Ireland’s minister for Social Protection has said the potentially unintended consequences of imposing debt upon the employer stopped the government from introducing the changes last year.
Labour’s Joan Burton said her department had considered “an obligation on employers to secure a minimum level of funding” prior to scheme wind-up as it drafted last year’s changes affecting the distribution of assets upon wind-up.
Asked by a Socialist Party TD if she had any intention of introducing legislative changes that would emphasie the responsibility of pension fund sponsors to guarantee benefits, Burton countered that sponsors had “by and large made great efforts to support and deliver on the promise made to scheme members”.
However, she ruled out any measure of debt upon the employer.
“Given the uncertainties as to the overall impact and potential for unintended consequences of applying an obligation on an employer to secure a minimum level of scheme funding in the event of the wind-up of a scheme, it was not considered appropriate to make provision for such a legislative obligation.
“While some countries with very large defined benefit markets provide pension protection schemes, it was considered that such an approach was not appropriate in the Irish context.”
Discussing late last year why the government had decided against debt upon the employer, the minister said there had been concerns it could “encourage imprudent behaviour by trustees if losses were seen as being backed, in effect, by a guarantee”.
Speaking during the committee stage of the Social Welfare and Pensions (No. 2) Bill – the legislation that amended the wind-up order – she argued against a non-government amendment that would have imposed the debt, and said the changes could be seen as “unfair” on companies that had previously launched defined benefit funds voluntarily.
“In Ireland, given the very small proportion of defined benefit schemes linked to employers that have a credit rating or another reliably accurate and consistent measure of solvency, it is not the case that a workable framework to apply a debt selectively on the employer is easily achievable," she said.
The issue of debt upon the employer came to the fore after the OECD last year recommended that sponsors not be allowed to abandon underfunded defined benefit schemes, while the notion of a pension protection scheme was once again debated after a European Court of Justice ruling that criticised the inadequate level of protection facing members of insolvent Irish employers.