# Transfer from db pension to dc



## celtipp (5 Apr 2014)

My company has recently been bought out moving from one large American group to another. We have been informed that we can no longer stay in old group pension scheme, which was fully funded, and have to move to a new DC scheme which is being set up. What are my rights on this??


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## Steven Barrett (7 Apr 2014)

None. They are the ones financing the thing so if they want to change it to a dc scheme they can. Your accrued DB benefits will be preserved and all future benefits will be dc. 

An alternative is they may not fully fund the DB scheme and you get a reduced benefit at retirement.


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## RainyDay (7 Apr 2014)

SBarrett said:


> None. They are the ones financing the thing so if they want to change it to a dc scheme they can. Your accrued DB benefits will be preserved and all future benefits will be dc.



Hold on a sec, there. 

1) The employee may well have an employment contract that specifies a DB scheme. The employer cannot walk away from contractual obligations without negotiation.

2) How did you work out that the employer is the one financing it? The employee is presumably making a contribution to the pension too.


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## Steven Barrett (7 Apr 2014)

There is probably terms in contract and/or trust deed that the trustees have discretion to alter the scheme. 

The employee may or may not be making a contribution but you can bet your bottom dollar that it is a fraction of the real cost of the benefit.


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## RainyDay (8 Apr 2014)

SBarrett said:


> There is probably terms in contract and/or trust deed that the trustees have discretion to alter the scheme.


The contract of employment sets out the relationship between the employee and the employer. Unless there is a provision in that contract to alter the scheme, then the contractual obligation applies.



SBarrett said:


> The employee may or may not be making a contribution but you can bet your bottom dollar that it is a fraction of the real cost of the benefit.


In bad times, yes - but in good times, many employers benefited from 'payment holidays' for DB schemes, remember?


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## Steven Barrett (9 Apr 2014)

RainyDay said:


> The contract of employment sets out the relationship between the employee and the employer. Unless there is a provision in that contract to alter the scheme, then the contractual obligation applies.
> 
> 
> In bad times, yes - but in good times, many employers benefited from 'payment holidays' for DB schemes, remember?



The employer is always on the hook. Those payment holidays are a long time ago now. What is it, 75% of DB schemes are underfunded now?

What will happen is the employees will have to sign an alteration to their employment contract changing the scheme from DB to DC. If that isn't done, the employer will say they can't afford to employ X amount of staff AND run a DB scheme, so they'll lay people off. 


Steven
www.bluewaterfp.ie


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## Bronte (9 Apr 2014)

Do not at all agree that the OP must move to DC.  It looks like a company takeover and there are rules on this, so that it's a transfer of undertaking and the OP should be still employed as though it was a seemless transfer.  

Next question then is what are his rights.  Can companies just change the pension scheme, or do the employees have to sign something.  So the OP needs to get professional advice from an expert in this area.  

This happened to my husband a few years ago, big push for the DC, naturally as it costs a lot less than the DB.  Documentation to bamboozle you, but would convince you DC was the way to go.  Needless to say he stayed with the DB.  It was a large American group, also based in Ireland, but this happened elsewhere in Europe and I'm sure the OP must have the same rights as my husband did.  He should not be bullied just because they are a big company.  And he most certainly should not sign anything until he has his facts straight.  

He should also be aware that pressure can be brought to bare elsewhere, signing away your rights with a new contract, or threat of redundancy etc.


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## RainyDay (9 Apr 2014)

SBarrett said:


> The employer is always on the hook. Those payment holidays are a long time ago now. What is it, 75% of DB schemes are underfunded now?


Yes indeed, the employers are on the hook for the contracts they signed, just like any other contracts they signed, and they can't swan off into the sunset having sold off their business while renaiging on their contractual commitments.

And yes, the money they saved on payment holidays is long spent now, but that doesn't make it OK for them to evade their contractual commitments.

And as you rightly point out, not all DB schemes are underfunded, so I'm not sure why you assume that this particular one is underfunded.



SBarrett said:


> What will happen is the employees will have to sign an alteration to their employment contract changing the scheme from DB to DC. If that isn't done, the employer will say they can't afford to employ X amount of staff AND run a DB scheme, so they'll lay people off.


The employees most definitely do not HAVE to sign for any alteration to their contracts, thought they should rightly keep a keen eye on the overall viability of the business. They should certainly get independent advice, through a trade union or other source, and get access to the relevant accounts if the employer is pleading inability to pay.


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## Sunny (10 Apr 2014)

RainyDay said:


> And as you rightly point out, not all DB schemes are underfunded, so I'm not sure why you assume that this particular one is underfunded.


 
Because if it wasn't, there would be no reason who for the Trustees who have to act in members best interests to agree to it. 

It is all very well talking about employment rights but that's not going to be much consolation if the scheme is wound up and is unable to meet its obligations. Employees shouldn't just automatically agree to it but they should be very careful about saying no just because their contract says they have a DB scheme.


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## Bronte (10 Apr 2014)

Sunny said:


> It is all very well talking about employment rights but that's not going to be much consolation if the scheme is wound up and is unable to meet its obligations. Employees shouldn't just automatically agree to it but they should be very careful about saying no just because their contract says they have a DB scheme.


 
Agree that's the best approach.


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## RainyDay (10 Apr 2014)

Sunny said:


> Because if it wasn't, there would be no reason who for the Trustees who have to act in members best interests to agree to it.


What is the role of the trustees here? If the employees were automatically moved to a new scheme, they would no longer have any relationship with the trustees of the old DB scheme. 

The trustees manage the scheme. They don't employ the staff, or set the terms and conditions of the staff. That is down to the employer.



Sunny said:


> It is all very well talking about employment rights but that's not going to be much consolation if the scheme is wound up and is unable to meet its obligations. Employees shouldn't just automatically agree to it but they should be very careful about saying no just because their contract says they have a DB scheme.


Fully agree - and they should be equally very careful about saying yes.


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## Sunny (10 Apr 2014)

RainyDay said:


> What is the role of the trustees here? If the employees were automatically moved to a new scheme, they would no longer have any relationship with the trustees of the old DB scheme.
> 
> The trustees manage the scheme. They don't employ the staff, or set the terms and conditions of the staff. That is down to the employer.
> 
> ...


 
The employer generally can't close a DB scheme without the approval of the Trustees who have to act in the members best interests. I can't see any Trustee agreeing to close a fully funded DB scheme simply because the employer has decided he wants a DC scheme instead. The Trustees would need to be convinved that there are financial reasons for the change.


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## RainyDay (10 Apr 2014)

Sunny said:


> The employer generally can't close a DB scheme without the approval of the Trustees who have to act in the members best interests. I can't see any Trustee agreeing to close a fully funded DB scheme simply because the employer has decided he wants a DC scheme instead. The Trustees would need to be convinved that there are financial reasons for the change.



Is 'close the scheme' the same thing as 'discontinue funding for future service'? Does the employer need the Trustees agreement to switch from DB to DC?


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## celtipp (10 Apr 2014)

Just attended meeting about this. I also got advice from the union. Just to clarify the large American group is selling our section of the company but they are still operating and our old db pension scheme is still operating . This company has decided to sell our section of the group to an even bigger American investment company with over 600,000 employees but who keep all sections seperate. Both our old company and the union advised that all your terms and conditions are protected except your pension. Our old db pension is going to be frozen for those in it that are going to be moving to new company and we are going to be deferred members of this pension scheme. Since the " Waterford Chrystal pension scheme debacle" the law has changed and we have equal rights as active members have in this scheme except of course no money is being added by either the employer or the employees. We are entitled at retirement age to receive  a pension to the value at the time of our leaving the scheme (deferred pension). Since the new company had no pension scheme they are setting up a new DC pension scheme that they are setting up  which they recommend us to join. In fairness it seems to be a good scheme with employees contribution ranging from 2 to 7% and employer ranging from 5 to 11%. Just to clarify also in the old db scheme employees were contributing 5% and employer was contributing 14% and the scheme was fully funded


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## RainyDay (10 Apr 2014)

Is the union advising that you just accept the change in pension without any further discussion? The DC scheme does appear to be a decent DC scheme all right, but you'd really need professional actuarial advice to understand the full impact of the proposed change.


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## JoeRoberts (10 Apr 2014)

Sunny said:


> The employer generally can't close a DB scheme without the approval of the Trustees who have to act in the members best interests. .



 Employer does not need Trustee consent to close a scheme. Clauses of any deed I have worked with clearly state that an employer can wind it up. 

 Issues are getting mixed up here.
 1. There is an industrial relations issue about changing terms of employment
 2. There is a pensions issue about closure or freezing of scheme.
 3. There is a new industrial relations issue about the terms of the new scheme.

Pensions are not protected under TUPE. That said, most changes to schemes are generally negotiated but I know of no case where the labour courts prevented a scheme closing or freezing. 

 In this scenario a good negotiated DC scheme with low charges is the best outcome. OP should also ensure that any insured benefits associated with the DB scheme such as Illness Insurance, death in service lump sums, widows pensions continue under the DC scheme. It may also be worthwhile for some members to seek an option to get an enhanced transfer value to transfer out of the DB scheme totally. 

 At this stage your union should be negotiating the best possible deal with appropriate pension advisors. It appears that some work has already been done.


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## RainyDay (10 Apr 2014)

Thanks Joe, very helpful


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## Deas (11 Apr 2014)

Bronte said:


> Do not at all agree that the OP must move to DC. It looks like a company takeover and there are rules on this, so that it's a transfer of undertaking and the OP should be still employed as though it was a seemless transfer.
> 
> Next question then is what are his rights. Can companies just change the pension scheme, or do the employees have to sign something. So the OP needs to get professional advice from an expert in this area.


 
Pensions do not fall under the scope of TUPE legislation Bronte; however you are correct re the transfer and other T&Cs.  Asu such, the scheme rules, IR negotiation, legal challenges etc. can dictate the pension outcomes should they arise.  The current scheme will close either way and the new co will dictate the pension arrangements.


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## JoeRoberts (11 Apr 2014)

celtipp said:


> and employer ranging from 5 to 11%.



 As part of your negotiation, you should insist the employer contribution is based on full salary, not pensionable salary with 1.5 times state pension offset as was likely in your DB scheme.
 While it does exist in some DC schemes that transferred from a DB, the state offset is not normal for a new DC scheme. Makes a bit of a difference.


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