multi-Employer
Pension Schemes – increased liabilities on ceasing to participate
by
Roderick Ramage, solicitor, www.law-office.co.uk
1st published 2 September 2005
(distribution to professional contacts)
(article
14)
DISCLAIMER
This 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.
When two or more
company participate in a pension scheme and one of them leaves the scheme and
the scheme is in deficit, that company becomes liable a debt on the employer
under s75 of the Pensions Act 1995. The
effect of the Occupational Pension Schemes (Employer Debt) Regulations 2005, SI
2005/678 (in force on 6 April 2005) as amended by SI 2005/2224 is that the
amount of the debt is calculated as the cost of buying annuities as estimated
by the scheme’s actuary instead of on the MFR basis. Although this applies primarily to final
salary schemes, money purchase scheme too can have a debt, if there is a
deficit because of the Pension Protection Fund levy or what the regulations
call a “criminal deficit”.
The trigger for the
liability has not changed, but is now called an “employment cessation
event”. The key point is that the
liability arises not on (eg) the disposal of the employer but on the employer
ceasing to employ persons of the description of employment to which the scheme
relates. Here are four examples showing
how and when the debt can arise.
-
A
debt will be triggered if an employer is reconstructed in such a way that it
ceases to employ any persons who belong to are or eligible to belong to the
scheme.
-
If
the employer is sold and pension scheme membership for its employees ceases on
completion, the liability will crystallise at completion.
-
The
liability can arise after completion if the target company continues to
participate in the scheme for a period: this, often called an interim period,
can be until the next renewal date plus a further 12 months.
-
On
an assets sale, if it is arranged for the buyer to participate in the scheme
for an interim period, the buyer will become liable for the debt on ceasing to
participate at the end of the interim period.
The debt
attributable to the leaving employer will be its proportion of the debt for the
scheme as a whole based on the amount of its liabilities in relation to the
total liabilities.
The amending
regulations provide that if, on an employment cessation event on or after 2
September 2005, a “withdrawal arrangement” has been approved by Pensions
Regulator and the agreement has guarantors for the debt, the leaving employer’s
debt may be calculated on the MFR basis, and that the Pensions Regulator may issue
a direction deferring the payment of the balance of the debt for such period as
is specified, not later than the winding up of the scheme or the last
participating employer ceasing to be an employer or
becoming insolvent.
copyright Roderick Ramage
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