Employers could find it more expensive to wind up their workers' salary-tied pension plans in the future, experts warned yesterday following a landmark High Court ruling.
The court ruled that the trustees of multinational Omega Pharma’s defined benefit pension fund were entitled to seek more than the statutory minimum from the group when it sought to wind the plan up in late 2012.
Mr Justice Michael Moriarty found the trustees were entitled to the contribution of €2.23 million sought by them from the employers to address a deficit in the firms' pension scheme.
He also ruled the amount of the demand, calculated using an alternative actuarial basis which exceeded the minimum funding standard laid down in pensions legislation, was reasonable and noted the employers had chosen not to negotiate with the trustees.
Following the case, Jerry Moriarty, chief executive of the Irish Association of Pension Funds, warned that it will make it more difficult for employers to walk away from defined benefit pension schemes.
Minimum standard
Aisling Kelly
, senior consultant with pension advisers Mercer, said that the ruling could mean that employers find that the cost of winding up defined benefit pension plans to be more than they might have originally expected.
“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.
Mr Moriarty also pointed out that it puts the onus on employers to negotiate with trustees. “The court also put a lot of emphasis on the fact that the employers just did not engage with the trustees,” he said.
Damianus BV, with registered offices at Rotterdam, the Netherlands, is the principal employer involved but the case was also against related companies – Omega Teknika Ltd and Chefaro Ireland Ltd, with offices at Sir John Rogerson's Quay, Dublin – in their capacity as associated employers.
In their action, the trustees said the scheme was governed by a trust deed of November 2004 obliging the employers transmit to the trustees the sums considered necessary to maintain the fund.
After Damianus in October 2012 served three months’ notice of its intention to discontinue contributions, the trustees in December 2012 served a demand on the employers seeking a final contribution in accordance with the provisions of the scheme. When the employers failed to make any payment to the scheme, the trustees issued legal proceedings seeking €2.23 million.
Given the employers’ failure after that to negotiate with the trustees despite two offers to do so, they sought to gauge a reasonable contribution “effectively in a vacuum” where the employer gave no input.
The trustees testified they sought to identify a reasonable basis of valuation which would provide the benefits to members, and they moved away from a sum they believed would represent an excessive level of contribution.
Given his interpretation of the documents and all that transpired between the sides, Mr Justice Moriarty found that the trustees were entitled to the €2.23 million claim.
