Labour Court Database __________________________________________________________________________________ File Number: CD90708 Case Number: LCR13211 Section / Act: S67 Parties: WARD INTERNATIONAL LIMITED - and - SERVICES INDUSTRIAL PROFESSIONAL TECHNICAL UNION |
Claim by the Union on behalf of 25 workers concerning proposed changes to the Company's Pension Scheme.
Recommendation:
5. Pension provisions are a very important and sensitive element
of the total reward package in any employment and only the gravest
of reasons would warrant the alteration of a scheme without the
agreement of both workers and employer. The Court does not
consider that the grounds advanced by the employer in this case
are sufficient to justify the fundamental change being sought.
Accordingly the Court does not recommend concession of the
Company's proposal.
Division: CHAIRMAN Mr McHenry Mr Rorke
Text of Document__________________________________________________________________
CD90708 RECOMMENDATION NO. LCR13211
INDUSTRIAL RELATIONS ACTS, 1946 TO 1976
SECTION 67
PARTIES: WARD INTERNATIONAL LIMITED
(Represented by the Federation of Irish Employers)
and
SERVICES INDUSTRIAL PROFESSIONAL TECHNICAL UNION
SUBJECT:
1. Claim by the Union on behalf of 25 workers concerning proposed
changes to the Company's Pension Scheme.
BACKGROUND:
2. The Company, a subsidiary of Ward Machinery Company, U.S.A.,
manufactures, installs and services rotary die cutters for the
printing industry. It commenced operations in Ireland in 1984.
On 1st July, 1987, the Company introduced a Defined Benefit
Pension Scheme as a voluntary scheme for existing staff. It is a
condition of employment for anyone joining the Company since 1st
July, 1987. Currently the Scheme has 40 members, of whom 25 are
represented by the Union. Due to changes in accountancy standards
in the U.S.A. (F.A.S.B. rulings), which requires companies to show
this type of Scheme as a liability on its balance sheet, the
Company wishes to change the Scheme to one of defined
contributions rather than defined benefits. The Union has opposed
this change which it sees as shifting the risk factor to the
workers as the Company will have fixed costs but the employees
will be uncertain as to what level of pension they will eventually
receive. On 19th April, 1990, the matter was referred to the
conciliation service of the Labour Court. No agreement could be
reached at conciliation conferences held on 11th July and 3rd
October, 1990 and the matter was referred to the Labour Court on
4th December, 1990, for investigation and recommendation. The
Court investigated the dispute on 5th February, 1991, in Athlone.
UNION'S ARGUMENTS:
3. 1. A defined benefit scheme clearly sets out the members
entitlements upon retirement. A defined contribution scheme
is one where benefits upon retirement depend upon the total
amount contributed and the investment returns earned. The
defined contribution scheme is a much less secure method of
funding a pension scheme. There is no commitment to provide a
particular range of benefits. Failure to guarantee the level
of pension and other benefits is one of the main defects of
such schemes.
2. Usually defined contribution arrangements are
'individualised' so that the benefit of group coverage, such
as sharing of risks, do not apply. This means that as long as
somebody has lengthy, unbroken service with steady salary
progression, their pensions will be adequate but if somebody
is disabled at an early age or retires with very short service
their pension will be very poor. As well as this, the level
of life cover is reduced from four times to twice the basic
salary.
3. The 'individual' nature of the scheme proposed causes
difficulty in relation to equal treatment of males and
females, given different life expectancies etc... and hence
different costs of certain retirement benefits between the
sexes. Since it is difficult to ensure equal treatment in
such schemes and since they are likely to be excluded from the
scope of forthcoming legislation on equal treatment for this
reason, some employers view such schemes as a method of
avoiding the possible extra costs associated with ensuring
equality in the future.
4. If accounting standards in the U.S.A. require companies
to show Defined Benefit Schemes as a liability on their
balance sheets, which could have a negative effect on net
worth, one would expect other U.S. corporations to have
changed their pension schemes accordingly. This has not
happened.
5. The Company has said that it is not introducing changes
in an attempt to cut costs and have stated that if staff opt
for the highest level of contributions under the scheme it
would cost the Company 36% more per annum. However, the
probability is that most workers will be tempted to go for the
lowest level of contribution which will in fact reduce the
Company's costs. Currently the workers contribute 5% of
pensionable pay i.e. basic pay less one and a half times the
State pension payable to a single person, while the Company
contributes 5.5% (this approximates to 3% and 3.3% of basic
pay). Under the proposed scheme contribution can vary between
0% and 5% of of basic as follows:-
WORKER COMPANY TOTAL
0% 2% 2%
1% 2.5% 3.5%
2% 3.0% 5.0%
3% 3.5% 6.5%
4% 4.0% 8.0%
5% 4.5% 9.5%
6. Changing to a Define Contribution Scheme avoids many of
the new measures introduced by way of the Pensions Act, 1990.
Under the Pensions Act the requirements for such schemes are
much less onerous.
COMPANY'S ARGUMENTS:
4. 1. Three years ago the parent company made the decision to
change its pension scheme from a Defined Benefit to a Defined
Contribution Scheme. The main reason for this decision
relates to accounting changes under F.A.S.B rulings which
require additional disclosures in financial statements based
on future pension fund needs. These disclosures were treated
as 'real' liabilities even though they were based on actuarial
reports which could change significantly with minor deviations
in assumptions. These disclosures have a negative effect on
the Company's net worth and its ability to fund operating
requirements. The Company's scheme needs to change to reflect
operating requirements.
2. There are a number of benefits under the Company's
proposed scheme. The individual's fund comes under his
ownership and control. Workers who are short on service can
contribute additional funds. Any additional contribution can
be matched by the Company at the rate of 50% up to a maximum
of 5% of basic salary. The worker may contribute up to 15% of
his earnings. The worker can transfer the full value of his
fund, inclusive of contributions and growth, to a qualified
fund of a new employer.
3. The Union's refusal to consider the Company's proposal
seems to have been taken without looking at the potential in
the proposed funding rates. Indeed, their decision seems to
be based solely on the comparison of Defined Benefit and
Defined Contribution at current funding levels which is not
what the Company has proposed. There must be a level of
funding which undoubtedly makes the Defined Contribution
Scheme more attractive and this does not appear to have been
given any consideration by the Union.
4. The funding rates are attractive. Indeed, based on
pension fund performance over the past 40 years, where real
growth has been in excess of 4.5% per annum and in more recent
times some funds have achieved growth rates of 8% per annum,
the individual members should be substantially better off
because the Company, under the existing scheme has the option
to reduce its contribution when the fund is deemed to be over
funded. Companies in this position may even take a
contribution 'holiday'. Under the proposed Scheme, the
Company will continue to fund the Scheme and the members enjoy
the benefit of this extra growth.
5. The Company has the right to amend or alter the current
Scheme. For obvious reasons, the Company would like to do
this only after meaningful discussions and where possible
concerns would be taken into consideration before finalising
the revised scheme. The Company sees no point in amending its
proposal while the basic principle of Defined Contribution has
been rejected.
RECOMMENDATION:
5. Pension provisions are a very important and sensitive element
of the total reward package in any employment and only the gravest
of reasons would warrant the alteration of a scheme without the
agreement of both workers and employer. The Court does not
consider that the grounds advanced by the employer in this case
are sufficient to justify the fundamental change being sought.
Accordingly the Court does not recommend concession of the
Company's proposal.
~
Signed on behalf of the Labour Court
-------------------
March, 1991 Kevin Heffernan
B O'N/U.S. Chairman