How the MNRPF ruling affects your scheme-employer balance

The outcome last week of the Merchant Navy Ratings Pension Fund Trustees v Stena Line And Others case laid down a significant milestone for trustees balancing the interests of members with those of employers in their decisions.

The court approved the MNRPF trustees’ new funding regime and in doing so provided some guidance for pension scheme trustees about what “acting in the best interest of the beneficiaries” means on a practical level.

The trustee of the industry-wide defined benefit plan sought the court’s approval of its proposed use of the trustee's unilateral amendment power to introduce a complex new contribution regime.

Only around 40 of the 240 companies that had participated in the scheme over its lifetime were required to pay deficit repair contributions, with the biggest employer Stena Line paying 60 per cent of the deficit contribution.

Under the new funding regime all 240 employers will be required to pay contributions to meet the scheme deficit, stated to be between £362m and £575m by law firm Burges Salmon, which acted for the representatives of the 30,000 members of the scheme.

For trustees acting in the best financial interest of members, a phrase at the heart of fiduciary duty, it is appropriate to also have regard to the needs of employers

Jeanette Holland, Baker & McKenzie

Jeanette Holland, head of pensions at law firm Baker & McKenzie, said there was a lot of debate in the industry about the balance between trustees wanting security and funding, and "employers wanting to do the right thing but having to drive their own businesses forward”.

“In [the judge's] view it was the case that the appropriate balance of interests had been met. For trustees acting in the best financial interest of members, a phrase at the heart of fiduciary duty, it is appropriate to also have regard to the needs of employers.”

Marcus Fink, partner at law firm Ashurst, said bringing other employers into the frame and getting them to pay their share of the deficit was a good outcome that brought wider ramifications for the industry.

“There’s been a gradual shift over the past five years or so; the regulator is saying trustees have to have regard for the future business plans and continuity of the sponsor business, and now we’ve got a ruling that says trustees have to take into account the interest of employers,” said Fink.

Final salary and enhanced revaluation

The court's decision also provided the industry with the first legal decision on the position of members with a final salary link to their retirement benefit. 

The court found in order for members to be classed as active they have to be accruing additional years of service. 

In a multi-employer scheme, under section 75 debt rules debts are triggered where a sponsor ceases to employ active members while other employers continue to do so. This is known as an employment cessation event. 

However, for frozen schemes, with no active members, debts do not arise until the employer goes into insolvency or the scheme winds up. 

Trustees need to determine whether or not members entitled to a higher rate of revaluation are active members and whether or not an s75 debt has been triggered.   

Faye Jarvis, of counsel at law firm Hogan Lovells, said: “Individual schemes, where they have something like a final salary link or enhanced revaluation during employment, will need to look at what advice they’ve had… and what further action they need to take.

“It may be that employers who stopped employing their final salary members thought they’d triggered a section 75 debt – [they] could be issues for them to think about."