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Update, September 2002
We now know that the government does not intend to introduce new regulations for this area for another four years, making a total of ten years since members approved the IBM arrangements. By that time, a full new Pensions Act is expected, to replace the current Act. So there is nothing specific to IBM that can be done. We remain under the arrangements that the members did not sufficiently object to in 1996. Attention has shifted to the government's "White Paper" proposals which are due to appear this Autumn.
Elected TrusteesIt is apparent, from reading the messages sent to this website, that many members of our pension schemes see the election of trustees in the same light as the election of their MPs. The messages have phrases like: "I thought the elected board members were specifically charged to defend our interests" "It does look as if the Trustees are agents of the company rather than of the C - Plan members."
This view is natural, but there are nuances that distinguish the context of MPs from the context that
trustees are in. All trustees have the same roles and responsibilities when it comes to the way the
pension scheme is managed. The Occupational Pensions Regulatory Authority
(The term "beneficiaries" is omitted from the OPRA glossary, probably because it defies simple definition - there are possibilities for the company to be a beneficiary. However, the members will generally be in the role of beneficiaries.)
All MPs have the same roles and responsibilities when it comes their duty to Queen, Country, and Constituent (whether the constituent voted for them or not). MPs are not analogous to trustees, however, because they are also expected to promote party aims and, for instance, a rural MP is expected to promote rural interests. Trustees are intended to be uniform in their aims (although they may have special interests, for example in investment policy rather than in payment policies). The ideas and experience that trustees bring will vary, but their aim should be common.
There are inherent difficulties with this model of how trustees should optimise affairs for the beneficiaries, if the source of trustees provides a narrow set of ideas and experience. In the days when the trustees could all be appointed by the company they could all be steeped in the notion that stockholder value was the highest good and that agreeing with the company was essential to their personal prospects. A Commons Social Security Select Committee described what could result:
Parliament recognised the need for a broader base, and the regulations about elected trustees came into effect in 1997. More recently the regulations have been improved to ensure some member representation on almost all trustee boards.
(The term "elected trustees" will do for this discussion but technically they are Member Nominated Trustees(MNTs) or Member Nominated Directors (MNDs) according to the legal framework of the trust. For IBM they are MNDs.)
As well as company appointed trustees and elected trustees there can, in rare circumstances, be statutory "independent trustees". Confusion can arise because IBM uses the term "independent trustee" in a different sense. (Apparently in the sense of any trustee that is neither elected nor a full time employee of the company. Under this use of the term, a trustee who is a director of an IBM UK company is "independent".) Independent trustees in the statutory sense are not company appointees. Independent trustees in the sense IBM uses the term are company appointees.
It is generally agreed that elected trustees are a good thing. It is not generally agreed whether they have a sufficient role to provide "Consumer Protection". (The term "consumer" is used to cover all those who are or potentially will be receiving a pension, a pension bought by their skill and industry (or a spouse's)).
Currently the government regards elected trustees as second class trustees. The government has provided regulations under which it is not practical for elected trustees to obliterate the views of company appointed trustees but it is practical for company appointed trustees to obliterate the views of elected trustees. Such obliteration rarely happens because most trusts exhibit an English sense of "fair play" which over-rides the bias in the regulations.
However, obliteration can happen because of the overwhelming powers of the majority. The majority decides not only the trust's actions, but also what gets discussed and what gets recorded in the minutes about what each trustee said on the subjects the majority allows to be discussed. ("History is written by the victors") If an elected trustee resigns because he feels unable to do his trustee duty in the circumstances (as Barry Morley did in our IBM case), then his replacement does not have to be the next candidate in line (from a number of votes obtained in the election point of view); it can be somebody the majority chooses.
A 50-50 balance of elected and company-appointed trustees would, in practice, prevent obliteration of views and would remove any second class status. Over the last decade, organisations with a consumer viewpoint, such as pensioners' associations and unions, have pressed for this balance. Other organisations have supported them on occasions, for instance OPRA and the National Association of Pension Funds(NAPF). NAPF is a powerful body representing the producers of occupational pensions, and advisers to the producers.
The point of all the above at this time (early 2002) is that the arrangements for electing expire
after six years and trustees are elected for a three year term. So the members will soon need to
decide on possibly new arrangements and trustees. (There was a suggestion at the
London retirees AGM
that Parliament might extend the six years, but the current law is six years
See also The View from Westminster).
Particular trusts and companies can set about establishing the arrangements for elections in particular ways, within the framework of the regulations. The regulations allow for the arrangements to be decided in three stages:
In steps 1 and 2, the mechanism for seeking members' approval is also staged:
In both these steps the eligible members will include employed and retired members. It may or may not include deferred members or surviving spouses.
It is worth noting that these mechanisms hardly correspond to fair voting by an informed electorate. The proposer can make decisions about who should comprise the electorate. The proposer determines the wording of the proposition. The proposer can discriminate between different groups in the electorate as to what they need to do to object. The electorate does no know what individuals make up the electorate - there is no equivalent of the electoral roll. Apart from a few facts that the regulations require the elector to be sent, the electors' knowledge is largely under the control of the proposer. There is no requirement for independence between those proposing and those counting responses. There is no anonymity from those in power - objectors must identify themselves to proposers who will sometimes have powers that affect the individual.
There is also a structural flaw in the default arrangements - they do not allow retirees to vote in trustee elections. So a rogue trust can threaten "Vote for our proposed election arrangements or you won't get a vote at all in the eventual election". This is so obviously vindictive that we do not think OPRA would allow it, but the implicit possibility is a flaw in itself.
Is it too much of an exaggeration to say that these regulations were not designed to yield a genuine test of informed member opinion, but as a way for institutions to give their decisions an appearance of endorsement?
In the particular case of IBM UK and the Trust in 1996 the proposal for the arrangements was made by the company, with some components that the trust agreed. (Such as deferred members not to be eligible members).
The particular approval mechanism chosen was counting objections. There were very few objections. This was no surprise. The deferred members could not register any objections. The majority of us had experienced decades when what IBM suggested turned out well - the company was one of the best for employee relations.
Six years of experience makes a difference. IBM's employee practices have moved it further from being one of the best companies towards being one of the worst. Judging from our website messages and what people say at retiree meetings, many people feel the elected trustees have not been able to do what the regulations intended them to do. Those retirees who know more about the regime the elected trustees have been operating under (and about the circumstances surrounding the upheaval of our pensions plans endorsed by the first ever board meeting the elected trustees were at) tend to be even more critical.
The obvious questions are whether better arrangements are possible, and whether we can do anything to promote them.
Better arrangements are possible. IBM could propose them, and some of them the Trust could propose without needing IBM's approval. (In theory at least, but recall that the majority of the trust board directors are IBM appointees and can be dismissed at any time.)
One possible improved practice would be to have fewer appointed trustees or more elected ones. There are no readily available figures on what is best practice. The most recent figures from the Government Actuary's Department are for 1995. The figures for year 2000 will be published, at best, in 2003.
Making use of the 1995 data is difficult, partly because it is derived from 100,000+ schemes, the vast majority of which were much smaller than ours, and partly because the tables do not always give the data we want directly. However, if we restrict consideration to private sector final salary schemes that have elected trustee(s) then the "most typical" member would have been in a scheme with 58% of its trustees elected. Averaging like this has to be tempered with caution because there can be no fractions of trustees and because, for instance, some schemes will have trust boards entirely elected. We can say that the numbers do not support the view that most elected trustees in 1995 found themselves on boards where an appointed majority could easily render them irrelevant.
The elected trustees in 1995 were there as a matter of good practice. The regulations that forced IBM to adopt the practice did not come into play until 1997. It is unlikely that many schemes reduced the number of elected trustees as a result of the regulations but more schemes had to increase their number. It is to be expected that the median position is higher now than in 1995. We have no good data on what it is, but we know that IBM, stuck on the legal minimum, is below it.
On the question of what is to be done by us, the answer is probably nothing useful until we see the proposals to replace the current arrangements.
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