Shut-down of pension schemes to become more difficult
EMPLOYERS will find it harder to wind up a pension scheme and walk away from it after a High Court judgment.
The decision of Mr Justice Michael Moriarty to order a company to plug a multi-million euro hole in a pension fund is expected to have huge implications for companies attempting to shut down pension funds that are in deficit.
Between 300 and 400 defined benefit schemes are in deficit, out of some 900 that remain.
This means that they would not be able to pay out the benefits promised if they closed immediately.
A defined benefit scheme is one where a set level of benefits are promised based on the years of service and salary at retirement.
Trustees of the Omega Pharma Ireland pension took a case to the High Court seeking a payment of €2.23m into the scheme.
The trustees wrote to the employer seeking the payment, representing what the trustees believed the company owed to the scheme based on the provisions of the scheme's rules.
They were also reacting to the company's decision to give notice to the trustees that it was terminating contributions and triggering a wind-up of the fund.
Omega, a Dutch-headquartered multinational also known as Damianus, had laid off staff and wanted to shut down the pension scheme.
The company had funded the scheme to meet the statutory minimum funding standard (MFS) level - this sets out the minimum assets that a scheme must hold and the steps to be taken if the assets of the scheme fall below this minimum.
But the trustees took advice and sought more money. They also sought to enter talks over a three-month notice period set out in trust documents.
Mr Justice Moriarty issued a written judgment yesterday and was scathing about the failure of Omega to respond to requests for negotiation. He said "a deliberate decision was made by the employers to take this course of action and not to avail of these opportunities for discussion and negotiation".
The judge said "the trustees appear to have being acting in good faith in pursuit of what they believed to be the best interests of the members of the scheme, in accordance with their fiduciary responsibilities".
He concluded: "I am satisfied that the plaintiffs are entitled to succeed in their claim in the discounted sum of €2.23m."
Chief executive of the Irish Pensions Funds Association, Jerry Moriarty, said the decision raises questions about the suitability of the minimum funding standard, despite this being a statutory rule.
"This judgment makes it harder for employers to walk away from schemes and wind them up," he said.
Senior consultant with pensions experts Mercer, Aisling Kelly, said the decision could have wide-reaching implications for companies that sponsor defined benefit schemes.
"Effectively the ruling could prevent an employer from closing and winding up a scheme without ensuring that the scheme is fully funded, on a basis that may be in excess of the minimum funding standard," she said.
Ms Kelly said the decision would be widely welcomed by trustees and members, and may slow the pace of closures of schemes given the potential financial obligations with which employers may now be faced.