The chairman of the ESB’s pension plan trustees has warned the group’s chief executive, Pat O’Doherty, against plans to hand over €400 million to the Government while its retirement scheme is “under severe financial strain”.
The State-owned energy company has agreed to pay a €400 million special dividend to the Exchequer pending the sale of some of its power plants, but staff are threatening legal action to halt the payment on the basis that it could undermine the security of their pension scheme, which has an estimated €1.7 billion deficit.
While the row only boiled over in public this week, it emerged that the chairman of the scheme's trustees, Tony Donnelly, wrote to ESB chief executive, Pat O'Doherty in April warning of the proposal's likely impact on the workers' pension pot.
Minimum
Mr Donnelly, a former financial director of ESB, confirms in his letter that the scheme's actuaries reported that, according to the minimum funding standard laid down in the Pensions Act, it had a €1.7 billion deficit at the end of 2011.
“Given the large deficit in the scheme [under the State’s own minimum funding standard regulations], it is difficult for the trustees to comprehend the company’s paying a large special dividend to the State which is likely to have an adverse affect on the financial health of the company and consequently the financial security of all members of the scheme,” Mr Donnelly says.
He concludes that “the trustees would ask the company to reconsider the proposals to pay a special dividend to the State and ensure that the Government are aware of the significant regulatory deficit and risks to this fund and the company”.
Shortfalls
Mr Donnelly points out that the High Court last year refused to sanction Aer Lingus's proposed €500 million payout to shareholders in light of shortfalls totalling almost €900 million in the airline's employees' schemes. He warns that the ESB plan could be regarded as a "contingent creditor" of the company in circumstances where it is underfunded.
Four staff have already threatened to take legal action to halt the payment of both the €78 million yearly dividend from the company to the Exchequer, which it approved at this week’s annual general meeting, and the €400 million special dividend.
Along with this, the general secretary of the company's group of unions, Brendan Ogle, has warned that workers will take all necessary "legal, political and industrial" action to protect their pension scheme's assets.
The group's finance director, Donal Flynn, said yesterday that the company has submitted a plan designed to meet the funding standard to the Pensions Board eight months ago. "The regulator has accepted that plan," he added.
Mr Flynn also repeated the company’s argument that the minimum funding standard, which calculates a scheme’s liabilities in the event of it being wound up, is “not appropriate” in the ESB’s case.
He pointed out that the 1942 legislation which first established the scheme does not envisage it being wound up, and for that reason, a different standard should apply.
The fund’s actuaries confirmed at the end of last year that it was in a position to meet its liabilities as they fell due and that a plan put in place in 2010 to cover a €2 billion deficit was still on track.
One of the key flashpoints between the staff and the company is its description of the scheme in its annual report as a defined contribution plan and an assertion that the ESB has no liability for any future deficit that might arise in the plan.
Standards
Mr Flynn, yesterday argued that this description is in line with accounting standards as the scheme has always had characteristics of both defined contribution and defined benefit plans. He said that this is also why the Pensions Board regards it as a defined benefit scheme. "They are both looking at it through different prisms," he said.
The ESB changed its definition of the scheme after the 2010 funding plan was agreed.
