Ireland: Funding At MFS Level May Not Satisfy Employer’s Liability To Contribute To DB Scheme

Last Updated: 19 December 2014
Article by Philip Smith, Keith Smith, Orla M. Clayton and Orla Ormsby
Most Read Contributor in Ireland, October 2018

A recent decision of the High Court, which has been affirmed by the Court of Appeal, in favour of the trustees of a defined benefit pension scheme is likely to be the catalyst for significant change to the manner in which defined benefit pension schemes are viewed and treated in Ireland.

The decision was given in Holloway & Ors v Damianus BV & Ors. Arthur Cox represented the trustees (the "Trustees") in the case.


In October 2012, the employers of the Omega Pharma Ireland Pension and Death Benefit Scheme (the "Employers"), having announced a number of redundancies, gave the Trustees of the Scheme three months' notice of their intention to discontinue contributions to the Scheme as required under its rules. The Scheme was solvent under the statutory Minimum Funding Standard ("MFS").

Following this announcement, the Trustees obtained legal and actuarial advice as regards the level of contribution required from the Employers to provide the members with the benefits to which they are entitled under the Scheme. They then consulted the Employers with regard to the making of a contribution to the Scheme in accordance with its rules.

As the Employers failed to respond to the Trustees' correspondence and their efforts to engage, the Trustees served a contribution demand on 7 December 2012. When the Employers failed to pay the contribution demand, the Trustees issued High Court proceedings against them.


There were two key issues in the case. The first related to when the Employers' contribution liability terminated. The High Court found that, as there was a three month notice period during which the Trustees could make a final contribution demand, they were entitled to make the contribution demand when they did so on 7 December 2012.

The second issue was whether the Trustees were entitled to make a contribution demand in excess of the MFS in circumstances where the Scheme was solvent on the statutory MFS basis. The Trustees had determined, having regard to professional advice, that funding at the MFS level was insufficient "to provide the benefits under the Scheme", but that funding on an annuity buyout basis alone would be 'excessive'. The Scheme actuary recommended a funding combination of annuity buyout (actuarially adjusted) and MFS. This was the basis for the amount of the contribution demand served on the Employers on 7 December 2012.

The Employers argued that there was no justification for the contribution demand given that the Scheme was solvent on the MFS basis and that the Employers' obligations had therefore been satisfied.

This argument was rejected by the High Court which concluded that the Trustees had come to a reasonable decision as to the amount of the contribution demand in the absence of any engagement by the Employers. The Court was satisfied that the contribution demand was not one which no reasonable body of trustees would have made and it was critical of the lack of engagement on the part of the Employers. The Court found in favour of the Trustees, directing the Employers to pay the amount of the contribution demand plus interest and costs to the Trustees on behalf of the Scheme.


The Employers appealed the High Court judgment to the newly established Court of Appeal. On 20 November 2014, the three judge Court unanimously dismissed the appeal, and affirmed the decision of the High Court. A written judgment will be delivered in due course.


The decision is a positive one for trustees of pension schemes as it reaffirms the position that a decision to overturn a determination of trustees, acting with the benefit of professional advice, will not be taken lightly. It also provides clarity as regards the following:-

  • contribution demands issued during notice periods are likely to be upheld where they are made in a manner consistent with the provisions of the trust deed and scheme rules;
  • the MFS is a minimum contribution obligation only; it does not replace or supersede any greater obligations arising under the provisions of the trust deed or from actuarial advice provided in accordance with professional actuarial guidance; and
  • employers who ignore a requirement in scheme rules to carry out a consultation with trustees run the risk of being unable to raise arguments at a later stage in the event that the trustees take reasonable decisions in the meantime.

The judgment and, in particular, the finding that funding to the MFS level may not fully satisfy an employer's liability to contribute to a pension scheme, is likely to prompt both trustees and employers to re-examine the funding of, and level of benefits provided by, defined benefit pensions schemes.

Such re-examination is particularly likely to take place in the context of any contemplated closure or winding-up of defined benefit pension schemes. We will issue a further update on publication of the Court of Appeal's reasoned judgment.

This article contains a general summary of developments and is not a complete or definitive statement of the law. Specific legal advice should be obtained where appropriate.

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