Staff protested at the recent Extraordinary General Meeting (“EGM”) of Independent News & Media (“INM”) over controversial proposals to wind-up the company’s defined benefit pension schemes (the “DB Schemes”). We examine the facts of the dispute and consider the potential impact on pensions in Ireland.
INM operates two defined benefit schemes for employees based in Ireland. Members of the DB Schemes had previously agreed to a 39% average cut to their pension benefits as part of the restructuring of the DB Schemes in 2013.
The recent decision taken by the management of INM to wind-up the DB Schemes means that the members will now suffer a further reduction of about 30% to their remaining pension benefits.
It has been reported that the wind-up of the DB Schemes will strengthen the balance sheet of INM by approximately €25 million and will result in on-going savings of over €1 million per year. However, the full extent of the savings will largely depend upon any deal reached between INM and the trustees of the DB Schemes.
The trustees’ position
The Irish Congress of Trade Unions (ICTU) has urged the trustees to appeal INM’s restructuring plan to the High Court.
Even though the EGM approved the restructuring of the balance sheet, this move will still require the approval of the High Court. It is understood, that since the EGM, the trustees have asked INM for an additional employer contribution of €12 million to help fund replacement pension schemes for the scheme's members.
The trustees are seeking guarantees in relation to the payments promised to the DB Schemes in 2013. INM seem to be of the opinion that these payments are not guaranteed and are subject to change whereas the trustees view the payments as contractual promises made by INM.
INM’s future pension arrangements
INM’s new proposal is to take the contributions that would have been paid to the DB Schemes and direct them towards a new defined contribution scheme (the “DC Scheme”). Any future pension’s contributions from INM will be made to the DC Scheme.
The trustees now face the tough decision of either taking on a possibly expensive High Court case, similar to the Aer Lingus case in 2012, or trying to pursue INM for an enhanced contribution to the DC Scheme. Minister Leo Varadkar commented that he has discussed the situation with the Attorney General and that the Pensions Authority would invite trustees to discuss the matter.
The Pensions Authority is due to review the operation of certain pension schemes amid claims that INM has exposed "a gap in the law”. Taoiseach Enda Kenny admitted there was "no law, no legislation governing this, in respect of Ireland". Consideration may need to be given to the creation of a fund here similar to the Pension Protection Fund (PPF) in the UK. This is a statutory fund, which protects pensioners if their pension fund becomes insolvent by making payments to members.
A number of senators recently proposed an addition to the 2016 Social Welfare Bill. This addition would amend the Pensions Act to provide that a solvent company would be unable to close a DB pension scheme unless it was funded to 90% of the funding standard. This amendment was ruled as inapplicable for inclusion in the Bill on the basis that pensions are not covered under the scope of the Bill.
The wind-up of the DB Schemes by INM has certainly stirred up a lot of political interest. The number of DB Schemes has fallen steadily in recent years but there appears to be a growing desire from politicians to put in place measures to control this decline.
Such measures seem to centre on introducing legislation that will restrict the ability of solvent employers from winding up defined benefit schemes that fall below a certain funding level. If such measures are to be adopted they would need to be brought in overnight as any prolonged lead in period would invite a deluge of defined benefit scheme wind-ups.
The decline of defined benefit pension schemes may well be slowed in 2017 as employers and trustees alike may have to come to terms with changes to the legislative playing field. Whilst nothing is clear at the moment, it does appear that those of us who spoke of the extinction of defined benefit schemes may have spoken too soon!