The current state of funding of DB schemes has pushed many of the sponsoring employers of these schemes to consider how to minimise their defined benefit liabilities and risks. In order for the liability management process to be successful, a number of key stakeholders need to be managed. These are:
- the trustees of the scheme;
- the employees; and
- the unions.
The trustees are under a fiduciary duty to act in the best interests of all of the beneficiaries, that is, active, deferred and pensioner members as well as contingent beneficiaries. They may have the power to make a contribution demand. The unions will represent the interests only of active members and even then perhaps only a proportion of the active members. Unions also hold the important card of the threat of industrial action leading to an immediate impact on company productivity.
An employer may decide to design a restructuring plan and put it to the trustees without negotiating with unions. This may cause the unions to take industrial action. Can the trustee still consider the restructuring plan while industrial action is underway? What if the trustees include union nominees? An employer may decide to reach agreement with unions over a restructuring plan and then ask the trustees to rubber stamp the plan – should the trustees do so if, for example, the plan has no benefit to deferreds?
Balancing these stakeholders’ interests is a difficult task for employers. It is also difficult for trustees. Trustees need to remember the very important position they hold, their bargaining power and the parameters within which their decisions are taken. Employers also need to remember that the trustees’ buy-in is usually a key part of the success of the plan.
A properly advised trustee will refuse to agree to a proposal which is manifestly not in the interests of one category of member unless there is a perception that, all things considered, the proposal represents the best outcome for the beneficiaries taken as a whole. The trustee will also need to consider any dispute between the employer and active members over a restructuring plan.
When we are asked by employers about handling unions, we point out all of the above and mention the need to comply with collective agreements. Moreover, when it comes to it each employer will have to decide for itself how to deal with the unions in the context of its own workforce. Employers need to be prepared for the long-haul if the unions really decide to be activist. To see just what this can mean, see Labour Court Recommendations Pensions/Insurance section.