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Key Ruling on Pensions Obligations During Insolvency

A recent Workplace Relations Commission decision has held that the State must pay €2.824 million into a pension fund for workers after their employer became insolvent. Our Pensions team reviews this ruling and provides key take aways for employers and pension trustees.


What you need to know

  • Protim Abrasives Ltd went into liquidation, leaving unpaid pension contributions.
  • The liquidator sought payment of the unpaid contributions from the Government under the Pension Insolvency Payments Scheme to protect employees’ pension rights.
  • The Minister for Enterprise initially rejected the claim, arguing that the contributions did not meet eligibility requirements under the scheme.
  • Workplace Relations Commission ruled in favour of the liquidator, confirming the Government’s liability to pay the unpaid contributions.
  • The decision highlights employee pension protections in insolvency cases, ensuring pensions are secured even in liquidation situations.

Introduction

The Workplace Relation Commission has ruled that the State is liable to pay €2.824 million into a defined benefit pension scheme. The scheme was operated by a now insolvent chemical company that specialised in wood treatment products.

Protim Abrasives Limited had established a defined benefit pension scheme for its workers. The scheme guaranteed a benefit to employees upon retirement, based on their years of service and their salary at retirement. Payments were largely dependent on an employer’s continued ability to fund the scheme. The trustees of the fund instructed an actuary to prepare a valuation report on the position of the scheme in July 2009. In September 2009, the actuary advised a lump sum contribution of €3.7 million be made to the fund by the employer. The company went into liquidation in November of that year.

Upon entering insolvency, there remained unpaid pension contributions by the employer. The trustees made a contribution demand to the company, via the liquidator. The demand amounted to €8.635 million. This sum was intended to cover the benefits accruing to the beneficiaries of the scheme. This figure was based on a second actuarial valuation report, made available after the date of liquidation. The sum was reduced to €7 million upon agreement between the liquidator and the trustees.

The liquidator sought payment of this sum from the Minister for Enterprise Trade and Employment under the Pensions Insolvency Payments Scheme. This scheme protects employees’ pay-related entitlements when an employer becomes insolvent. The Minister refused the payment, which caused the liquidator to bring a complaint to the WRC under the Protection of Employees (Employers’ Insolvency) Act 1984.

WRC hearing

The State argued that under the 1984 Act, it was only liable for the lesser of the two sums. Either:

  • The unpaid relevant contributions owed by the employer as of the insolvency date, covering the 12-month period immediately prior to the insolvency date, or
  • An amount certified by an actuary to be necessary for the purpose of meeting the liability of the scheme.

The State argued that a one-off payment of the magnitude under consideration in this case could not be considered a relevant contribution under the Act. It highlighted the need for balance as between protecting employees and the taxpayer.

The Adjudicating Officer noted that under the Directive 2008/94/EC, Member States are obliged to establish a minimum degree of protection to employees in the event that an employer becomes insolvent. She accepted that Ireland had done this by establishing the Pensions Insolvency Payments Scheme process and that this case be looked at through the lens of the EU mandated protections. The Adjudicating Officer was satisfied that relevant contributions can include a capital sum, one-off contribution needed to ensure the pension scheme can meet its obligations.

Outcome

The Adjudicating Officer noted that the €8.65 million demand was based on an actuarial report made available after the date of liquidation. Instead, in order to calculate the Minister’s liability, the Adjudicating Officer took the originally quoted €3.7 million capital sum, reduced it by the dividend acquired from the sale of company stock and collection of debts, leaving €2.824 million.

Key takeaways for Employers and Pension Trustees

1. Pension rights are protected

The decision underscores the protection offered to employees regarding unpaid pension contributions where an employer becomes insolvent. It clarifies the responsibilities of both liquidators and the Minister in ensuring employees’ pension rights are safeguarded under the Pension Insolvency Payments Scheme.

2. Clarifying responsibilities

The decision clarifies the responsibilities of both liquidators and the Minister in ensuring employees’ pension rights are safeguarded under the Pensions Insolvency Payments Scheme.

3. Stronger Regulatory Oversight

The case confirms the backstop process where the State will step in to cover unpaid pension contributions. This happens under specific conditions, to ensure that employees are protected to a certain extent. The decision may lead to stricter oversight of employer compliance with pension contributions, especially for businesses showing signs of financial distress.

4. Increased Pressure on Public Funds

The Pensions Insolvency Payments Scheme is funded by the National Social Insurance Fund, supported by taxpayer contributions through pay related social insurance. As more claims for unpaid pension contributions are made under this scheme, it could place additional strain on public resources.

Ultimately, while the decision enhances employee protections, it reinforces the need for a sustainable approach to funding insolvency-related claims. Greater regulatory oversight or adjustments to taxpayer-supported schemes may be necessary to achieve this.

For more information and expert guidance, contact a member of our Pensions team.

People also ask

What are an employee’s rights if their employer fails to pay pension contributions?

If there remains unpaid pension contributions by the employer on the date of insolvency, the liquidator may make an application to the Minister for Enterprise Trade and Employment under the Pensions Insolvency Payments Scheme. This scheme protects employees’ pay-related entitlements when an employer becomes insolvent.

How does the Pensions Insolvency Payments Scheme work in Ireland?

The Pensions Insolvency Payments Scheme is a scheme to protect pay-related entitlements of employees whose employer has become insolvent as defined by the scheme. Payments from the Scheme are made from the National Social Insurance Fund.

What happens if a liquidator cannot recover unpaid pension contributions from the State?

The liquidator can challenge the refusal of the Minister by bringing a complaint to the Workplace Relations Commission under section 9 of the Protection of Employees (Employers’ Insolvency) Act 1984.

The content of this article is provided for information purposes only and does not constitute legal or other advice.



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