The head of the ESB should reply to a letter from the trustees of the company’s pension scheme that stated it was “difficult to comprehend” proposals to pay a €400m dividend to the State when there is a €1.7bn deficit in the scheme and a serious risk to its future funding, a High Court judge has said.
Mr Justice Peter Kelly said it was “very unhelpful” that the letter, written on Apr 17 by trustees’ chairman Tony Donnelly, had not been replied to, and it would be helpful if CEO Pat O’Doherty would do so.
In that letter, the trustees asked the company to reconsider the proposal to pay the dividend “and to ensure the Government are aware of the significant regulatory deficit and risks to this fund and the company”.
Paul Sreenan, counsel for the ESB, said there would be no difficulty about replying but he wanted to stress the concerns had been noted and there were continuing contacts about the pensions issue. The ESB disputed the claims made about the extent of its scheme funding obligations, he said.
No decision had yet been made about payment of a special dividend, he said.
The judge had been dealing with the trustees’ application to be joined to a legal challenge by four ESB workers alleging “willful and deliberate” failure by the company to address the scheme deficit.
Brian Baitson, William Flavin, Owen Kilmurray, and Margaret O’Connor, who began working with the ESB on varying dates since 1978, claim the ESB has wrongfully insisted the scheme is now a “defined contribution” scheme, meaning what a person receives on retirement is no longer guaranteed.
The judge adjourned the trustees’ application to January but said he had noted the trustees’ letter in court documents and that there had been no reply to it.
In the letter, Mr Donnelly said the ESB scheme was a defined benefit scheme subject to the minimum funding standard (MFS) prescribed under the Pensions Act and the scheme actuary had reported a MFS deficit of €1.7bn at end 2011.
The Government’s proposed regulations on pension schemes would place “even greater funding strains on the scheme at the latest by 2019 and earlier if the current funding plan goes off track”.
A 2010 pensions agreement significantly reduced members’ benefits and committed the ESB to paying €591m to address the actuarial ongoing funding shortfall and derisking, he said.
While a revised funding plan approved in Oct 2012 remained on track, the scheme will continue to be vulnerable to volatile financial markets for the foreseeable future, the letter said.
After the company in 2011 advised it would not make any contribution related to the Government imposed pension levy, amounting to €80m over four years, the trustees had no alternative but to use powers to reduce members’ benefits, Mr Donnelly said.
It was against this background the trustees were “very concerned” the Government would seek, and the company might consider, paying a special dividend when the scheme was under “such severe financial strain”, the letter stated.
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