The provision which usually exists under pension scheme rules for repaying to sponsoring employers any funding surplus is something that trustees and employers should consider before 6 April 2011.
While an actuarial surplus is not an issue affecting many schemes in the current climate, if it becomes relevant again in the future, the retention of any option for the repayment by the trustees of a surplus to an employer should be addressed as soon as possible, and in any event before the deadline under section 251 of the Pensions Act 2004 (Section 251) takes effect on 6 April 2011.
Under Section 251, transitional powers are introduced which enable trustees to pass a resolution by 6 April 2011 preserving any power under the scheme rules for the trustees to make a repayment of surplus to a sponsoring employer. The following conditions apply:
- the scheme must have been established before 6 April 2006 and its governing documentation must include a power for a surplus payment to be made to an employer while the scheme is ongoing;
- the trustees must be satisfied that the resolution is in the interests of scheme members;
- members must be given 3 months’ written notice of the trustees’ proposal to pass the resolution;
- the power to pass the resolution may be exercised only once (and prior to 6 April 2011);
- the power to make a repayment of surplus to an employer must be exercisable only by the trustees;
- a repayment of surplus to an employer cannot be made unless the scheme is fully funded on the buy-out basis; and
- the scheme’s participating employers and members must be given at least 3 months’ written notice of the intention to pass the resolution.
Comment: this issue may well be relevant for scheme funding negotiations, since an employer may be less willing to provide what it may consider to be generous scheme funding if there is no prospect of being able to access any “trapped” surplus in future.
Trustees and employers should consider taking advice on this issue well in advance of the 6 April 2011 deadline.