The Pensions Regulator

Multi-employer withdrawal arrangementsMulti-employer withdrawal arrangements

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Definitions

Assessment period: An assessment period is the period after a qualifying insolvency event has occurred in relation to an employer of an eligible scheme, during which the Pension Protection Fund will assess whether or not it must assume responsibility for the scheme.

Employment-cessation event (after 6 April 2008): Regulation 2(1) of the Occupational Pension Schemes (Employer Debt) Regulations 2005, as amended by the Occupational Pension Schemes (Employer Debt and Miscellaneous Amendments) Regulations 2008.

An employment-cessation event occurs at the time an employer ceases to employ at least one person who is an active member and at least one other employer continues to employ active members. (If an employer notifies the trustees of its intention to employ active members in the 12 months following the employment-cessation event and does so, an employment-cessation event will not have occurred).

This means an employment-cessation event can occur, not only when an employer decides to cease participation in the pension scheme, perhaps as a result of a corporate transaction, but also when restructuring and transferring employees to different employers in a group. In addition, it may not involve a decision by an employer at all, for example, it could be the result of the last active member of an employer changing schemes or ceasing accrual, or leaving the employment of an employer.

This trigger for the employer debt is contained in the 2008 Regulations and the regulator has no ability to disapply the legislation.

Funding test (withdrawal arrangements): Regulation 2(4A) of the Occupational Pension Schemes (Employer Debt) Regulations 2005, as amended by the Occupational Pension Schemes (Employer Debt and Miscellaneous Amendments) Regulations 2008.

The funding test to be applied by trustees in relation to a withdrawal arrangement is that the trustees are reasonably satisfied that when the arrangement takes effect, the remaining employers will be reasonably likely to be able to fund the scheme so that after the applicable time the scheme will have sufficient and appropriate assets to cover its technical provisions, taking account of any change in those provisions which will in the opinion of the trustees or managers be necessary as a result of the arrangement.

The trustees or managers may consider that funding test is met if in their opinion the remaining employers are able to meet the relevant payments as they fall due under the schedule of contributions, taking into account any revision of that schedule that they think will be necessary when the arrangement takes effect.

Where the trustees have not yet obtained their first scheme funding valuation, the funding test is modified such that the trustees must be reasonably satisfied that, after taking account of the financial resources of the remaining employers, the arrangement is unlikely to adversely affect the security of the members' benefits under the scheme

Funding test (scheme apportionment arrangements): Regulation 2(4A) of the Occupational Pension Schemes (Employer Debt) Regulations 2005, as amended by the Occupational Pension Schemes (Employer Debt and Miscellaneous Amendments) Regulations 2008.

The funding test to be applied by trustees in relation to a scheme apportionment arrangement is that the trustees are reasonably satisfied that:

• when the arrangement takes effect, the remaining employers will be reasonably likely to be able to fund the scheme so that after the applicable time the scheme will have sufficient and appropriate assets to cover its technical provisions, taking account of any change in those provisions which will in the opinion of the trustees or managers be necessary as a result of the arrangement; and
• the effect of the arrangement will not be to adversely affect the security of members' benefits as a result of any
• • material change in legal, demographic or economic circumstances that would justify a change to the method or assumptions used on the last occasion on which the scheme's technical provisions were calculated, or
  • material revision to any existing recovery plan.

The trustees or managers may consider that the test in the first bullet is met if in their opinion the remaining employers are able to meet the relevant payments as they fall due under the schedule of contributions, taking into account any revision of that schedule that they think will be necessary when the arrangement takes effect.

Where the trustees have not yet obtained their first scheme funding valuation, the funding test is modified such that the trustees must be reasonably satisfied that, after taking account of the financial resources of the remaining employers, the arrangement is unlikely to adversely affect the security of the members' benefits under the scheme.

Liability share: Regulation 2(1) of the Occupational Pension Schemes (Employer Debt) Regulations 2005, as amended by the Occupational Pension Schemes (Employer Debt and Miscellaneous Amendments) Regulations 2008.

The liability share is the employer's proportion of the total difference between the amount of the liabilities of the scheme (calculated on a full buy-out basis) and the value of the assets.

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