(This page created on 3 November 2004)

The Ombudsman has upheld none of the complaints.  The dozens of you who wrote to the Occupational Pensions Advisory Service, and others with similar views, will be wondering how this feat was achieved.

What the Ombudsman looked at.

The Ombudsman's most potent tool is to choose what he looks at.  He has chosen not to "investigate matters before 1995" [16]. Since many of you will have retired before 1995, and your pension promise from the company crystallised when you retired, any gripe you have is not investigated. The Ombudsman gives his reason as the "difficulties" [13].   If it is any consolation, the Ombudsman does say that he will have "regard to" these uninvestigated matters.[13]

The Ombudsman also chooses not to "conduct some kind of Commission of Inquiry into the recruitment and employment practices of IBM either nationally or globally".[16]  This is an example of a "Straw Man" - a proposition introduced so that it can be knocked down.  Nobody has asked for such a Commission of Inquiry but the Ombudsman is able to belittle the complainants by suggesting they did.  Choosing not to consider those things he can label as "employment practice" further relieves the Ombudsman of work.  For example, because of the complainants' reliance on the commitment about pensions in payment policy  "As in all compensation and benefit matters, we aim to compete favourably with the practice of other leading companies", you might feel the Ombudsman had a need to understand what the first clause of this statement meant to employees.  However, that subject is not addressed, presumably having been consigned to the waste bin of "employment practice".

Some areas are avoided with no explanation of why.  For example, when Barry Morley resigned he wrote down his reasons.  Although the complaints refer to that, and his reasons mesh with the complaints, the Ombudsman chooses not to go there.

Another area avoided, except for unreasoned conclusions, is what would have happened if the transfers had not occurred.  The funding level of the C-Plan would have been higher, and there is dispute about the result of applying the Statutory Surplus calculations in that context.  You will know from the IDRP material on the website that the complainant and the Trust agreed this hinges on a clause, 5 (2)(c) of Statutory Instrument 1987 No. 412, in the regulations.  The Ombudsman ignores this. 

Avoiding areas extends to avoiding documents.  It seems the document in which the Trust provided a precise description of how pension increases were computed in practice and the fullest account of increase history was not regarded as relevant. 

In short, for most of your concerns, you will find that the Ombudsman has not looked into them, rather than looking into them and finding nothing wrong. 

How the Ombudsman looked at what he looked at.

The stumbling progress of the investigations, and the prejudicial mistakes of the Ombudsman's Office in telling the complainants it was doing one thing while (as later admitted) it was doing another, are noted in here and elsewhere.   

Accounts of development of the determination contents are not allowed because of confidentiality, but we can summarise the "how" which is deducible from the determination itself.

The law requires the determination "shall contain the reasons for his determination" but says nothing about completeness or quality of the reasoning.  We think the determination will have shortcomings compared with your expectations.  For example the Ombudsman tells us that "I see no legally enforceable promise"  about something [215].  But he does not tell us why he sees no such promise.  We know from the Equitable case that the GAR holders were able to enforce the promise to them, although they had much less documentary evidence of the promise than the IBMers have.  Why the difference?

The Ombudsman considers it sufficient to lay out "one lot said this" and "others said that" followed by a conclusion.  You will find many examples; one lies in the large chunks of prose quoted as communication to the members. There is no attempt to put a semblance of order on these, by explaining the significance of the different channels of communication with staff.

By leaving reasoning out of the determination, the Ombudsman risks doubts about whether there was reasoning.

Transfers of money from C-Plan to M-Plan.

Many of you were astonished to find that the C-Plan pot of money that had grown (in part) from your contributions was being used to fund IBM ventures that would bring in large numbers of staff for whom IBM wanted the cheaper M-Plan.

Many things might have prevented this - here is how the Ombudsman dismissed them:

The originators of the pension scheme might have written that the scheme was to provide final salary pensions.  If they had the M-Plan would have needed different Deeds and the transfers would not be allowed.  You may well feel that the people establishing our pensions scheme (back in 1957) would have been appalled at the transfers idea but they did not write that down.  Or rather they may have written it down in a vital document which is known to have existed but has not survived IBM's records retention policy.  Given a choice, the Ombudsman decided that the document would not have implied there should not be transfers.

The surviving Deeds, brought up to 1996, might not allow the transfers.  Deciding this means resolving the meaning of unclear documents.  The Ombudsman takes the view that there was an intention to have one fund.[186]  However, having one fund does not automatically allow transfers between monies of the different sections.  The Ombudsman is in doubt about this [190] and avoids an explicit decision by saying that it does not matter.  He does not reject the possibility that the transfers were illegal because the Deeds did not allow them, he says it does not matter if they were illegal.

He says this because amended Deeds, adopted in year 2000, did make the transfers legal and the (possibly) illegal transfers did not matter.

Dave Mitchell had other reasons, beyond the Deed wording, for believing that the transfers were illegal.  The main theme of these was the same as in the Barclay's case.  (The previous Ombudsman had supported the scheme members in that case but his decision was overturned in the High Court.)   Would the IBM complainants view be rejected for the same reasons if it were ever to reach the Court?  The complainants had three reasons for suggesting Barclay's was different:

a) Barclays was a non-contributory scheme.  The Ombudsman accepts that employee contributions increase the onus on the employer to act properly but says that is not a significant difference.

b) There is a difference on windup.

c) There is the consideration that the effects of transfers are the same as the effects of paying the employer - if the M-Plan had been separately funded and the transfer had been a payment to IBM that was used to pay the company contribution to the M-Plan then the effects on the members, on liabilities, and on the company cash-flow would have been the same.  With the two things having the same effects, Parliament may have intended the same constraints on them and that would have made a difference from Barclays.

(it may be difficult to detect this third consideration in the determination, but it has been discussed in newsletters.)

What does appear is a conclusion that transfers are not "the same" as payment.  This is undoubtedly a Straw Man since nobody said they were the same, it is the effects that are the same.  It may also have been intended to cover up not addressing whether the effects were the same.

Anyway, the Ombudsman concludes that none of these differences are significant differences.  

In summary the Ombudsman concludes that the transfers were legal, except possibly for a few years when he thinks transfers or no transfers did not matter.

Did the transfers matter?

The Ombudsman knows that the funding level of the C-Plan would have been better without the transfers but argues that scheme members are unaffected by funding level because the employer guarantees the "accrued benefits".   In this simple view you are due some pension and if that is not changed you don't need to be concerned.

The alternative view is that funding level affects members' security, their prospects for discretionary increases, and the potential for increases brought about by the Statutory Surplus regulations.  Also the presence of transfers as an extra tool (on top of contribution holidays) to run down the C-Plan funds would be a relevant factor for somebody assessing whether to invest AVCs, whether to take a deferred pension etc.   The alternative accounts for "accrued rights" as well as "accrued benefits" and also for the pragmatics. (Or to put it more simply, as the complainants have "More assets, same liabilities, equals better prospects for members." )

Given the real-life problems that members of UK schemes have had as the result of funding levels recently, it is hard to see how anyone would advise that funding levels and future funding levels were not important subjects, influencing the members decisions, but the Ombudsman maintains the transfers did not matter.

Should the trustees have allowed the transfer mechanism?

Even if the transfers mechanism was and is legally incorporated in our scheme, it is still a relevant question whether it should have been.

Trustees are required to obtain the best deal for the members.  The determination shows that ours only considered the two possibilities of the complete M-Plan with transfers or no changes.  They did not consider the possibility of adding the M-Plan but not with transfers.  You might find this surprising, particularly as a judge has talked about a presumption (albeit not a strong one) "that one might well expect an employer who is setting up a pension scheme, which offers employees pensions and associated benefits either on the final salary basis or on the money purchase basis, to do so on terms that there will be two separate trust funds, one for each type of scheme". 

The Ombudsman does not address whether the trustees were wrong not to go beyond the two possibilities an advisers said were the only two available to them, but he is implicitly saying they did not ignore a relevant factor in their decision making.

Given the choice the trustees thought they had, the Ombudsman accepts the deal had something for the members, because the members were not made to pay extra for the regulated increases on benefits from new service, these regulated increases happening at the same time as transfers were introduced.  This is an example of the "omnipotent ogre" argument - that the trustees must always accept company plans because the company always could do something worse (irrespective of whether they would do something worse.)    There is some doubt whether the employees could have been made to pay for the regulated increases; the Ombudsman implicitly says they legally could, without reasoning.  (If they had been, it would have been an employee relations disaster - other companies had previously adopted the good practice being made regulatory and they saw no cost so had no reason to levy their employees.)  In any case, the company had decided not to make the employees pay.

Legal precedents give the trustees a very high benefit of any doubt in circumstances like this.  Even if the Ombudsman thought that a better deal might have been struck, that in itself would not be enough to find the trustees culpable.

Communications

There are "disclosure" regulations about what must be told to members but nobody claimed the members should have been told about the M-Plan mechanism under those regulations.  The complainants felt they should have been told about something they regarded as important and significant in their decisions.  They say that by not explaining, they were left (by the assumption above), and by a reference to the M-Plan funding as "this fund", to believe the M-Plan had separate funding.  They say the effect of these inadequate communications was to tell them something false.

The Ombudsman accepts that the members where not told about transfers when they were told about the M-Plan but says there was no need to and there was no injustice resulting.  No reasoning is given but this is implicitly a result of his view that members do not need to factor funding levels and prospective funding levels into their decision making. (see above)

Conflicts of Interest

There is a difference of approach between the Ombudsman and the complainants on this topic.  The complainants say that such conflicts can be managed [165] but are not always successfully managed[166], and say that the intensity of the conflicts and the pattern of outcomes should be looked at to determine whether there were any failures to manage conflicts of interest.

The Ombudsman sees any questioning of whether conflicts were managed as allegations of deliberate partiality, and will only look at these if there is "direct" evidence.

Thus, in the absence of "smoking guns", the Ombudsman is able not to look into the strength of the conflicts for the US domiciled members of the Trust board, or for Ann Grinstead who was both the Human Resources developer of the 1996 plans and also a trustee supporting their adoption, or Jim Lamb who appears to have spoken for the trust in meetings when he had no authority to do that delegated to him, or Professor Sir James Ball who (according to the records) was a member of the board of the employer and the board of the Trust at the same time.

Incorrect Corporation Control

The idea of the laws of one country being imposed on another country is known as extraterritoriality.  The complainants said there was an element of that in the Corporation's hands-on control of the pension scheme, interfering with the natural application of Trust Law between the UK company we work(ed) for and us.

You will find factors in support of that in the full determination, such as the use made of Corporate Instructions (to manage your expectations) and the Leading Counsel's opinion.  The Ombudsman does not address the extraterritoriality issue against IBM so you must judge on your own.

Pensions in Payment Increases

The Ombudsman felt no need to look at these in a comprehensive way because of his decision that nothing was enforceable so he did not need to investigate and compare what was promised with what was delivered.  However, there are scattered details which cover some of the IBM thinking and Trustee proposals from 1995 onward.

The most significant document is referred to in [147].  The Ombudsman here is most unhelpful, although one feels he must have appreciated the importance of the data.  Crucially, he does not tell us whether the increases were increases delivered in the UK or increases delivered in the US. He refers several times to Consumer Price Index.  At the time of the document, there was no Consumer Prices Index calculated by the UK Government, although there is something called that now.  The US had a Consumer Price Index at the time.

One thing can be derived from the treatment of that data - IBM chose to be worse than all of the companies because it matched the lowest rate of increase but without the annual review that the companies in the scheme had.