multi-employer
schemes and the s75 debt – possible changes
by Roderick Ramage,
BSc (Econ), solicitor, www.law-office.co.uk
1st published 31 December 2007 (distribution to professional
contacts)
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.
The Occupational
Pension Schemes (Employer Debt) (Amendment) and Pension Protection Fund
(Multi-employer and Entry Rules) (Amendment) Regulations 2007 - draft
not yet brought into force
I had expected that this update would replace the note
which I distributed in September 2005 (copy on www.law-office.co.uk) about the
circumstances in which a s75 debt is triggered by an “employment cessation
event”, which occurs (simplistically) when one employer leaves a multi-employer
scheme.
On 7 August 2007 the DWP published a consultation paper
called
Amendments
to the Occupational Pension Schemes (Employer Debt) Regulations 2005
Consultation on the Draft
Occupational Pension Schemes (Employer Debt)(Amendment) and Pension Protection
Fund (Multi-employer and Entry Rules)(Amendment) Regulations 2007
and included in it a draft of new regulations called
The Occupational Pension Schemes
(Employer Debt) (Amendment) and Pension Protection Fund (Multi-employer and
Entry Rules) (Amendment) Regulations 2007
expected to be brought into force in December
2007.
Consultation ended on 1 October 2007, but the
regulations have not appeared, from which one may (optimistically) hope, that
the consultation process has convinced the DWP that, instead of reforming the
existing law and remedying its defects, the new draft was likely to make matter
worse. On one key point, the DWP announced,
that it was withdrawing the proposal in the draft, which would have had the
effect of triggering a s75 debt if a multi-employer (but not a single-employer)
scheme closes for the accrual of benefits, ie ceases to have any active
members. According to this announcement
“Our intention with regard to that
suggested change was to tackle the potential problem of scheme
abandonment. But it was not the intention to
affect legitimate scheme mergers or transfers, or to
trigger a "Section 75" debt when a company closes its
scheme to future accruals, whilst continuing to fund the scheme.”
It is likely that a new draft of the regulations will
be produced in substantially their present form, but, if the handling of the
age equality regulations is any guide, there may be only a very short timescale
for their introduction. The following is
a summary of the effect of the proposed regulations is brought into force as at
present drafted, but subject to the above announcement. This update therefore supplements rather than
replaces my previous note.
employment
cessation event
This may be redefined to remove the present
ambiguity. The present most common
interpretation is that an employment-cessation
event occurs when an
employer ceases to employer any active members of the scheme, but this does not
fit comfortably with the wording of article 6(4) of SI 2006/678, which say that
it occurs
“in relation to an employer if he ceases to
be an employer employing persons in the description of employment to which the
scheme relates …”,
which seems to include persons eligible or
capable of becoming eligible for membership and arguable also deferred and
pensioner members, and not simply those in active membership. Employers might consider exploring this
approach in their negotiations with trustees in cases based on employment
cessation event before (if at all) there is a new definition.
approved and other withdrawal
arrangements
The new regulations
introduce three alternatives to the withdrawal arrangement in the existing
regulations (see my September 2005 note).
In each of these cases the employer is one leaving the scheme.
1 scheme apportionment arrangement
The trustees and the relevant employer may, before or
after the date as at which the debt is to be calculated, agree the employer’s
share debt. The regulations
(demonstrating both the DWP’s propensity for micro-management and its active disbelief in trust law) state, amongst
other conditions, that the trustees must be satisfied that the remaining
employers will be able and willing to fund the scheme, that it will have
sufficient assets to meet its technical provisions (Eurospeak for liabilities)
and that the remaining employers will make the payments to the schedule of
contributions and any recovery plan in place.
2 regulated apportionment arrangement
Similar to 1, but the arrangement must be approved by
the Pensions Regulator (TPR) for approval with the agreement of the Pension
Protection Fund.
3 cessation agreement
The employer may, without reference to TPR agree to pay
an agreed share of the scheme’s s75 debt to the trustees, if a guarantor is party
to the agreement and will be liable for the difference between the agreed share
and what would have been the employer’s due debt had there been no agreement. In other words this is much the same as the
existing withdrawal arrangement, but TPR is not involved unless clearance is applied for. Again (on the principle of micro-management
and cynicism about trustees) the trustees must be satisfied that the
remaining employers’ ability and willingness to fund the scheme is not
adversely affected by the payment of the cessation agreement share by the
employer and that the guarantor is likely to be able to pay its liability.
END
30/12/07
© Roderick Ramage
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