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  • EC to focus on member protection at insolvency

EUROPE - The European Commission (EC) is seeking a contractor to help it further investigate measures for protecting supplementary pension benefits in the event of employer insolvency.

Under Article 8 of Directive 2008/94/EC, member states are obliged to have in place necessary measures to protect employees' immediate or deferred old age benefits if the employer becomes insolvent.

On 11 April 2008, the EC presented a staff working document on the implementation of Article 8, in which it analysed the objective and scope of the regulations, the implementation requirements for member states and an overview of the existing measures adopted by the relevant countries.

The Commission concluded although the working paper was not intended to assess the conformity of existing measures with the requirements of the Directive, "it is clear that, in certain cases, issues can be raised as regards the extent to which some of these measures are sufficient to protect the interests of employees and retired persons in the event of insolvency of the employer. Further investigation is therefore needed in order to address the following issues":

How to protect employees and retired persons against the risk of under-funding of the pension schemes, and to what extent; How to guarantee any unpaid contributions to the pension schemes, and How to deal with cases where the supplementary pensions scheme is managed by the employer.

The Employment, Social Affairs and Equal Opportunities Department at the EC is now seeking a contractor to conduct a study focusing on two of the three issues - the protection of employees and pensioners when the scheme is underfunded, and when the employer manages the pension scheme.

Under the terms of the nine-month contract, valued at €150,000, the contractor will be required to examine each of the 20 states concerned to "describe in a systematic way" the measures in force and ongoing reforms "aimed at the protection of supplementary pensions in the case of insolvency of the sponsoring employer" when the pension scheme is underfunded.

It also requires the contractor to examine measures relating to pension schemes based on book reserves, as these do not fall under the IORP directive - which requires a high level of protection although it also allows temporary underfunding with a suitable recovery plan - and insolvency while a scheme is underfunded is the focus of the EC's study.

The EC said the need for a detailed examination of existing protection of pensions in these situations is "more acute in the present situation of economic crisis, which might result in underfunding of pension schemes and in an increase of companies in insolvency situations".

However, as book reserves and IORPs do not exist in some countries, or only result in pure defined contribution (DC) schemes, the study focuses on the remaining 20 countries of Belgium, Denmark, Germany, Greece, Spain, France, Ireland, Italy, Cyprus, Luxembourg, Malta, the Netherlands, Austria, Portugal, Finland, Sweden, the United Kingdom, Iceland, Liechtenstein and Norway.

The Commission also noted the need to examine the "current legal and practical situation" in the 20 countries in a "more complete fashion", alongside the assessment of "potential deficiencies to be considered by the Commission in her role as "guardian of the Treaties'".

The contractor will therefore be responsible for assessing the effectiveness of the existing measures and identifying "best practices", and is required to submit an interim report, a draft final report and the final technical report to the Commission.

The closing date for tender applications is 27 May 2009 and further information can be obtained from the employment department's tender website.

If you have any comments you would like to add to this or any other story, contact Nyree Stewart on + 44 (0)20 7261 4618 or email nyree.stewart@ipe.com

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