ADJUDICATION OFFICER RECOMMENDATION
Adjudication Reference: ADJ-00006959
| Complainant | Respondent |
Anonymised Parties | Sales Manager | A Large Company |
Representatives | Appeared In Person | Peter O'Shaughnessy, IBEC Regional Director. |
Complaint:
Act | Dispute Reference No. | Date of Receipt |
Complaint seeking adjudication by the Workplace Relations Commission under section 13 of the Industrial Relations Act, 1969 | CA-00009426-001 | 31/01/2017 |
Date of Adjudication Hearing: 29/05/2017
Workplace Relations Commission Adjudication Officer: Patsy Doyle
Procedure:
In accordance with Section 13 of the Industrial Relations Acts 1969, following the referral of the dispute to me by the Director General, I inquired into the dispute and gave the parties an opportunity to be heard by me and to present to me any evidence relevant to the dispute.
Background:
The Claimant has disputed the circumstances surrounding the transition from his Defined Benefit Pension Scheme in August 2016 .The Employer has rejected the claim . |
Summary of Claimant’s Case:
The Complainant has worked as a Sales Manager on a 39 Hour week since December 2005 .He earns a gross salary of €7085.00 monthly .The Claimant was obliged to join the Company Pension Scheme (Defined Benefit) on the next renewal date, post 6 months satisfactory service. This was an important term of the contract for the claimant. In 2010, the entire share capital of the company was acquired and ownership changed at the company to B Company, a very successful company with a post tax profit for 2016 of €1.629billion. During April 2016,the claimant was informed that the Organisation would not be continuing to make any further new accruals to the Company Defined Benefit Pension Scheme from July 2016 onwards .This announcement was not prefaced by consultation or an opportunity to negotiate .There were some information sessions held with local management of B company during May and June 2016. The Claimant contended that he was not provided with an adequate opportunity to negotiate changes on an enhanced lump sum payment for “buy out “from the DB scheme entirely or increased levels of Employer contributions. The DB scheme was replaced by a Defined Contribution scheme (DC) and the claimant accepted a once off “goodwill “contribution of 15% of gross salary, on a strictly without prejudice basis, as a start off payment into the new DC scheme, which became operational on August 1, 2016.The Claimant was left with no option other than commence payments to the new DC scheme, given that the DB scheme was closed. The Claimant commissioned an external Independent Actuarial Report into his own situation .He sought to establish the level of contribution that would need to be placed into the new DC scheme to mirror the DB scheme benefits up to 2029, the claimants projected date of retirement. This Report established that the rate of contribution to the new DC scheme would need to be a minimum of 27% total of gross salary from August 2016-December 2029, using a “ current standard actuarial assumption “ and a minimum of 39% of Gross Salary using a more “ prudent and practical actuarial assumption “. The Claimant explained that the Employer made a 12% contribution to the new DC scheme. The Claimant argued that the Company Grievance procedure did not encompass the enormity of this change of terms of employment and he had no known formal mechanism within the Organisation to appeal or complain about this change, which he contended was applied unilaterally. The Claimant drew the attention of the hearing to a record of an assurance given by the Company A at the time of the acquisition by Company B, referred to as “Grandfathering /personalised red circled arrangement. “This was raised by the Company B local consultation and Information group in late July 2016 with the parent company without impact. The Claimant submitted that the company had failed in its duty of care towards the claimant in relation to the financial changes in the pension scheme undertaken by the company for its own benefit in 2016 .This changeover from DB to DC will cost the claimant an absolute minimum of €200,000 during the remainder of his working life to arrive at a position to mirror the benefits as existed under the DB scheme .The Claimant now carries an additional risk under the DC scheme. He contended that the funding of the DB pension benefits was an integral part of the claimant’s terms and conditions of employment when he joined Company A, which he understood would be maintained during the acquisition by Company B. He had expected to obtain a pension in the region of €23,120 per annum on the DB arrangement .In order to obtain this post DC scheme he projected that he would have to contribute up to 27% of his gross salary. The Claimant contended that he had been significantly disadvantaged by the imposition of a DC scheme and sought a recommendation to obtain a fair contribution by the Employer towards the pension of the claimant to equate with his previous pension benefit. |
Summary of Employer’s Case:
The Employer is a Global company with total revenue of €7.7bn in 2009,and 33,000 employees in 61 countries .The Company is part family owned and part by shareholders . Preliminary Issues : The Employer submitted that the claim in hand apprehended the terms and conditions of a group of workers and had already been adjudicated in CA-00006127-001. The Employer contended that the Adjudicator was refrained from inquiring into the claim given that it affects a body of workers as set down in Section 13(2) of The IR Acts 1969-2001. The Employer referred to the Rules pertaining to the 2005 Pension scheme and confirmed that the Employer acted within the proper parameters in the face of changes to the scheme ; “Can the Plan be changed or discontinued? Yes ….Changes in legislation and other unforeseen circumstances may make it necessary or desirable to amend the rules. This is formally affected by the Company with the consent of the Trustees amending the formal documents governing the Plan. In some circumstances, the company could reduce or, in the extreme, terminate its contributions to the plan.” The Company submitted that they acted within the parameters of this clause of the scheme in terminating contributions to the DB scheme in August 2016. Substantive Issue : The Company outlined that as a percentage of salaries ,the contribution made by the company to the DB scheme had increased between 2008 -2014 2008 5% 2011 8.1% 2014 11.3% Contributions in cash terms had increased from €850K in 2008 to €1,600k in 2015 .The Employer projected that the scheme was also facing an increase of €800k in service costs for the DB scheme in 2017 alone. There were 570 employees at the company, 330 were members of the DB scheme. The Employer set out the background to the changes. The Trustees of the DB Pension Scheme wrote to the Company in 2014 seeking an increase to 11.3% of salaries contribution. This was accepted pending a review .The Contribution was increased to 11.7% to run in parallel with the review. In February 2016, the Company completed its analysis of the scheme and sought approval from the Board of the Company to negotiate the closure of the DB part of the pension scheme. Post 2006 employees were already included in a DC scheme .This was approved on 16 February 2016. Agreement was reached with the Pension Trustees on an approved Pension strategy changes. A series of meetings and communiques followed with both the Local Employee forum and site wide town hall meetings. This was followed by smaller group meetings on “ Changes to Your Pension “. During April to June 2016, ongoing extensive communications including Presentations from pension experts and 1:1 meetings with financial consultants for all impacted employees were completed The message was poorly received by staff and a number of meetings with the Employee Forum ensued . The Employee Forum proposed a “ good will gesture” to members of the DB plan ( pre 2006) .The Company deliberated on this and announced a “ good will gesture “ on 16 May 2016 , which comprised of : 1 15% base salary , tax free seed payment for all hybrid DB members new DC scheme 2 Delayed commencement of DC scheme to August 1. 3 Agreement to add members to employee forum Over 50% of staff had signed up to a new pension scheme by May 25, 2016. The Employee Forum and the Leadership team continued to engage and this culminated in a final letter from the Management in support of the change on 18 July 2016. The new Pension went live during August 2016.75% of staff, including the claimant took the “good will gesture “in cash to act as a seed payment for the DC scheme. This level of compensation, which amounted to €12,783 in the claimant’s case, was benchmarked with similar companies. The Employer submitted that it had no substantive case to answer as it acted reasonably in all the circumstances. 1 The Company engaged in extensive consultation with pension Trustees and their legal advisors, as the appointed representatives of the DB members. 2 This led to a transitionary phased contribution rate. 3 An enhanced transfer value of 150%. 4 A short delay in DC commencement and a broader membership of his employee forum. The Employer contended that the company had engaged fully with the claimant on the proposed planned changes to the pension scheme up to and including an option to transfer out of the DB or not at an enhanced value of 150% and agreed to future CPI adjustment/actuarial review .74% of staff availed of the cash transfer option . The Employer contended that the company behaved reasonably in reaching the decision to close the DB element of a Hybrid Scheme and absorbed all associated costs incurred by the Trustees and employees in securing independent advice. The Company has given a commitment to support the legacy DB fund into the future on a three year review cycle. The Employer sought that the claim be dismissed. The Employer contended that it was not fair or reasonable for the claimant to rely on an external third party prior to engaging in the companys’own dispute resolution mechanisms.
|
Findings and Conclusions:
I have carefully considered both written and oral submissions advanced by the Parties. Preliminary Issues raised by the Employer : The Employer submitted that the claim was not properly before the Adjudication service as it related to the pay rates of a body of workers .I find that this is an Individual Trade Dispute regarding Pension and not pay .I note that the Employer was invited to participate in the referral to the WRC on 9 February , 2017.At that time 21 days response time was permitted in which to register an objection .No objection was raised and the case proceeded to hearing .I have decided that I can hear the case . I will address the second issue in relation to the Employers submitted right to change the pension scheme in the next part of my report. The Claimant maintained that based on his privately commissioned Actuarial report ,it will be necessary for him to contribute 39% of his gross salary over the next 12 years to arrive at a comparable level of pension benefit as existed in the DB scheme .The Author of the Report did not attend the hearing . The Company had not been afforded this document prior to the referral to the WRC .The Employer was clear that the company opened a very broad forum of communication , information and financial advice to the claimant in advance of the changeover in August 2016,but he did not avail of it. The topic of the Defined Benefit Pension Schemes is a live topic in Irish workplaces at present .Many of these schemes have closed to new members or to further accrual in recent years .Many have been replaced by the Hybrid Schemes such as explained by the Employer in this case . I am aware that this topic is also live at the Legislature at this time . What is at issue in this case is not so much a challenge to the right of the Employer to change the scheme, rather it is that the level of risk resulting from the inauguration of DC now resting on the claimant without a visible means to agree comparable benefits or compensation in the claimants projected 12 year time span before retirement. I asked the Employer whether the new DC/Hybrid scheme was underpinned by a Collective Agreement at the Company?. The Employer indicated that a Collective Agreement existed with the Local Consultation Group; however, I did not receive a record of this from either party . Based on both submissions , I have concluded that a tentative agreement came into being in July 2016 when the seed payment was actioned as a baseline for the commencement of the claimant’s DC scheme This agreement was signed by the claimant on a without prejudice basis on July 20, 2016 to permit him to exercise his rights at a later stage . It is clear that the existing contributions in the DB scheme remain and it has closed to further accrual. It has not been wound up .The Employer has submitted that there are over 300 employees in the same position as the claimant and the company is not prepared to single out the claimant as a special case. During the course of the claimant’s submissions, he mentioned a Red Circled /Grandfathering clause in his possession during the acquisition by Company B in 2010. He did not provide the hearing with any Individualised documents in that regard and referred to the submissions made by the Local consultation group on a collective basis only in that regard . The Claimant was also hesitant in confirming his live contribution to the AVC scheme, which runs in parallel with the Company Pension Scheme.I was concerned that the Actuarial Report commissioned by the claimant had not been discussed with the Employer Pension Advisors . I note that the claimant expressed the view that the company grievance procedure was not the appropriate avenue to take in this case .I cannot agree with that viewpoint. It is important to establish a pathway at least to seek to resolve an issue internally prior to external referral. The Company Pension scheme incorporates an Internal Disputes Resolution for actual and potential beneficiaries of the Plan .The Claimant had not actioned this route. I understand that the changeover from the security of a DB scheme to the risk inherent DC scheme is a deeply unsettling time for the Claimant as he has felt unsupported in this change. The Company understands that they have agreement on the change and expressed little interest in re-opening what they considered a completed exercise . The Labour Court has recently considered a similar situation in Musgrave Ltd and SIPTU in LCR 21418; This dispute came to the Court from the then Labour Relations Commission. The Court recommended that the Union should acknowledge that the Company was not prepared to support the current defined benefit pension scheme beyond 31 December, 2016.The Court recommended that the parties should engage in intensive discussions over a six week period to agree the terms of a replacement scheme that will provide affected staff with a comparable level of pension cover going forward. I find that that the claimant has not entered discussions locally on the applicability or otherwise of the Grandfathering clause particular to his own terms and conditions of employment. This needs to be concluded in advance of any referral to a third party. I find that the Actuarial Report should also be incorporated in those discussions. On the sole basis that local resolution procedures have not been exhausted by the claimant, I do not find merit in the dispute before me. |
Recommendation:Section 13 of the Industrial Relations Acts, 1969 requires that I make a recommendation in relation to the dispute. I find that the claim cannot succeed as the claimant has not exhausted Internal local procedures prior to his referral to the WRC.
|
Dated: 30th August 2017 Workplace Relations Commission Adjudication Officer: Patsy Doyle Key Words: Changeover from Defined Benefit Pension Scheme to a Defined Contribution Scheme.
|