FULL RECOMMENDATION
SECTION 26(1), INDUSTRIAL RELATIONS ACT, 1990 PARTIES : PFIZER IRELAND - AND - SERVICES INDUSTRIAL PROFESSIONAL TECHNICAL UNION TECHNICAL, ENGINEERING AND ELECTRICAL UNION DIVISION : Chairman: Mr Foley Employer Member: Ms Doyle Worker Member: Ms Tanham |
1. Proposed Change To Pension Scheme
BACKGROUND:
2. This dispute concerns a proposal by the Employer to close the Defined Benefit Pension Schemes and to transition to a Defined Contribution Scheme.
- The Unions’ said that the pension scheme is an integral part of the Company Union Agreement and of the terms and conditions of its members. They are not agreeable to any changes to the current Defined Benefit Pension Scheme.
The Employer said the decision was made at a global level to move from a Defined Benefit Pension Scheme to a Defined Contribution Scheme. The change is necessary to address the unsustainable cost and exposure to highly volatile discount rates associated with Defined Benefit plans, which impact negatively on both the financial health of Pfizer Inc but also on the cost competitiveness of Irish operations.
- This dispute could not be resolved at local level and was the subject of a Conciliation Conference under the auspices of the Workplace Relations Commission. As agreement was not reached, the dispute was referred to the Labour Court on the 6 November 2017 in accordance with Section 26(1) of the Industrial Relations Act, 1990.
A Labour Court hearing took place on the 17 November 2017.
RECOMMENDATION:
The Court has considered carefully the written and oral submissions of the parties.
The Company has stated that a decision has been taken that the Defined Benefit Pension Schemes in place in the Company are to close for future accrual. The Court understands that this decision is opposed in principle by the Trade Unions.
At the behest of the Court, and in order to facilitate the work of the Court, the Company deferred the closure for future accrual of the Defined Benefit Pension Schemes. The Court recommends that the Company continue that deferral for the period necessary to allow the Trade Unions adequate opportunity to consider the content of this Recommendation.
The Court, in framing this Recommendation, was faced with comprehensive detail supporting the opposing positions of the parties. In those circumstances the Court commissioned independent actuaries to work on the Court’s behalf and to provide appropriate technical advice.
The parties have engaged extensively locally and at the Workplace Relations Commission over a period of years without achieving any measure of agreement as regards the principled matter between them. The Court’s approach has been to understand the parties principled positions and to set out a framework whereby the fundamental objective of the Trade Unions to protect the pension position of their members can be achieved to the greatest degree possible.
The Court, in considering this matter and in framing its Recommendation, has taken careful note of the offers made by the Company in September 2014 and in September 2017 which contained comprehensive and detailed proposals as regards the proposed transition to a Defined Contribution Pension Scheme for future pension accrual. The Court understands that both of those proposals failed to find acceptance with the Trade Unions.
The Court notes that the existing Defined Benefit Pension Schemes carry benefit values at the upper end of the range of such schemes in place in the Country. The Court believes it to be reasonable in those circumstances that any arrangements to be put in place for the transition of existing scheme members to a Defined Contribution Pension Scheme for future accrual of pension benefit should, reflective of that history, similarly be at the upper end of the range of such arrangements as have been put in place in the Country. The Court is satisfied on the basis of the actuarial advice available to it that the terms of this Recommendation are consistent with this proposition.
The Court makes the following Recommendation as to the arrangements to be put in place arising from the Company’s decision to close the existing Defined Benefit Pension schemes for future accrual
The Recommendation is based on a continuation of the company contribution to the existing Defined Benefit Pension Schemes such that all service accrued in those schemes to date is funded so as to provide a final salary benefit on retirement. The Recommendation provides for employer and employee contribution to the future Defined Contribution Pension Scheme and for a transition process towards full contribution rates on behalf of the employee scheme member. The Recommendation also provides for retention for future accrual to date of retirement of their existing Defined Benefit Pension Scheme to persons over 50 years of age at 30thJune 2018, albeit with provision for scheme member contribution. The Recommendation of the Court is as follows:
That existing Defined Benefit Pension Scheme members should have an individual ‘once off’ choice of either Option 1 or Option 2, as outlined below. That option should be exercised on 30thJune 2018.
- Option 1 – Early Transition to DC on 30/06/2018
Table 1: Transition DC Structure 30/06/2018 to age 65.
| Year | Member Contribution % | Pfizer Contribution % | Pfizer “Additional” Contribution % | Total DC Contribution % | AVC |
| 2018 | 0 | 14 | 14 | 28 | Yes |
| 2019 | 1 | 14 | 12 | 27 | Yes |
| 2020 | 2 | 14 | 10 | 26 | Yes |
| 2021 | 3 | 14 | 8 | 25 | Yes |
| 2022 | 4 | 14 | 6 | 24 | Yes |
| 2023 to age 65 | 5 | 15 | 0 | 20 | No |
Initial Lump Sum
An Initial Lump Sum of €10,000 payable immediately after 30 June 2018 should be made available to all members to reflect that future pension arrangements will be contributory for members. Members would have the option to receive this Initial Lump Sum as an employer special contribution to the Defined Contribution Pension Scheme and the member would, the Court understands, not be subject to any personal tax liability. Alternatively the individual may choose for the payment to be made through payroll and the member would, the Court understands, be subject to any personal tax liability.
Additional Lump Sum
An additional Lump Sum should be made available comprised of €1,700 per year of Pfizer service from the date of employment to 30/06/18 to a maximum of €25,000 payable on joining the Defined Contribution Pension Scheme and paid into that scheme on behalf of the individual. The lump sum figure would be classified as an employer special contribution to the Defined Contribution Pension Scheme and the member would, the Court understands, not be subject to any personal tax liability. The lump sum would be pro-rated to the nearest full month of service in any year.
Following acceptance of this Recommendation the Company, having regard to any relevant trustee processes and all other factors relevant to such a matter, should give consideration to the provision of an enhanced transfer value as an option.
Death in Service Benefits
- Lump sum death in service benefits will be:
- a.3 x Annual Salary (plus service pay, if applicable)
b.Plus (if applicable) the value of the DC retirement account
c.Plus (if applicable) the value of the AVC account in the DB Scheme.
- a.3 x Annual Salary (plus service pay, if applicable)
Spouses Pension on death in service benefits will be:- Spouses pension in death in service will be 25% x Salary at date of death, subject to a minimum of the monetary amount of benefit provided under the Defined Benefit Pension Scheme immediately prior to joining the Defined Contribution Pension Scheme.
Under the terms of this recommendation the link to final pensionable pay would be maintained and the Defined Benefit schemes would close to future service accrual only, the Company should continue to pay annual employer contributions to the Defined Benefit schemes into the future to fund the benefits accrued by individuals in such schemes up to the point of their transitioning to the Defined Contribution Scheme.
Option 2 – Remain in DB Plan for Extra Years
Table 2: Potential Additional DB Service from 30/06/2018
| Age as at 30 June 2018 | Extended Years in DB from 30/06/18 | Availability of matched AVC option after transfer to DC |
| 35 – 39 | 3 | For two years after transfer to DC |
| 40- 44 | 5 | No |
| 45-50 | 7 | No |
| Over 50 | Can remain in DB until retirement age | N/A |
Table 3: Member DB Contribution for Time Remaining on DB leading to DC contribution rate upon transfer
| |
| Extension Period | Employee Contribution from 30/06/18 |
| 2018 | 0 |
| 2019 | 1% |
| 2020 | 2% |
| 2021 | 3% |
| 2022 | 4% |
| 2023 to age 65 | 5% |
| DC Structure | |
| Employee Contribution | Employer Contribution |
| 0 | 9 |
| 1 | 10 |
| 2 | 11 |
| 3 | 12 |
| 4 | 13 |
| 5 | 15 |
Initial Lump SumAn Initial Lump Sum of €10,000 payable immediately after 30 June 2018 should be made available to all existing scheme members to reflect that future pension arrangements will be contributory for members. Individuals would have the option to receive this Lump Sum as an employer special contribution to the Defined Contribution Scheme and the scheme member would, the Court understands, not be subject to any personal tax liability. Alternatively the payment can be made at the individual’s discretion, through payroll and the individual would, the Court understands, be subject to any personal tax liability.
Additional Lump Sum
In addition an Additional Lump Sum should be made available by the Company comprised of €1,700 per year of Pfizer service from the date of employment to 30/06/18 to a maximum of €25,000. That amount to be payable on joining the Defined Contribution Scheme and paid into the Defined Contribution Scheme on behalf of the Scheme member. The lump sum figure would, the Court understands, be classified as an employer special contribution to the Defined Contribution Scheme and the member would, the Court understands, not be subject to any personal tax liability. The lump sum amount should be pro-rated to the nearest full month of service in any year.
Death in Service BenefitsLump sum death in service benefits will be:
- d.3 x Annual Salary (plus service pay, if applicable)
e.Plus (if applicable) the value of the DC retirement account
f.Plus (if applicable) the value of the AVC account in the DB Scheme
- Spouses pension in death in service will be 25% x Salary at date of death, subject to a minimum of the monetary amount of benefit provided under the DB scheme immediately prior to joining the DC Scheme.
AVC Matching
The current construct of AVC matching (including the option of the RSS in PIRPP) in the Defined Benefit Pension Scheme will apply as set out in Table 2 above.
The Court, in making this recommendation, sets out the following underpinning understandings:
1.The Defined Benefit Pension Schemes will close to future service only. The transition to the Defined Contribution Scheme will affect the pension benefit earned in future years of service with Pfizer only. It will not affect the benefits earned by individuals in the Defined Benefit Schemes since joining those schemes. The Defined Benefit Pension Schemes will remain and historically accrued benefits will be managed as part of it.
2.The link to final pensionable pay in the Defined Benefit Pension Schemes will remain. The benefits will continue to be based on final pensionable pay at the date of leaving service or retirement (whichever is earlier), not pensionable pay at the date of moving to the Defined Contribution Scheme.
3.The employer will commit to pay annual employer contributions to the Defined Benefit Pension Schemes into the future to fund the Scheme member’s pension built up to the date of transition to the Defined Contribution Scheme.
4.The elements of pay for pension purposes will not change for any category of Scheme member under the Defined Contribution Scheme. Pensionable pay will continue to be made up of basic payplusbonus paid in the preceding 12 monthsplusservice pay (if applicable). Where individuals have worked shift an additional shift pension entitlement will continue to be calculated separately.
5.New staff will join the Pfizer Ireland Defined Contribution (PIDC) scheme under the current contribution structure.
6.Subject to normal consent arrangements, individuals will continue to be able to retire early at any age from 50 onwards. The early retirement factors will continue to apply to the accrued portion of the Defined Benefit pension. Early retirement is subject to normal qualifying criteria and consent. The value of an individual’s Defined Contribution account will also be available to provide additional early retirement benefits.
- Subject to normal company consent, enhanced early retirement benefits will continue to be available to members who meet the qualifying criteria in respect of their accrued defined benefit entitlement, subject to the rules of the scheme and to legislative and Revenue requirements. In addition to this benefit the value of the defined contribution fund and any AVCs will also be available.
The Court has approached this matter on the basis of understanding the implications for an individual’s expected pension on retirement of the change brought about by the Company’s decision to close the Defined Benefit Pension Schemes for future accrual. The Court’s understanding of the meaning for an individual’s pension of the terms of this Recommendation is informed by the independent actuarial advice it has received. The Court therefore appends to this Recommendation the analysis of its actuarial advisers as to the implications of implementation of this Recommendation for expected pension benefit upon retirement.
The Court recommends that individuals should be provided with their individual figures prior to the ballot on this Recommendation such that all individuals can be clear as to the effect of implementation of this Recommendation on their expected pension on retirement.
The Court so recommends.
Signed on behalf of the Labour Court
Kevin Foley
CC______________________
26 March, 2018Chairman
NOTE
Enquiries concerning this Recommendation should be addressed to Ceola Cronin, Court Secretary.