A Trustee's guide to identifying your statutory employer(s)
7th September, 2011
The Pensions Regulator (tPR) has issued a statement reminding trustees of the importance of identifying the statutory employer(s) of their scheme.
A statutory employer is obligated to meet the scheme specific funding requirements, to pay Section 75 in an insolvency situation or trigger entry into a PPF assessment period.
Statutory employers have been defined by the Pensions Acts 1995 and 2004 as extended by the Employer Debt, Scheme Funding and PPF Entry Rules Regulations. Recent case law (Pilots case) has extended the definition further to deem employers who employ eligible members of defined benefit (DB) pension schemes to have statutory obligations to a Scheme.
For schemes open to accrual, identifying your statutory employer(s) is likely to be straightforward but for schemes closed to accrual this can be a complex and time consuming task, particularly in cases where there are multiple employers with statutory obligations.
You will be required to declare who your statutory employer(s) are on tPR’s scheme return form from November 2011. TPR has urged trustees to act immediately to clarify the position of their scheme.
Reviewing the following information should provide you with a clearer understanding of which company or companies have statutory obligations to your scheme:
- Scheme documentation including deeds of participation and cessation should be the first reference point. From experience we have found it useful to refer to companies house numbers (CRNs) in addition to company names.
- Employment records with payroll information, National Insurance records, contract details and secondment information can also be a useful source.
- The Elections Team at HMRC Pension Scheme Services can provide Trustees with a list of employers who have been allocated ECON numbers in relation to schemes.
- Useful information on historic employers can be found on the Companies House website.
- Past scheme accounts may provide information on the scheme funding position at the date an employer ceased to participate and whether section 75 debts were paid to the scheme.
- You should note that your statutory employer(s) may be different from your principal or participating employers.
If the position remains unclear it would be prudent to seek legal advice. For assessment of employer covenant it is important that you have identified the employer(s) with statutory obligations to your scheme.
Once identified, you should keep the situation under review and look out for any situations which would cause your scheme to lose any statutory employers, for example:
- Employer substitution where a new employer does not meet the statutory employer definition or is a defined contribution (DC) only employer.
- Bulk transfer of DB liabilities to a scheme in which no DB liabilities will accrue.
- Where employers cease to participate leaving an employer not deemed to be a statutory employer or is a DC only employer.
- Where a ‘phoenix event’ occurs, i.e. an employer’s business is sold to a new entity following an insolvency event and the new entity has never employed any active members.
The consequences for members of schemes which have lost their statutory employer(s) are serious and could result in schemes being ineligible for Pension Protection Fund (PPF) compensation or assistance from the Financial Assistance Scheme (FAS).
If your investigations conclude that your scheme no longer has a statutory employer or the employer supporting your scheme is a DC employer which has never employed an active or eligible member of the DB scheme, you should inform tPR via Exchange and investigate the circumstances that led to the loss of your statutory employer. TPR may consider use of its anti avoidance powers in some cases. A principal or participating employer can become a statutory employer in certain circumstances by employing an active member accruing DB benefits in the scheme.
The Government has been alerted to the fact that some schemes have lost their statutory employer(s) and their current consultation proposes an extension to FAS to cover schemes which lost their employer before 10 June 2011, for which the last remaining employer had an insolvency event before 6 April 2005 and for schemes which begin to wind up the day before the new FAS regulations come into force.
Through Dalriada’s involvement in scheme terminations, carrying out investigations to identify statutory employers is one of our areas of expertise. If you would like to discuss how Dalriada could assist your scheme you can call me directly on 02890 412013 or send me an email firstname.lastname@example.org.