I am aware of the concerns of the Aer Lingus unions regarding the status of their pensions schemes, particularly in relation to the Irish airlines general employees superannuation scheme in which the majority of staff are members. This scheme is a multi-employer scheme with the principal employers being Aer Lingus and Aer Rianta and is registered with the Pensions Board as a defined benefit scheme.
These concerns were brought about as a result of the application of a new accounting standard, FRS 17, for the first time in the Aer Lingus 2001 accounts. This standard requires certain disclosures which were not required previously and ultimately requires surpluses or deficits on defined benefit schemes to be taken onto employers' balance sheets.
As a consequence of FRS 17, Aer Lingus explicitly stated in its 2001 accounts for the first time that the scheme was a target benefit pension scheme and that the company and employees contribute a fixed percentage of salaries each year to the scheme which does not vary according to the funded level of the scheme.
The Aer Lingus scheme is unusual in that it specifies the benefits payable to members as well as the contribution rates payable by the employers and members. These two provisions are incompatible in the event of a deficit. The rules provide that if there is a deficit the trustees must decide what action to take. The rules also indicate that there is no obligation on the part of either employers or members to increase contributions.
As a result Aer Lingus formed a view that while the scheme was a defined benefit scheme under the definition of the Pensions Act, it neither fitted easily within the definitions of defined contribution or defined benefit schemes under FRS 17. In the light of this the company concluded, in conjunction with its professional advisors, that the scheme was more in the nature of a target benefit scheme. The target is to pay the benefit levels specified in the rules and, assuming the actuarial position is adequate, this is what will occur.
In the absence of the balance of cost resting with a known party or parties, the potential exists that the trustees will be unable to meet the target and, under the rules, will be required to determine an appropriate course of action.