UK - The UK arm of the Reader’s Digest Association (RDA) could be forced into administration if a solution to its £125m (€143m) pension deficit is not found, its American parent has warned after the UK Pensions Regulator rejected a funding deal.
RDA Inc voluntarily entered Chapter 11 bankruptcy proceedings in the US in August 2009 as part of an agreed restructuring plan to reduce its debt and strengthen its financial position. The bankruptcy court in the Southern District of New York approved the proposal on 15 January 2010, but RDA revealed yesterday it is delaying its emergence from the proceedings to “address an issue involving the pension program of RDA Ltd, the company’s UK entity”.
The UK defined benefit pension scheme closed to new members in 2002 and to future accrual in 2009, and has around 1600 members, of which almost 950 are deferred. A spokesman for the UK arm confirmed current estimates put the pension deficit of the scheme at around £125m, while the company itself only employs 135 people.
A statement from the parent company noted it has a “longstanding and significant unfunded liability within its UK pension scheme which has to be addressed as Reader’s Digest Inc restructures the business”.
The US publishing company stated it had come to an agreement with both the trustees of the UK pension scheme and the Pension Protection Fund (PPF) to resolve the deficit issue. This included paying approximately £10.9m into the scheme and transferring a one-third interest in the equity of RDA UK to the trustees before the scheme moves into the PPF.
However, the RDA said the agreement - which formed part of the process allowing the firm to exit Chapter 11 - was contingent on approval from The Pensions Regulator. And on 28 January 2010 it stated: “The Pensions Regulator (TPR) indicated that it was minded not to approve the company’s clearance application”.
As a result of this rejection, Reader’s Digest said the UK entity is “reviewing its options in an attempt to find a solution”. But it warned while it will support the UK business in the near future, it has filed a motion to the US court stating: “Unless the pension deficit issue is resolved it will no longer be able to support the UK business indefinitely and, therefore, the UK business may need to file for administration”.
Although TPR was unable to comment on the specific case, a spokesperson said: “Whilst recognising the financial pressures that companies continue to face, a key consideration when scrutinising any corporate restructuring must be that sufficient mitigation is put in place to cover the potential detriment to the pension scheme.
“We continue to work very closely with the PPF, employers and trustees to both protect pensions scheme members’ benefits and to limit calls on PPF funding.”
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