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Pensions Regulator support for pension schemes in trouble
13 November 2014
The Pensions Regulator has explained how it helped to facilitate an innovative rescue plan for Kodak’s UK pension scheme and the restructuring of UK Coal’s operations, following a major fire.
We are grateful to the Regulator for this commentary on the two reports .
In January 2012, the Kodak group’s US parent, Eastman Kodak Company, entered Chapter 11 bankruptcy proceedings. This meant that the Kodak Pension Plan was at risk of losing both existing support from the wider Kodak group and ongoing contributions from its sponsoring employer. In order to maximise the value available to the Kodak Pension Plan, a deal was agreed under which the trustees acquired Kodak’s cash generative ‘personalised imaging’ and ‘document imaging’ businesses. In exchange, the Kodak group was released from its liabilities to the Kodak Pension Plan. Despite the acquisition, there remained serious doubts as to whether the assets could provide adequate support for the scheme’s existing liabilities. Therefore members were given the option to transfer to a new scheme which would offer benefits better than the Pension Protection Fund, but lower than in the Kodak Pension Plan. Members representing in excess of 94% of liabilities have decided to transfer. The regulator and the trustees have agreed a governance framework to limit risks to member benefits and the PPF, including monitoring the performance of the acquired businesses and imposing restrictions on discretionary pension benefit awards and investments. The regulator’s Interim Chief Executive Stephen Soper said: “We are prepared to work constructively with employers in a distressed state, in conjunction with the pension trustees, to explore the merits of the available options. In these situations, the chances of a successful outcome are greatly improved when we are in dialogue with all parties at an early stage. The continuation of a scheme without a material sponsoring employer covenant will be extremely rare. However, in the Kodak case, the voluntary transfer of members to a new scheme offering lower benefits resulted in a reduced level of risk, improving the balance between the interests of members and the PPF. “We recognise that the continuation of the new scheme leaves the PPF exposed to risk. Therefore the regulator and trustees have agreed a number of mechanisms to protect the PPF and we’ll continue to monitor the situation closely. Although the reduction of member benefits was considered appropriate in this case, it is a step that trustees should approach with utmost caution and care.” The regulator has also today issued a report explaining its role in facilitating the July 2013 restructuring of UK Coal’s operations, following a major fire which resulted in the closure of the company’s Daw Mill mine.
This follows the regulator’s report published in January 2013 which detailed its activities in relation to the restructuring of the group in 2012. The report published today sets out the
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