UK - Trustees of IBM's £4.36bn (€4.87bn) UK defined benefit (DB) pension scheme have told members they plan to seek legal approval for proposals to curtail benefits before they amend the trust deed and rules.
IBM announced in July that it was considering the closure of its UK DB pension schemes within a package of pension-related changes, which would be discussed in a 60-day consultation starting in August. And in October Unite, the trade union, revealed a backlash from members had led to a one-year delay in the closure of the schemes to April 2011. (See earlier IPE articles: IBM considers closure of UK DB scheme and IBM modifies pension changes after UK member backlash)
However, James Lamb, chairman of the trustees, acknowledged in a letter to members of the IBM Pension Plan and IBM IT Solutions Pension Scheme that there was a "level of disappointment felt by members" regarding the pension changes, and said the trustee board had received letters from solicitors acting for clients who claimed to represent over 1,000 DB members.
Lamb stated that given these developments and the trustees' view that the company had "not lived up to the trustee's expectations" - by altering the scheme so soon after the changes agreed in 2006 - the trustee had concluded it would only amend the Trust Deed and Rules "after it has obtained the sanction of the court".
He added: "The trustee would be seeking confirmation from the court that the company has acted in good faith and that the future service proposals meet the legitimate expectation of members".
It is understood the move is not intended to be a legal action against IBM but instead is a way for the trustees to check that the changes are legally correct and in line with the rules of the trust and its duty to members.
The letter noted the trustee had been in negotiations with the company during the consultation period and had proposed a number of changes that were reflected in the amended proposals.
In particular, the creation of a 'hybrid deferred' status - where links to final salary is maintained and ill-health, early retirement and death in service benefits are preserved - should mean benefits are protected against inflation during the deferral period while members also retain the right to be considered for early retirement on the 3% discount basis with IBM's consent, if the changes go ahead.
In the annual DB members' report, published earlier this year, Lamb said the trustees had told IBM it is "extremely disappointed that the company has chosen to close the DB section to further accruals and restrict consent to early retirement, only three years after the changes that were made in July 2006".
He stated that in 2006 IBM had told the trustee the changes would place the DB section of the scheme on a sustainable basis for the foreseeable future and had no plans for further changes.
As the trustees felt IBM had not lived up to their expectations, the report noted it "has taken the very best legal and actuarial advice available to it", on the basis that the trustee "will need to assure itself that these proposals can be lawfully administered and that the company is acting in good faith with regard to affected members".
In the most recent letter to members, issued last week, Lamb added: "These are important and complex issues that require careful consideration and analysis on the part of the trustee and it may therefore take some time to formulate an application to the court".
A spokesperson for IBM confirmed: "IBM is aware of the trustee's decision to seek legal confirmation of the changes to the pension scheme."
The firm noted that following the recent consultation the planned pension changes will "see enhancements to the DC plan for all IBM UK employees and closure of the DB plans" but added that specific measures had been agreed for current DB members. These include:a one-year extension to future defined benefit accrual for existing defined benefit members; enhanced levels of company defined contributions until 2013, should former DB members elect to join an IBM DC plan, and proposals, subject to trustee approval, to establish a 'hybrid deferred' plan for former DB members that would retain ill health and death benefit provisions.
In addition, the spokesperson confirmed: "At the same time, with effect from 6 April 2010, IBM will implement a new early retirement policy which will apply in circumstances where company consent is required to draw a pension prior to Normal Retirement Age."
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