BGCM EC May 2017

The special provisions that have been made in the legislation introduce the concept of an “employer cessation event” where the scheme is a multi-employer scheme. If an employer ceases to employ any active member of the scheme, its proportionate share of the deficit, again measured as the cost of purchasing annuities, is calculated. The employer which has lost its last active member has to pay off this share of the deficit as a section 75 debt. The scheme carries on in relation to other employers and their members. In the past, when the section 75 debt was measured on the MFR basis, this could create all sorts of problems for the remaining employers. The departing employer’s section 75 debt might well not cover the full cost of providing the pensions of its employees and former employees who are members of the scheme. These employees and former employees remain entitled to their full benefits but the departing employer has no continuing liability to meet the cost: the scheme has “orphan liabilities”. As you know, that is exactly what happened to the GFTU Scheme when previous participating employers – particularly the NULMW – left the Scheme. Since the legislation was amended in 2003, the problem that orphan liabilities might arise has been eliminated or minimised. But a real problem has been caused for multi-employer schemes if one of the employers ceases to employ any active member. Its section 75 debt is triggered, and unless special arrangements are made, it no longer has the option of continuing to meet any deficit by paying deficit repair contributions over an extended recovery plan.

Your Scheme

The special arrangements described above only apply in a multi-employer scheme where one employer might otherwise depart without any legal obligation to meet the liabilities attaching to its members. They are not needed if:

1.

The scheme in question is sectionalised; or

2. The trustees have the power to wind up the part of the scheme which relates to the departing employer.

In these cases, the part of the scheme which relates to the departing employer can be segregated and, if necessary, this segregated part can be wound up as if it were a separate scheme. Your Scheme is fully-sectionalised (the NULMW’s departure was the prompt for sectionalising it). If one employer or the other were to cease employing any active members, its section of the Scheme is treated as a wholly independent pension scheme. This means that:

1. The Section can continue as a pension scheme with no active members. The sponsoring employer remains liable to cover the cost of the benefits which its employees and

2