IMPACT OF COMPANY INSOLVENCY ON PENSION SCHEMES CCAB-I ANNUAL INSOLVENCY CONFERENCE Jerry Moriarty20/9/05

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

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

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

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

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

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

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

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”

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

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

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

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

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

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

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