Trustee Update on the Court Proceedings and interim arrangements for administering pensions from April 2011 - 6 December 2010
On the 18th of October I informed you that court proceedings had now been initiated in relation to both the 1983 C Plan issue and the issue of whether or not the Company has acted in good faith in relation to the pension proposals announced in 2009. I would like to let you know about a number of recent developments.
The 1983 C Plan Issue
A court hearing has been scheduled for March 2011 to establish a number of preliminary points. These include asking the court whether or not it is a proper use of Trust funds to pursue the C Plan claim and, if so, whether the legal arguments in support of the claim should be advanced by the Trustee or the appointed Representative Beneficiary. If the court directs that it is more efficient for the Trustee to pursue the legal arguments then the Representative Beneficiary will have a “watching brief”, on terms yet to be agreed, to assure himself that the interests of members are being properly represented.
This preliminary step for directions is necessary because the Company declined the Trustee's request for a costs indemnity in relation to these proceedings.
The Good Faith Issue
On the 25th of October I attended a hearing at the Royal Courts of Justice. At this hearing the Company asked the court to expedite the good faith case: that is to say it wanted the court to give it priority over other litigants and have the good faith case heard in first quarter 2011. There was a measure of consensus by all parties that the case be expedited because of the severe difficulties that would arise if the Company implemented its proposals before the court had ruled on their validity. However the Company failed to demonstrate an objective urgency and the application for expedition was dismissed. Amongst the other procedural directions given by the court the Company was ordered to give full and frank disclosure of all of its relevant documents concerning the Good Faith issue to the Representative Beneficiaries.
The court case is not now expected to be heard until the end of 2011 at the earliest. Until the case is decided it will not be known whether or not the Company can validly close the plans to future accrual. Members will not know whether they remain in their DB plans or whether they have been validly excluded and the Trustee will have severe difficulties in administering the plans. Given these facts the Trustee immediately asked the Company to delay implementation until the court had delivered a final ruling. The Company responded that it was not prepared to delay the implementation date for any period.
Interim Arrangements for the period after April 2011
You will have received Jane Marsh’s email dated 5 November 2010, in which she indicated that, with effect from April 2011, the Company wished to offer the affected employees the choice of
- joining the M Plan, together with the provision of hybrid deferred benefits: or
- joining the new IBM UK Personal Pension Plan (PPP): or
- opting out of pension provision from IBM
She noted that offering the M Plan to members would require the consent of the Trustee and that the Company had written to the Trustee seeking the Trustee’s agreement to this course of action.
The Trustee has been informed by the Representative Beneficiaries that this e-mail caused widespread confusion. The email did not make it clear that there is a question mark over the validity of the Company's proposals and that if the proposals are held to be invalid then DB accrual will have continued, affected members will have continued to be members of the DB plans, and the interim arrangements will need to be unravelled. The Trustee considers it important that members are aware of the circumstances and potential outcomes of the court case before deciding what type of future pension benefit they wish to opt for.
Having taken appropriate advice, and despite the severe administrative complications that will ensue, the Trustee has concluded that it is in the best interests of the members that they be offered an opportunity to join the M Plan (with hybrid deferred benefits), on either a permanent or an interim basis, depending on the outcome of the court proceedings.
The Trustee wrote to the Company on the 29th of November and again requested that the Company defer its closure of the plans. The Trustee also confirmed that, if the Company is not willing to wait for the court to rule on the validity of its proposals then the Trustee is prepared to administer the plans on the basis outlined in Jane Marsh’s email on an interim basis, subject to receiving a number of assurances primarily designed to protect the interests of members.
On the 2nd of December the Trustee received a letter saying that it is the Company’s settled intent to implement its proposals from April 2011. However, the Company has confirmed its commitment to work with the Trustee to resolve the administrative difficulties referred to above. The Company has also confirmed that it will fully comply with the final directions of the Court, work with the Trustee to any extent necessary to implement those directions, continue to abide by the balance of cost covenant by which it is bound to ensure that the plans are properly funded, and continue to press for an early hearing date to limit the uncertainty for all parties.
Given these assurances the Trustee has to-day replied to the Company to confirm that it will amend the Trust Deed and Rules on an interim basis and admit both Main Plan and I Plan members into the M Plan.
James S Lamb
Chairman
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Last Updated: 22/12/2010
