What follows is the text of Mr David Newman's reply to the IDRP Stage 1 complaint by David Mitchell. You can find the Stage 2 complaint here and the text of Mr Barrie Morgan's reply to that here.

Dear Mr Mitchell,

1. The Trustee was aware of, and agreed with, the proposal of IBM that the contribution holiday under the IBM Pension Plan apply to the M Plan section following its introduction in 1997. I note the reasons you set out in Appendix A as to why you believe that the Trustee should not have agreed to the execution of the Trust Deed in April 1997. However, the Trustee was advised at the time and has subsequently been advised that it validly exercised its power of amendment in April 1997 to provide for the admission of new entrants on a money purchase basis and that there was no reason why the Trustee could not agree to employer contributions to the M Plan being met by use of the surplus in the Plan which had arisen prior to April 1997.

   The consent of the Trustee to amendments to the documentation of the Plan is required in accordance with the power of amendment, at that time contained in Rule I of Schedule B of the 1995 Definitive Trust Deed (currently Clause 1 of Part II of the 1997 Definitive Deed).

   The introduction in 1997 of the M Plan within the existing trust was discussed and agreed by the Trustee at its meeting of 12 December 1996 and at its meeting of 24th April 1997, when the new definitive trust deed and rules was adopted. The Trustee consented to the introduction of the M Plan and the employer contribution holiday in the context that IBM was able in any event to enjoy a protracted contribution holiday and could have run down the surplus by such means, terminated the Plan and introduced a new Plan with benefits equivalent to those under the M Plan. The Trustee was also aware that IBM had previously considered the possibility that the additional costs of providing statutory LPI increases, as required by the Pensions Act 1995, might be covered by an increase in the member contribution rate or, in the alternative, that the future accrual rate of benefits might be reduced. Subsequently neither of the above were put into effect for service after April 1997. Additionally, the Trustee asked IBM to consider guaranteeing pension increases at that time. While such a guarantee was not forthcoming, confirmation was obtained from IBM that it did not intend to change its discretionary practice regarding increases to pensions in payment for service prior to April 1997. It should also be noted that IBM's practice of granting such increases has continued since then.

   During the negotiations prior to the exercise of the 1997 Definitive Trust Deed, the Defined Benefit Section Rules and the Money Purchase Section Rules on 24 April 1997, the Trustee satisfied itself that the accrued rights of members would not be reduced, that the proposed amendments were in accordance with the purpose of the Plan as set out in the establishing Trust Deed and that the provisions and restrictions set out in the Power of Amendment had not been breached. Accordingly, for all of these reasons, the Trustee considered that it was acting in the best interests of the members of the Plan in agreeing to the changes.

2. I can see no evidence to suggest that IBM deliberately concealed its intentions from employees. The Defined Benefit Plans provide defined benefits and, consequently, the amendments did not affect those defined benefits. In relation to the defined contribution benefits, the M Plan members benefit from a credit into their Retirement Account at the rate specified in the M Plan rules.
3. As mentioned in (b) above, members of the C Plan, when faced with the decision as to whether or not to join the M Plan, were aware that both their accrued C Plan benefits and future accrual of C Plan benefits would continue if they elected to remain in the C Plan. Were they to transfer to the M Plan, benefits would accrue on a defined contribution basis. Whether defined benefit and defined contribution benefits are funded from surplus monies or by way of direct contribution from IBM, the considerations for a C Plan member are not altered.
4. The discretionary increases in relation to pre April 1997 service are included by the Plan's Actuary as an accrued liability, with allowance for future salary increases where appropriate, when calculating the liabilities of the Plan. Consequently, what is referred to as the "surplus" is calculated after an allowance for pension increases has been made. Discretionary increases have continued to be granted since 1997 on the same basis as before the introduction of the M Plan. There is no evidence to suggest that the use of surplus to fund M Plan contributions would have had any greater impact on discretionary increases than the continuation of the employer's "contribution holiday" to the Defined Benefit section of the Plan, had this section remained open to new members.
5. Your additional voluntary contributions have been applied to provide you with a pension which is being paid in accordance with the terms and conditions which were made known to you and agreed by you at the time of your retirement. I am afraid that I cannot see how the funding of M Plan benefits from "surplus" might have affected your AVC benefits. If your concern relates to discretionary increases please see (d) above. If there is another aspect to this issue which I have failed to identify, please let me have further details.
6. Your assertion that the reason for the "concealment was that IBM wanted to ensure that members of the C and N Plans did not transfer en-masse" is based on a misunderstanding as to the effect that such transfers to the M Plan would have had on the liabilities of the Plan and the surplus monies in the Fund. Had more members elected to transfer their accrued rights to the M Plan, in all probability this would have given rise to a larger surplus, not a reduced surplus as you assert.
7. As referred to in (a) above, the Trustee was aware of IBM's proposal that the employer contribution holiday apply to M Plan contributions and agreed with that course of action. Consequently, there was no failure to contribute by IBM. There is no obligation on the Trustee to disclose this information. This is not to suggest that there was any deliberate "concealment". It has never been the practice of the Trustee to disclose the manner in which benefits are funded, save in the Plan's accounts and the members' report. So far as I am aware, this reflects the practice of most UK pension schemes.

The term Plan, in the context of, for example, the C Plan and the N Plan, has been used historically to describe the different level of benefit accrual under the IBM Pension Plan. Hence, the logical extension of the use of the term M Plan in relation to the defined contribution section. However, with the introduction of the defined contribution section, it has become more important that the underlying concepts are explained accurately to the membership. As the IBM Pension Plan is referred to as "the Plan" it was considered confusing to be referring to the C Plan, M Plan, T Plan etc hence the clarification of these terms by the addition of the word "section", which is what they are, and always have been.

The Trustee is the party responsible for preparation of the Members' Reports. Consequently it is the Trustee which has drafted the wording in such a way.

Your underlying assertion is that there exist two "plans" rather than two sections of a single "plan". Whilst it is acknowledged that the description of the various benefit structures as "plans" (eg C Plan, N Plan, M Plan etc) may be confusing in this regard, this terminology has developed over the history of the Plan and should not, of itself, detract from the underlying structure of the pension scheme/trust as a whole. There is only one trust and one pension scheme. This structure provides benefits calc ulated on many different bases viz: C Plan, M Plan, N Plan, V Plan, T Plan etc. Each of these benefit structures is supported by one Fund. The fact that the M Plan members have benefits which are, in the main, calculated on a defined contribution basis does not mean that such members have any legal right to any particular assets of the Fund. In this regard please see Rule 5(2) of Schedule C of the M Plan Rules which states that "The calculation of a Member's .... benefits by reference to his Retirement Account affects only the calculation of such benefits and in no way gives him a right to any particular assets within the fund and each Member's ..... right to any benefits under the Plan exists against the whole of the assets of the Fund."

At various stages the Trustee has sought the opinion of Leading Counsel. Specifically on this matter, leading Counsel confirmed that he considered all benefits to be provided under the one trust and from one Fund. The scheme is established and governed by one trust deed (albeit with different rules applying to different groups of members), has one Inland Revenue reference number and is registered with the Registrar of Occupational Pension Schemes as one scheme. The definition of "Fund" in Part I of the 1997 Trust Deed as "the assets and monies held for the purposes of the Plan" does not differentiate assets dedicated to any particular class of benefits. Additionally, it should be noted that M Plan members' benefits are not calculated on a purely "defined contribution" basis, but also have certain of their benefits, most notably benefits on death, calculated on a defined benefit basis.

You state in paragraph 3 that "surplus is most certainly not IBM money - it is pension fund money placed in trust for the benefit of C & N Plan members". This is only partially correct. It is, of course, true to say that the surplus is not IBM money. However, it is not true to state that the surplus is therefore only available for the benefit of C and N Plan members. The Plan, established by Trust Deed dated 3 April 1957, states that the establishment of the Plan is 'for the purpose of providing retirement provision and ancillary benefits for such of its present and future employees as under the Rules hereinafter mentioned shall be admitted thereto in accordance with Proposals therefor lately circulated'.

From inception until 1997 the Plan provided primarily final salary type benefits. However, by the exercise of the amendment power referred to above, the last remaining open final salary section was closed to new entrants with effect from 6 April 1997 and the M Plan was introduced for all new entrants. The purpose of the Plan is to provide retirement and ancillary benefits "for present and future employees". This is not limited to existing C Plan and N Plan members alone. The introduction of the M Plan has not altered the stated purpose of the Plan but is simply the establishment of a new type of benefit structure. In many ways this is no different to the establishment of the C Plan in 1983. The Plan has one "Fund" supporting all of the liabilities it has to pay benefits. This remains the case whether these benefits are calculated on a defined benefit or defined contribution basis. If the "surplus" is capable of being used to support differing types of "defined benefits", why should it not be used to support benefits calculated on a defined contribution basis? Such an approach accords with the main "purpose" of the Plan and is endorsed by Mr J Neuberger's decision in the case of Barclays Bank Plc -v- Barclays Pension Fund Trustees Limited and another [2000] All ER (D) 1904.

The composition of the Board of the Trustee complies with the provisions set out in the Pensions Act 1995 in full.

The IBM Pension Plan, which provides pension benefits for IBM employees, is funded by past, present and/or future contributions from both IBM and the Plan's members and, I believe, is a central part of IBM's remuneration strategy. It is therefore natural, and indeed is the case for almost all occupational pension schemes in this country, that representatives of the Principal Employer comprise part of the Trustee Board. That is not to say, however, that the role of the IBM- nominated directors of the Trustee is different to that of the member-elected directors. All directors of the Trustee must act in a fiduciary capacity and, when exercising their powers under the Trust Deed and Rules, must act in the best interests of members, although the Trustee may take into account the reasonable commercial interests of IBM where appropriate.

All the directors of the Trustee are aware of their duties as fiduciaries and are able to distinguish their roles as directors of IBM and as directors of the Trustee when exercising their powers.

1. The Trustee is not referred to in Rule 1(2) and has no role under this rule. It is the Principal Employer which, having considered the advice of the actuary, determines whether an "acceptable alternative method" is "appropriate". The Trustee's role is limited to ensuring that sufficient contributions are paid to meet the Minimum Funding Requirement under the Pensions Act 1995 and that contributions are paid in accordance with the necessary Schedule of Contributions.
2. The proposal for the introduction of the M Plan section of the IBM Pension Plan originated with IBM. However, the drafting of the deeds to reflect the agreement reached by IBM and the Trustee was instigated by the Trustee who approved the wording of the draft deeds before submitting these to IBM for its approval. The Trustee was fully aware of the provisions of the Trust Deeds before execution. The proposal to apply "surplus" to meet IBM's liability to contribute to the M Plan was expressly presented to the Trustee in December 1996 and is reflected in the wording of rule 1(2). The Trustee agreed to this proposal for the reasons set out above and considers that rule 1(2) adequately documents this agreement. To completely avoid any doubt however, a further clarifying amendment was made to the Rule in February 2000.

You quote exerts from "It's Your Pension - Member Elected Directors (August 99)", from the section relating to the duties of the Trustee in relation to the custody of assets. The role of the Trustee in relation to the defined benefits scheme and the defined contribution scheme have been distinguished because, at the current time, the Trustee has elected to invest separate portions of the fund in different ways. Members of the M Plan have been offered "investment options" by reference to which their benefit entitlement is calculated. Whilst it is not incumbent on the Trustee to match those investment options with the underlying assets, the Trustee has elected to do so. This ensures that there is an exact match between the M Plan liabilities and the monies which have been allocated to fund those liabilities. This need not, however, always be the case. It would be open for the Trustee to invest all assets of the Fund in the same way, merely using the investments options of the M Plan members as a means of calculating the value of each members retirement account at normal retirement age. The description of the practicalities of these investment arrangements should not be interpreted to suggest that there is more than one "fund" The duties of the Trustee as regards the investments of the Plan are the same for the different categories of membership, whether M Plan or otherwise. There is only one Fund.

With regard to your comments concerning training material for Trustee Directors, I am happy to enclose the materials used at the training events organised internally. In addition to internal training MEDs also attend external training organised by the likes of the NAPF. Trustee Directors are also encouraged to sit the PMI Trustee Certificate examination.

All Trustee Directors, whether MEDs or not, are given a copy of an appropriate basic Trustee reference manual/book.

All new Trustee Directors, whether MEDs or not, are now expected to attend the NAPF Trustee Essentials course.

With regard to your comments concerning IBM appointed directors being "informed of the separation of duties that the amendment created by bringing the M Plan into existence", I assume you are implying a separation of investment/funding duties. As I have mentioned above, there is no such separation of duties. There is one Plan, one trust and one Fund.

It only remains for me to remind you that if you are dissatisfied with my decision, you may invoke Stage 2 of the IDR process by writing to the Chairman of the Trustee. I enclose a copy of the IDR process for your information.

I also wish to remind you of the existence of the Occupational Pensions Advisory Service (OPAS) and the Pensions Ombudsman. OPAS is available to assist members and beneficiaries of pension schemes in connection with any difficulty with their scheme which remains unresolved. OPAS can be contacted at:-

The Pensions Ombudsman may investigate and determine any complaint or dispute or fact or law in relation to a scheme made or referred in accordance with the provisions of the Pension Schemes Act 1993. The Pensions Ombudsman can be contacted at:-

Yours sincerely,

David Newman

Pensions Trust Manager

cc: Mr J Spencer OPAS.