Business Opinion: Given the prominence that pensions have been given in the new national partnership agreement, the announcement last week by Siptu that it will not adopt FRS 17 seems a little odd. For those of you with varied and interesting lives, FRS 17 is the accepted accounting convention on how the position of a company or organisation's pension scheme should be reflected in its annual accounts.
Siptu may choose to highlight its British origin - and all this implies - but it is the accepted standard here. Put at its simplest it requires companies to treat deficits in their pension schemes like any other liability and reflect it in their accounts. A deficit arises in a pension scheme if the assets of the scheme are not sufficient to meet its projected future obligations, ie the pensions of the company's current and former workers.
FRS 17 is without a doubt one of the factors that is forcing companies to face up to the problems created for their pension schemes by poor investment returns and longer lifespans.
Having to reflect the deficit created by these and other factors in your annual accounts is a pretty powerful incentive to sort out the problem. Needless to say the business community is not exactly enthusiastic about FRS 17 and most companies get around it by putting a note in their accounts detailing the impact on their balance sheet of reflecting the deficit in the accounts.
Siptu has gone one step further and just ignored it. Instead it has put a long note in the accounts for the year to December 2005 stating - amongst other things - that: "It is the union's position that the provisions of FRS 17 are not in the best interests of members of defined benefit pension schemes and are contrary to the Union's objective of supporting the continued provision of defined benefit schemes by employers to their employees."
Siptu's argument is that employers are using FRS 17 as some sort of Trojan horse with which to attack expensive defined benefit schemes - in which pensions are linked to final salary - and replace them with cheaper defined contribution schemes in which the pensions are linked to the performance of the underlying fund.
Siptu is on pretty weak ground here. The rationale behind FRS 17 was to reflect the link between a company and its pension scheme in the accounts, both good and bad. If the scheme is in deficit then the need for the employer to make more contributions is reflected and if the scheme is in surplus, the ability to make reduced contributions is also apparent. In effect it makes companies take ownership of their pension scheme problems.
A good example of this is Aer Lingus where the unions - including Siptu - have made the deficit in the Aer Lingus pension scheme, as defined under FRS 17 and other measures, a central plank of their opposition to the flotation of the airline.
But the real weakness in Siptu's argument is that FRS 17 is only one of a number of factors forcing companies to address pension scheme deficits - and it is far from the most significant.
The main driver is pensions legislation which requires companies with deficits to submit a plan to the Pension Board setting out how the problem will be rectified. Siptu, as it points out in its accounts, has just finalised such a process. It has been able to hammer out a deal that leaves its defined benefit scheme intact, but many other companies with defined benefit schemes can't or don't want to.
Siptu is correct when it says that many employers would dearly love to ditch their expensive defined benefit schemes for cheaper defined contribution schemes, but they don't need FRS 17 as some sort of fig leaf for this when they have the full force of pensions legislation behind them.
It is hard to escape the conclusion that Siptu's reluctance to embrace FRS 17 is more cosmetic than ideological. The 2005 accounts show the union to be in robust good health. It recorded a surplus in its general fund for the year of €2.35 million, up from €1.96 million last year, thanks to a mixture of increased members contributions and savings on finance and administration. The balance rose from €14.2 million to €14.65 million.
The union's balance sheet is also strong, with net assets standing at €28.4 million, a significant element of which is its €16.6 million of property assets such as Liberty Hall in Dublin. However, if you throw the whopping €31 million estimated deficit in the Siptu pension scheme into the mix the whole thing starts to look a lot less healthy. Siptu would no doubt argue it gives a completely misleading impression of the union's financial position.
Most employers, and the management of Aer Lingus in particular, would agree with wholeheartedly.
