Posted by Roger Burtenshaw on 03 November 2000 at 16:20:27:

I asked OPAS to confirm/deny my understanding that an employer could not take a contribution holiday without improving retiree benefits first. My understanding was clearly wrong in detail.

However. Paragraph 2 is interesting.
If it can be shown that IBM took back money from the C Plan, in order to pass it to the M Plan.
Then:-

1. The trustees/company could only do this if the surplus was greater than the limits laid down in legislation.

2. The trustees were required to increase pension by the lower of RPI / 5% first. This would of course apply to all years from 1997 onwards.

Dear Mr Burtenshaw

Thank you for your e~mail of the 16th October 2000.

I note that you have read somewhere that before a company providing an occupational pension scheme can take a contribution holiday it must increase the benefits to scheme members by 5%. Unfortunately, this is not true, any company operating an occupational pension scheme that has a surplus can reduce the surplus by taking a contribution holiday, and this can be done without offering any improvement to scheme benefits, provided the decision is based on advice given by the scheme actuary.

I think what you are referring to is in a situation where the company pension scheme has a substantial surplus and in order to reduce the surplus to limits laid down in legislation, a refund of the surplus can be paid to the employer. In such circumstances, this can only be done, if all pensions in payment are increased with effect ftom 5th April1997 by 5% or the increase in the retail prices index if lower. The Pensions Act 1995, the main provisions of which came into force on 6th April 1997 lay down the procedure that the scheme must follow if such a refund is to be paid to the employer.

I hope that this is helpful to you.

Yours sincerely
Muriel Sime (Mrs) Assistant Technical Specialist

Posted by Pete Warren on 04 November 2000 at 01:03:38:

In Reply to: Company return of Fund Assets - OPAS reply posted by Roger Burtenshaw on 03 November 2000 at 16:20:27:

It has never been disputed that IBM can take a contribution holiday. What is in dispute is that IBM has gone beyond a contribution holiday and removed money from a fund in surplus.

If it can be shown that the two funds are seperate entities then not only has IBM taken a contribution holiday from the C Plan but they have also removed some of the surplus and the indexation rule should kick in.

We will have to wait and see what the ombudsman decides.

Posted by Dick Bond on 08 November 2000 at 10:28:33:

In Reply to: Re: Company return of Fund Assets - OPAS reply posted by Pete Warren on 04 November 2000 at 01:03:38:

I think you are hitting at the crux of the debate here.

IF - as I believe - the two funds are separate, then although IBM is entitled to take a contribution holiday from the C Plan Fund, it is NOT entitled to move money to the M Plan. If the Actuary says that the M Plan is underfunded then IBM needs to top it up. These are 2 unrelated money movements and in this IBM appears to be wrong - but I suspect that it was done this way to improve the look of IBM profits in the current years.

However, since IBM IS entitled to take a contribution holiday from the C Plan Fund (even though the method in this case was wrong), then the fund can reduce till it gives Retirees what we have always been promised from this plan. - i.e. a pension based on final salary and service years. Any increases have always been discretionary - (i.e. based on IBMs 'generosity') - and there is nothing that can be done to change this.

Posted by Bryan Balfour on 08 November 2000 at 12:48:20:

In Reply to: Re: Company return of Fund Assets - OPAS reply posted by Dick Bond on 08 November 2000 at 10:28:33:

: Any increases have always been discretionary - (i.e. based on IBMs 'generosity') - and there is nothing that can be done to change this.

Perhaps nothing can be done to change what has happened in the past but we could at least try to change what happens in the future.

Posted by Pete Warren on 08 November 2000 at 20:48:41:

In Reply to: Re: Company return of Fund Assets - OPAS reply posted by Bryan Balfour on 08 November 2000 at 12:48:20:

What happens next all depends on how urgently IBM wants to get at the surplus in the C Plan.

If the ombudsman rules that the funds are seperate entities (and the money should not have been moved) and IBM wants some of the estimated £700M then it may have to agree to index linking to release what is left of the surplus.