IBM cuts quarter of trustees to 'align' with industry

IBM has announced plans to reduce by a quarter the number of trustees on its board to align with 'best practice'.

From May 1, the employer will reduce the number of member-nominated directors (MND) on its trustee board from four to three and the number of trustee directors from 12 to nine.

Some schemes have reduced the number of trustees to achieve better effectiveness and management of the board.

With a smaller number of board members it is easier to organise meetings and make faster decisions on the day.

“The trustee board structure has been benchmarked with other schemes of comparable size and make-up," said an IBM spokesperson.

“These adjustments, which do not require the permission of the IBM Pensions Trust board, ensure we remain aligned with industry best practice.”

Reasons for reduction

There is divergence of opinion among schemes over the right number of board members.

CSC Computer Sciences, for example, used to have a larger trustee board, but decided to reduce the number of trustees from nine to six to achieve better efficiency.

Chris Marshall, deputy pensions manager, said it was easier to deal with a smaller board.

“Convenience could be the reason for reducing a number of trustees,” he said. "It's easier to clear the diaries and we don’t have absences during the board meetings.”  

Pension schemes are increasingly looking to assess and improve their own effectiveness, according to consultants.

Robin Fillion, senior consultant at Towers Watson, said: “With the complexity of the current pensions landscape, these  assessments are often leading to greater delegation to committees or  external providers in a bid to ensure the right skills and resources are  utilised to make effective decisions. An outcome of this could be a shift in focus – from the quantity, to the quality of the trustees on the board.”

Boards  could come to be considered too large for constructive debate, he  added, or resignations could be considered necessary in order to manage  conflicts of interest.

It's easier to clear the diaries and we don’t have absences during the board meetings

An employer has a fiduciary power when appointing or removing trustees, which means it must act in the best interests of the members of the scheme.

It should not appoint or remove a trustee to gain influence over the decisions made by the trustees or for any other improper purpose, according to law firm Pinsent Masons.

“A personality clash or a falling-out between trustees, or between trustee and beneficiaries, or a simple misunderstanding between them is unlikely to amount to sufficient grounds for removal, unless there is a threat to the trust assets as a consequence,” according to the Pinsent Masons’s guide on appointment and removal of trustees.

By cutting the number of trustees, IBM saved £6,000 a year on the MND salary, and on any remuneration of the three trustee directors – a figure the company refused to disclose.

But the cost of funding does not always equate to the number of trustees on a board.

An outcome of this could be a shift in focus – from the quantity, to the quality of the trustees on the board

Karen Parry, head of policy and compliance at The Pensions Trust, said the cost of running the scheme was "certainly not an issue" for most in reducing the number of trustees.

Legal requirements

According to the Pensions Regulator, the trust deed normally gives the employer or the existing trustees the power to remove trustees. But the number of trustees should always meet the legal requirements.

Schemes should have one-third of their trustees appointed as member-nominated trustees. Some schemes may have special provisions that require more than one-third to be member-nominated, according to the Pensions Advisory Service.

There is no accepted optimal number of trustees. But on average, trustee boards have eight members, according to the National Association of Pension Funds 2011 annual survey.

American Express Services Europe has increased the number of its trustee members from eight to nine due to the one-third legal requirement.

Pensions manager Margaret Ellis said: “Our nine-member board is ideal, because we have a good spread of skills and experience.”