Regulations have now been issued which deal with the issue of employer debts under section 75 Pensions Act 1995 when an employer leaves an underfunded multi-employer scheme. They are due to come into force on 2 September 2005.
Under the Regulations, an employer leaving a multi-employer scheme will be required to pay a section 75 debt calculated on the basis of the full costs of securing liabilities with annuities. However, the Regulations allow for the possibility of a leaving employer paying a lesser debt where an approved "withdrawal arrangement" is in force.
A withdrawal arrangement must be approved by the Pensions Regulator and be entered into between the leaving employer, the scheme trustees and "guarantors".
If a withdrawal arrangement is in place, the debt due from the leaving employer will be calculated on the minimum funding requirement basis. This will presumably move to the scheme specific funding basis once a scheme has carried out its first valuation on the new basis. In addition, if a transfer payment is made before the withdrawal arrangement is approved, a deduction may be made from the amount of the debt to take into account the assets and liabilities transferred.
In return for the leaving employer paying a reduced debt, the guarantors must pay a debt if the scheme goes into wind up or the last employer leaves or becomes insolvent which is equal to either:
- the amount that would be payable if the leaving employer had continued to participate in the scheme until the guarantee is called
- the amount that would be payable if there were no withdrawal arrangement (less the amount payable by the leaving employer and any transfers out in respect of that employer)
depending on what was specified in the withdrawal arrangement.
The Regulator will only approve the arrangement if the guarantors have sufficient resources to ensure that the section 75 debt is more likely to be met if the arrangement is approved. Where such an arrangement is in force, the guarantors must notify the Regulator if certain events occur which are relevant to their solvency.
Finally, for the purposes of contribution notices, financial support directions and transactions at an undervalue, a former employer does not count as an employer if an approved withdrawal arrangement exists and it has paid its own part of the debt.
