Court dismisses trustee claim for Barber window arrears – Laws and regulations
The case was brought by the administrators of CMG against the plan’s sponsoring employer, CGI IT UK, and was based on how a specific part of the plan’s rules were to be applied when rectifying underpayments that the administrator had identified since 2009.
The question of what should happen with arrears over six years past arose in 2019, with the employer and trustee disagreeing over the interpretation of a specific rule – rule 5.11 – and its implications .
The employer argued that the rule was, in fact, a forfeiture provision, while the trustee argued that it was not.
Judge’s rulings on background and drafting suggest future cases of this nature could end up being a bit of a lottery
Underpayment problems are partly due to the application of the Barber judgment, when the European Court of Justice ruled in 1991 that the right to equal pay for men and women applied to pension schemes professionals. This meant that men and women had to have the same retirement age.
Until then, it was normal in the UK to have unequal retirement ages between men and women, typically 65 for men and 60 for women.
After 17 May 1990, pension schemes had to set an equalization date and, until that date came into force, pension rights were gradually leveled, in what was called the window Barber.
This meant that disadvantaged members were entitled to more favorable treatment, which usually meant that male members were entitled to a lower retirement age.
Although the scheme was administered on the presumption that equalization had taken place, the change in its act and rules did not take place until some time after the fact. This led to incorrect benefits being paid to some members, with the trustee informing the employer twice, first in 2012 and again in 2014.
The trustee resolved to correct members’ benefits in 2016, and has since done so with respect to future benefits, while paying all arrears (without interest) accrued through 2017. A total of 116 members have been affected by the equalization issue, with the total underpayment amounting to approximately £1.2 million, and the largest single underpayment amounting to £54,567.
Another problem arose with the accrual rate, again because the scheme was administered on the assumption that a rule change had been made, with the actual change not having been made until a few years ago. later.
This gave rise to new arrears totaling £818,306, although representations from a trustee director suggest the figure could have been reduced to £378,509 if the arrears had been limited to the six-year period from October 2013 to October 2019.
Further pension corrections were made through the end of 2019, with the Chief Trustee’s argument that each figure would have been reduced by the application of the six-year restriction.
The main question the judge was asked to resolve was whether Rule 5.11 amounted to a general requirement of confiscation, as claimed by the employers, or whether it was intended to have a limited and targeted effect, as argued by the trustees.
According to Justice Leech’s account, the trustee argued that the purpose of Rule 5.11 “was to deal with missing beneficiaries and prevent funds from being ‘orphaned or trapped in the plan'”.
Nonetheless, the rule was not created with the intent “to extinguish members’ benefits when they could be identified and paid, or to extinguish benefits when they had not been recognized (e.g., as a result of an error by the fiduciary).
The trustee also argued that the rule was not intended to “extinguish shortfalls”, such as when a lump sum or installments had been “regularly underpaid”.
Meanwhile, the employers admitted that the rule did not specifically contain the word “forfeiture”, but that there was a point of “genuine uncertainty” as to how the rule should in fact be applied.
The employers’ representative recalled the legislative history allowing the forfeiture of benefits unclaimed for more than six years and argued that the plan in question had included a forfeiture clause since the drafting of its 1981 regulations, although the word only appears in the headings and not in the body of the rules.
The judge determined that Rule 5.11 was indeed a forfeiture clause, “and should be construed on the basis that any benefit or payment of a benefit which has not been claimed within six years from the date on which it has become payable is lost and the right to this benefit or payment is extinguished”.
“I am also of the view that Rule 5.11 is not limited to missing beneficiaries but applies to all unclaimed benefits after the six-year period has expired,” he wrote.
He conceded that the wording of the rules did not refer to “forfeiture” or “forfeiture”, but concluded that they contained wording to the same effect: the phrase “shall be retained by the trustee for the purposes of the regime”.
The judge further concluded that the rules did not distinguish between benefits unclaimed for six years because the recipient is absent, and those unclaimed because the recipient was unaware of their entitlement, arguing that “if the purpose of the rule was to make such a distinction, one would have expected the drafter to use clear language to that effect”.
He ruled that the trustee’s construction or construction of Rule 5.11 was “unworkable” and “[deprive] the rule of any real effect”.
Charlotte Clewes-Boyne, a partner at Arc Pensions Law, explained that the case places significant weight on a literal analysis. “That said, the judge accepted that context is not unimportant and a purposive interpretation may be required,” she said.
Clewes-Boyne noted, however, that the case “produced some useful principles when considering the specifics of a plan’s rules – for example, noting that you don’t need the word ‘package’ in a rule for it to function as a forfeiture clause.
“In this case, the judge preferred an interpretation that did not require additional wording to be added to the clause, focusing on the wording of the rules before him and what they did and, importantly, did not didn’t say,” she said. .
“It was also relevant that the rule in question remained largely unchanged through several iterations of drafting, and in this case it was deemed appropriate to examine the archeology of a regime’s rules.
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Clewes-Boyne continued, “Overall, the judge’s decisions on background and drafting suggest that future cases of this nature could end up being a bit of a lottery.
“The relative importance of the drafting of plan rules and their context remains a balancing act in the hands of the court. This will entirely depend on the circumstances, writing and archeology of an individual project.