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A balancing act: trustees’ duties and employers’ interests
The recent UK High Court decision in the case of Merchant Navy Ratings Pension Fund Trustees Limited and P&O Ferries Limited v Stena Line Limited and Ors(1) will be of interest to both pension scheme trustees and sponsoring employers. The decision considers complex issues including the duties of pension scheme trustees when making decisions and the role of employers’ interests in trustee decision making.
The Merchant Navy Ratings Pension Fund (“MNRPF”) is an industry-wide defined benefit pension scheme. It has a large number of participating employers (both current and historic), many of which are competitors within the industry. The MNRPF had been in significant deficit since the late 1990s and its preliminary 2014 valuation showed a deficit, on an ongoing basis, of circa Stg£325 million. Under its rules, only current employers were liable to repair the deficit.
The case involved an application to the High Court by a trustee of the MNRPF to approve a proposed rule amendment under which former participating employers would also be made liable for the deficit. The power to amend the rules was vested solely in the trustee (although the employer was entitled to be represented on the trustee board).
In making this application, the trustee was seeking the Court’s confirmation that its proposed course of action in amending the rules in the manner set out was within the scope of the proper exercise of its powers, and that it had applied the correct legal test as to the discharge of its duties.
The historic employers opposed the proposed amendment. In addition, a representative beneficiary of the MNRPF opposed the trustee’s proposal to change the contribution regime, arguing that the trustee had failed to recognise its duty to act in the best interests of members and that the amendment was for the improper purpose of benefiting the current employers.
Asplin J stated that there is no paramount stand-alone duty of a trustee to act in the best interests of the beneficiaries. Rather, that principle is, at most, a shorthand for a trustee’s duty to promote the purpose for which the trust was created (ie, to provide pensions for members).
In exploring this point, detailed arguments were made to the Court on the extent to which the trustee could properly take account of the interests of the employers. The Court held that as long as the primary purpose of securing the benefits is furthered and the employer covenant is sufficiently strong to fulfil that purpose, it is reasonable and proper, should the trustee consider it appropriate to do so, to take the employers’ interests into account.
The case also provides a useful commentary on trustee decision making and the proper exercise of trustee powers; it reinforces lessons learnt from the Element Six case(2) last year. The court, in the MNRPF case, held that when making decisions, trustees must take into account all relevant and no irrelevant, improper or irrational factors; they must also reach a conclusion that a reasonable body of trustees properly directing themselves could have reached.
In considering the structure of the new regime and how it would apply to the various employers, Asplin J said it was not for the court to suggest an alternative or indeed a ‘better’ way by which the purposes of the scheme and the exercise of the powers could be achieved. The court endorsed the trustee’s approach of seeking advice, carefully considering it, and then adopting it in its decision making.
Ultimately, Asplin J held that the trustee had acted properly in the exercise of its powers and that it had made its decision in a meticulous manner. Interestingly, the minutes of the trustee’s meetings were praised by the Court proving just how essential it is for trustees to record their decisions carefully.
While this judgment is of persuasive value only in Ireland, it provides useful guidance on trustees’ duties and their interaction with employers’ interests.
With respect to the Court’s finding that there is no stand-alone duty to act in the best interests of beneficiaries, this should aid trustees’ understanding of their legal duties.
The legitimacy of taking employers’ interests into account could be particularly relevant to trustees when making decisions which affect participating employers, for example, decisions in respect of scheme funding or issuing a contribution demand. It may also assist employers in negotiations with trustees.
(1).  EWHC 448 (Ch)
(2). Greene & Ors v Coady & Ors (2012 / 7254P)
This article first appeared in the Employment, Pensions and Benefits newsletter, December 2015, written by Jane McKeever.