Opinion: One of the most important side issues in the takeover bid for Aer Lingus by arch rival Ryanair has been the role played by the Aer Lingus pilot pension fund. The purchase of additional shares in Aer Lingus by that fund prompted the Pensions Board to remind the trustees of their responsibilities to invest surplus funds wisely and with due regard to the potential return.

This was followed by a more direct warning by the Minister for Social Welfare and Family Affairs, Séamus Brennan, who, in an interview with TV3's The Political Party programme, said: "Pension funds have trustees; it's the job of the trustees to act on behalf of the pensioners, not to have any other objective." Very appropriate remarks considering that the Air Lingus pilots have clearly demonstrated their objection to the Ryanair offer.

The pilots have now a new vehicle for their opposition in the form of a company called Tailwind Nominees, which has purchased shares in Aer Lingus.

That, of course, is not open to question, so long as there is no connection with the pension fund, that there are no financial understandings with that fund, and that there are no back-to-back operations.

There is no evidence of any of these happenings. Maybe they should clear the air and disclose the source, and obligations, of these funds. The various legislative acts make the trustees' role clear. Under the Pensions Act 1990 and Pensions (Amendment) Act 2002, the trustees of an occupational pension scheme are required to provide for the proper investment of the resources of the scheme. Interestingly, the primary duty - apart from adhering to the rules of the trust - is to preserve the assets/investments of the scheme.

The Pensions Board lists a number of duties, including the requirement to act in the best interests of the beneficiaries, act prudently and diligently, and be aware of possible conflicts of interest. It must be said that the duties of trustees are very onerous; they are probably more legally demanding than the duties of directors. Yet directors are paid considerably more than trustees who, in some instances, receive no fees. And if they are in breach of trust, the potential penalties are substantial.

It is worth noting that the beneficiaries can sue trustees who are negligent, who do not act in good faith, or who do not act in accordance with the rules.

In these scenarios, the trustees can be held to be personally liable for all the loss incurred.

So, in a High Court action, a judge would make a distinction between different breaches: in a breach of duties, proper diligence is required; in a breach of discretion, the trustee must act honestly and use the diligence of a prudent company, and while a trustee is only liable for his/her own acts, he/she must not sit passive while co-trustees commit a breach of trust.

While the Pensions Board has not yet initiated legal actions against trustees in any scheme, it has the power to do so. Also, it can ask the trustees the basis of an investment decision, and who they received that advice from. And it can prosecute summary proceedings in the District Court, and may also refer the case to the DPP.

Those found guilty could be subject to a fine of up to €1,904.61, or a prison term of up to one year, or both. On conviction, or indictment, the fine could be up to €12,697.38, or a prison term of up to two years, or both.

These fines might be appropriate for wayward trustees of small schemes but they are hardly appropriate for €100 million-plus schemes.

The percentage of shares held by the pilots' pension fund in Aer Lingus has to be placed in perspective; they now have around 2 per cent.

Equally important is the percentage of a pension scheme that has been invested in their company; under EU directive, this cannot exceed 5 per cent by 2010.

Mr Brennan put the purchase of the Aer Lingus shares by the pilots' pension fund into perspective when he said if their objective was "to protect their pensioners and to make sure that their pensioners have decent income in years to come, fine. If it's their objective, on the other hand, to get into some power play as to who owns the airline, and that's their main objective, then I would caution against that".

The trustees of the Aer Lingus Employee Share Ownership Trust (Esot) also have the legal obligations, but they do not come under the wing of the Pensions Board.

However, the trustees of the Aer Lingus pension fund must surely have greater obligations as the performance of that fund impacts directly on the employees' pensions. It has to be asked: haven't they placed themselves in a vulnerable position?

Look at the worst scenario; the offer crumbles, the Aer Lingus share price falls back to the initial price, or worse. Here the trustees would rightly have valid questions to answer.

In the overall trustee scenario, it has to be asked: what would you do in a takeover bid? As a trustee, I wouldn't take the risk of dealing in the company's shares. Would you?

Surely legislation should be enacted to make it an offence for any company pension fund to buy, or sell, that company's shares in a takeover situation. Wouldn't that prevent trustees who are well-intentioned but loyal to the board from making inappropriate investment decisions?