Pensions Update - Spring 2014

This update contains summaries of two recent practical court decisions which provide confirmation that trust law in Ireland relating to trustee decision making, related responsibilities and potential liability for breach of trust is consistent with previous expectations. These decisions while welcome do not change the position as it was previously understood. As such they provide a significant degree of comfort that provided that trustees act in good faith, having taken appropriate professional advice, the Courts are very unlikely to interfere with their decisions.

To the extent that there is anything novel in the two decisions, the most significant confirmation is that, as a general principle, it is appropriate for trustees to take into account arrangements being made outside the scheme for active members.

We also provide an update on further EU regulation, the European Market Infrastructure Regulations (EMIR), which affects schemes using derivatives (including those which use them solely for hedging through their custodian). These regulations require pension scheme trustees to organise reporting of the entering into and closing out of derivative transactions in a relatively short timeframe. In most cases this will be dealt with by the custodians (who have reporting obligations) but we are aware that there are some onerous reporting agreements being proposed to trustees which have inappropriate indemnities in them.

Finally we have information updates on the pensions levy and revaluation.

"ELEMENT SIX"

The recent High Court determination in the case of Greene & ors v Coady & ors [2014] IEHC 38 on 4 February, dealt with the standard of care that trustees in Ireland must apply in carrying out their duties in respect of pension schemes.

COMMENT

The judgment provides confirmation under Irish case law on the manner in which trustees of pension schemes should conduct themselves and the level of care that is required in order for trustees to be considered to have carried out their responsibilities effectively and in a manner that is in the best interests of the beneficiaries of the scheme. The case confirms the state of the law on a number of issues such as: how trustees make decisions; whether it is appropriate for trustees to take into account external considerations (such as job security and contributions to other schemes for active members); and what constitutes "wilful default" in considering whether there has been a breach of trust.

Trustees can take comfort that the Courts will not lightly entertain a challenge to their decisions where they have acted honestly, in good faith and on professional advice.

CASE SUMMARY

Set out below are some of the key confirmations arising from the case.

124 members of the Element Six Limited Pension Scheme, the principal employer of which was Element Six Limited sued the Scheme trustees for breach of trust by accepting an offer from Element Six Limited of37.1 million instead of demanding the entire minimum funding standard funding deficit of129.2 million. Among the complaints of the members were that the trustees acted in "wilful default" of their duties; that they were conflicted in their duties; and that they considered irrelevant...