystal judgment in the European Court of Justice, the Government will be forced to step in to make good some or all of the deficit where there is a double insolvency.
This would mean that insolvent companies that are in examinership and have a pensions deficit would see their employees having to be compensated for the loss of their pensions by the State.
"The exact amount that the Government will be forced to contribute remains unknown until the High Court case, but effectively if UK precedent is followed it could see members in Waterford getting closer to 90c in the euro," Ms McConnell said.
"If you want to protect your employees, do you now start to examine the possibility of putting your company into examinership? As appalling as it may sound, that is exactly what some US and UK companies have done," Ms McConnell explained.