IMPACT OF COMPANY INSOLVENCY ON PENSION SCHEMES

1. IMPACT OF COMPANY INSOLVENCY ON PENSION SCHEMES CCAB-I ANNUAL INSOLVENCY CONFERENCE Jerry Moriarty 20/9/05

2. Agenda • Effect of Insolvency • Defined Contribution Schemes • Defined Benefit Schemes • Trusteeship/Administration • Insolvency Fund

3. Company Insolvency • Usually triggers scheme wind-up • In theory, trustees may decide to continue scheme • Wind-up governed by scheme rules and legislation

4. Company Insolvency - Issues • Trusteeship • Type of scheme • Outstanding Contributions • Funding Situation

5. Defined Contribution Schemes • Individual Member Accounts • Benefits based on value of fund • Relatively easy to administer • Only likely issue is outstanding contributions

6. Defined Contribution Schemes • Trustees duty to administer benefits • Issue option letters to members • Pay benefits to members

7. Defined Benefit Schemes • One fund • Benefits depend on scheme formula, usually based on service and salary • Biggest issue will be whether fund is sufficient

8. Defined Benefit Schemes • Subject to a Funding Standard • Must certify whether assets are sufficient to meet liabilities on wind-up • Is a snapshot at a date in the past, not a guarantee

9. Defined Benefit Schemes • If cannot meet the standard, recovery period is allowed • Generally can have 3 years but Pensions Board can approve longer • Up to 10 years can be granted or longer in “exceptional circumstances”

10. Defined Benefit Schemes • 50% of funding certificates in 2005 show scheme could not meet funding standard • Most fund deficit over 3 years • Total of 195 schemes have applied to Pensions Board for a longer period • Strong possibility that insolvent employer could have an underfunded scheme

11. Defined Benefit Schemes • Statutory Priority Order for payment of benefits • Expenses paid first • Additional Voluntary Contributions • Pensions in payment and members over retirement age • Benefits secured by transfers in • Active and Deferred members

12. Defined Benefit Schemes • If underfunded, active and deferred members will get less than their strict entitlement • Level of funding will determine benefit • No Pension Protection Fund in Ireland

13. Trusteeship/Administration • Most legal responsibilities rest with trustees • Normally delegate day to day running to administrator • Usually pension consultants/brokers or Life Office/Provider • Employer may be trustee

14. Trusteeship/Administration • Liquidator may have to perform role of trustee • Ensure members are provided with information • Pay benefits in accordance with rules of scheme

15. Insolvency Fund • Employer has a legal responsibility to remit contributions to a pension scheme • Protection of Employees (Employer’s Insolvency) Act 1984 • Contributions payable by Employer in previous 12 months, or • If less, the amount necessary to meet the liabilities • Any contributions deducted from employees

16. Summary • Employer insolvency invariably triggers wind-up • Complexity of wind-up depends on type of scheme and funding level • Bigger issues likely on Defined Benefit schemes • Employer may be trustee • Insolvency Fund but only to cover unpaid contributions, not a total deficit