The UK High Court held in Merchant Navy Ratings Pension Fund Trustees Limited and P&O Ferries Limited v Stena Line Limited and Ors that trustees can, if they believe it to be reasonable and proper, take employers’ interests into account when making decisions.
Background
The case concerns the Merchant Navy Ratings Pension Fund, an industry wide defined benefit (DB) scheme established for the benefit of British Merchant Navy ratings and their dependants. The power of amendment in the Trust Deed and Rules was vested solely in the trustee, with the employers only having the right to be represented on the trustee board. The scheme had a significant funding deficit of circa Stg£325m representing a funding level of 70%. The trustees sought the Court’s approval to proceed with a proposed amendment to the scheme under which all participating employers (both active and historic) would be liable to make contributions to repair the deficit.
The proposed amendments gave rise to issues as to whether their introduction would be a proper exercise of the trustee’s powers and whether the proposed amendments would be in the beneficiaries’ best interests.
Decision
The UK High Court found that the best interests of the beneficiaries should not be viewed as a paramount standalone duty. The trustees should take into consideration the purpose of the trust and what benefits were intended to be received by the beneficiaries and then decide whether a proposed course of action is for the benefit of the beneficiaries or in their best interests. The Court held that as long as the primary purpose of securing the benefits promised under the scheme 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 Court held that the trustee is not under a duty to maximise benefits and that the operation of a DB scheme is all about managing risk. The task of the trustee is to manage risk in a reasonable way and to adopt a regime which it is reasonably satisfied will return the scheme to solvency having adopted reasonable assumptions. The Court held this is a matter for the trustee having taken proper professional advice.
Comment
In the Element Six case, the Irish High Court set out guidelines that trustees should follow when making decisions. The Merchant Navy case provides further guidance for trustees when exercising their powers and in particular whether trustees should take an employer’s interests into account when making decisions.
In an Irish context, trustees may wish to take an employer’s interest into account if there is a solvency issue with the scheme, or if the trustees are considering issuing a contribution demand. The persuasive guidance which can be taken from the Merchant Navy case is that trustees can take an employer’s interests into account when making decisions if they believe it reasonable and proper to do so. Taking an employer’s interests into account should not have a negative impact on the trustees’ primary role of securing the benefits for the pension scheme members. The Merchant Navy case also underlines the importance for trustees of taking proper professional advice before making a decision.
Contributed by Michael Keane
