The onus is now on sponsors of Irish defined benefit (DB) funds to prove trustee demands for additional capital are unreasonable – a high threshold to overcome, according to lawyers.
A recent ruling by the country’s High Court saw the trustee of the Omega Pharma pension fund win requests for a €2.23m sponsor payment prior to wind-up, despite the scheme’s being fully funded under the regulatory minimum funding standard (MFS).
According to a note published by law firm LK Shields, the ruling should be viewed as a positive by trustees, as it confirms that courts will force employers to meet demands “provided the amount demanded can be shown to be reasonable”.
The law firm referenced a second, recent court case brought by the trustee of the Element Six DB fund that also saw the sponsor compelled to inject cash into the scheme, although in the latter case trustees saw their requested sum almost quartered.
“An employer that objects to trustees making a contribution demand will (like members where trustees fail to make such a demand) have to prove the decision of the trustees was one no reasonable body of trustees would have made – a very high standard,” the firm said.
It also noted that the Omega Pharma case was also won because the sponsor failed to engage, despite the trust deed granting the trustee significant powers to negotiate and request additional payments.
LK Shields said the ruling showed courts would “not be sympathetic to employers that fail to engage with the trustees regarding a scheme deficit”.
Consultancy LCP also saw the ruling as significant, saying it would provide active and deferred members “additional comfort”, where the previous wind-up order was found to be “disturbingly weak”.
The previous wind-up order, amended last year to remove the absolute priority granted to pensions in payment, could have seen many beneficiaries left with only a fragment of their accrued benefits.
LCP urged trustees to review the powers granted them under trust deed.
“We would also recommend employers consider carefully the implications of the ruling in terms of their future requirements to contribute,” it said.
“Given the important role of the scheme actuary in providing impartial advice to the trustees, it is essential employers seek independent advice in this area.”