It is very common for directors or other managers of a company to be appointed as trustees of the company's pension scheme. In most cases, this is a sensible decision. However, it can sometimes lead to problems deriving from the conflict between such individuals' duties towards the pension scheme as trustees and their duties or interests in relation to the company. If a decision in which a conflicted trustee has participated is challenged in court, it may be ruled invalid. At present, many pension trustees are negotiating with their employers over the ongoing funding of their schemes. Conflicts of interest come to the fore in such situations.
A very strict reading of the law suggests that individuals cannot serve as trustees where there is even a possibility of a conflict of interest. We doubt that this is a reasonable interpretation, though some experts do believe that there are at least some situations where a director of a company simply should not be appointed as a pension trustee.
Where a director has been appointed as a trustee, can decisions of the trustee board in which he participates be overturned if they are taken against the background of a conflict of interest? Again, there is a strict view to the effect that such decisions will automatically be ruled invalid if challenged in court by a beneficiary of the pension scheme. There is also a generous view, holding that any particular decision can be invalidated only if there is specific reason to believe that it was swayed by the conflict.
In our opinion, the correct rule probably lies between these two positions. We believe that, if a decision is taken where a conflict exists and is then challenged, the onus will lie on the trustees (or whoever else is seeking to rely upon it) to prove that it was taken properly and not tainted by the conflict. This is consistent with the advice of the Pensions Board, who have said that conflicts "should not necessarily prevent trustees acting in good faith". The Board has also stated that a conflicted individual's duties as a trustee are of first priority.
There are several ways of 'managing' conflict situations involving trustees. A typical method of doing this would be for the conflicted trustee(s) to declare the conflict and then to withdraw from the trustees' decision-making process. Where a conflict is serious, it might be unmanageable and the trustee may have to resign. In some schemes, the trust deed may provide expressly that trustees can carry out their functions in spite of any conflict. It is not certain whether such provisions would be upheld by the courts.
Similar difficulties arise where a director or manager who is also a trustee learns through his job of sensitive information relating to the pension scheme. He may be legally obliged to disclose the information to his fellow trustees. It is not entirely clear whether the Irish courts would adopt this view – the case-law from other countries is inconsistent – but trustees should probably assume that they would. A trustee in this position is caught between his duty of confidentiality to the company and his duty to disclose the information to the other trustees. Situations of this sort are more difficult to manage than ordinary conflicts of interest, and the best course may be for the conflicted individual to resign as a trustee.