With the increase of defined benefit schemes closing to future accrual, the Pensions Regulator (tPR) has published a statement, aimed at trustees and their advisers, emphasising the significance of identifying which employers are legally obliged to stand behind their schemes – the statutory employer(s). From November 2011 onwards, it will be an explicit requirement for trustees to document the statutory employer(s) of their pension schemes in their on-line Scheme Returns.
For the majority of schemes, identifying the scheme’s statutory employer will be fairly simple. However, factors such as a group restructure, the scheme’s structure, changes to future accrual and whether employers have left in the past (with or without having discharged their liabilities) are likely to require a detailed analysis of whether that particular employer fits within the statutory definition. Trustees and employers may need legal advice as the definition of statutory employer is detailed in legislation and can be complex.
Understanding the nature and extent of the obligations both past and current employers owe to the scheme is essential because a statutory employer of a scheme is legally responsible for:
- Meeting the scheme funding objective of the pension scheme
- Paying the section 75 debt when an employment cessation event occurs on employer departure from a multi-employer scheme, on a scheme wind-up or employer insolvency
- Triggering entry to a Pension Protection Fund (PPF) assessment period on insolvency.
Not all employers associated with a scheme will necessarily be statutory employers. In order to be certain of the statutory employer(s) of the scheme, the trustees may request information from the employers. This identification exercise may take some time and unexpectedly discover additional employers which meet the statutory definition or possibly reveal changes to employers the trustees had assumed were legally responsible for their scheme.
TPR’s report makes it obvious that trustees need to be clear about their current position, and be vigilant about any changes that could separate the scheme from its statutory employer(s). For example, where an employer substitution takes place, the new employer may not meet the statutory definition. Employers will also need to be certain about the identity of statutory employers because of the potential impact on the PPF levy and on company balance sheets.
If trustees are uncertain as to the identity of the statutory employers of their schemes they need to take advice now. Trustees have a legal obligation to complete their Scheme Returns and failure to do so could result in fines.