pensions post acquisition - participation
by Roderick Ramage, solicitor,
issued to professional contacts as at 1
article is not advice to any person and may not be taken as a definitive
statement of the law in general or in any particular case. The author does not
accept any responsibility for anything that any person does or does not do as a
result of reading it.
On the acquisition of a business or a company with employees, who are members of a pension scheme, where the pension scheme is not exclusively for them but is also for other employees of the seller or its holding and other group companies, should the buyer participate in the vendor's pension scheme for a period after completion?† Two advantages are that it provides some continuity for employees and gives the buyer time in which to make new pension arrangements for the future, but there can be risks, which might lead a buyer to avoid participation.
Where the seller's pension scheme is a final salary scheme, there is the risk that the buyer or the company through which the purchase is made might become liable for a shortfall in the scheme.† This is unlikely to be an issue with a money purchase scheme.
If the acquisition is of shares in
a company which already participates in the scheme, the company is already
potentially at risk, but in an assets purchase the buyer does not participate
in the seller's pension scheme unless it or the company through which it makes
the purchase chooses to do so.† This
factor can be a factor encouraging the buyer to buy assets rather than
shares.† At present TUPE expressly
excludes occupational pension schemes and it seems unlikely that the expected
alteration to TUPE to give pension rights†
to transferred employees will involve participation in the transferor's
ongoing situation the employer's contributions are paid in accordance with a
contributions, either agreed between the employer and the trustees or imposed
by the trustees, and certified by the actuary as adequate to secure that the
minimum funding requirement will be met.
position is different if the scheme is being wound up or the employer goes into
liquidation or bankruptcy, when any shortfall in the scheme's assets in
relation to its liabilities becomes a debt due from the employer to the
trustees.† If two or more employers
participate in the scheme, they are liable to contribute to it proportionately,
and there is a risk that an employer may in some circumstance be liable even
after it has ceased to participate in the scheme.
disclosed in response to the buyer's preliminary enquiries and draft warranties
about the scheme should reveal the state of the scheme's funding and assist the
buyer to form a view whether there is a potential liability which might result
from buying a participating employer or voluntarily participating in the
sellerís scheme after completion and if so whether indemnities will be required
against the risk.
As a final
thought, whilst the installation of a pension scheme might be delayed for a
while after completion, the provision of life assurance should not be delayed,
because of the risk of an employee dying in service immediately after
completion is real.† Therefore, if the
buyer decides not to participate in the seller's scheme or the sale terms
prevent it from doing so, it becomes important to have death in service
insurance in place on completion.