What does the Regulator want Trustees to do?
Trustees are being asked to identify and assess the type, nature and extent of the legal obligations an employer owes to the scheme.
Whilst this has always been a general duty of Trustees the Regulator drew attention to this requirement by issuing a statement in July 2011 to remind trustees of their duties.
Trustees can test their understanding of this issue using the Regulator's bite-sized training module:
www.thepensionsregulator.gov.uk/doc-library/biteSized/StatutoryEmployer/index.htm
Why?
The Regulator is concerned that as more schemes close to future accrual there is an increased risk of schemes being left without statutory employers. Scheme transfers and employer group restructuring increases this risk.
Misidentifying the statutory employers can lead to an incorrect covenant assessment which can have ramifications for funding arrangements and investment strategy.
However, perhaps more vitally, if a scheme is left without a statutory employer the scheme may cease to be eligible to enter into the Pension Protection Fund. This clearly leaves such scheme members in an extremely vulnerable position with potentially significant reductions to the benefits they expect to receive upon retirement. Whilst the Government are currently discussing the possibility of an extension of the Financial Assistance Scheme this will not extend protection to all schemes.
How?
Trustees must keep in mind that a scheme's statutory employer(s), as defined in legislation, may be different to its Principal and Participating Employers.
Schemes which remain open to accrual will start by listing the employers of the active members. Trustees will also need to assess employers who are paying contributions to the scheme and those who have previously left the scheme...so Trustees will have to get their magnifying glasses out and carry out a proper audit of the scheme's past and present employers. Trustees need to be confident that any employers who have exited the scheme have properly discharged their liabilities to the scheme. It is the identification of past employers which can become rather complicated and may well warrant Trustees seeking legal advice (on employment and pensions aspects).
If the Trustees conclude, after conducting their review, that the scheme has no statutory employers they must inform the Pensions Regulator and should also discuss this with the contributing employer.
When?
From November 2011 Scheme Returns will require Trustees to identify the statutory employers of their scheme.
The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.