Members of the wound up defined benefit pension scheme at industrial diamond manufacturer Element Six Limited (a branch of De Beers Group) are suing the scheme’s trustees in a case that will be of interest to all those involved in the pensions sector.
In October 2011 the trustees of the Element Six employees’ defined benefit pension fund voted 4/3 in favour of winding up the scheme, with the vote carried by the casting vote of the Chairman, a company appointed trustee. This decision was reached following a commitment from the Company to make a €30m contribution to the fund, inclusive of the €11m annual contribution due for 2011.
At the time of its winding up in December 2011, the fund had a minimum funding standard deficit of between €129m and €184m, the higher sum taking account of the sum required to fully provide for the plan’s liabilities.
On the 30th July 2012, on the matter’s first time before the court, Mr Justice Peter Kelly agreed to fast-track the action of 124 members of the scheme to the Commercial Court list, stating that the matter raises general issues about the obligations of trustees of pension schemes.
Several claims have been made by the members against the trustees, including that they failed in their fiduciary responsibilities in not exercising their power to require the employer to contribute the full amount of the deficit to the fund prior to its winding up, which Counsel for the members Una Tighe BL claimed was within their powers under the rules of the fund, and that they should have sought direction from the High Court on the matter.
It is also claimed that the parent company of Element Six engaged in threatening and bullying behaviour towards the trustees, stating that the Pension Board’s approved funding proposal was unsustainable and that the “offer” proposed was the only solution on offer and that its failure would result in the closure of the Shannon plant.
The Court will be required to look at a number of issues, including the potential conflict of interest for the Company appointed trustees, the advice sought by trustees regarding their decision and the reasoning behind their decision not to make further demands of the Company.
The employees are claiming to be owed between €40m and €50m in relation to the wind up.
This case is being closely monitored by all those with an interest in the area of defined benefit pensions. Under new rules from the Pensions Board, all defined benefit pension schemes will be required to provide for a “risk reverse” effective from the 1st January 2016. This rational behind this move is the requirement for schemes to increase their assets to a higher funding standard in order to protect themselves against future instability in the financial markets. Schemes that do not meet the requirement to hold the reserve will be obliged to put in place a recovery plan.
Under the current rules put in place by the Pensions Act 1990, all defined benefit pension schemes running a deficit are obliged to submit a proposal to the Pensions Board. Failure to submit this proposal will result in either the trustees being directed to implement benefit reductions, or in the scheme being wound up.
In light of the current economic difficulties in Ireland and the position that the trustees of the majority of defined benefit pension funds find themselves in, the outcome of the case may prove important, as there will inevitably be more schemes facing similar issues to those experienced by the trustees at Element Six in the coming years.
The case comes before the Commercial Court again on the 18th February next.
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