State cannot afford €13bn pension bill for insolvent firms, Crystal case hears

THE economic crisis and terms of the EU/IMF bailout mean the Government cannot commit to pay the estimated €13 billion actuarial cost of providing a state guarantee of the full pension entitlements of workers in cases of employer insolvency.

Kevin Cardiff, secretary general of the Department of Finance, made the assertion in the Commercial Court in a witness statement in proceedings in which 10 former workers with Waterford Crystal allege the state has failed to meet its obligations under an EU directive — the Insolvency Directive — to “protect” workers whose employers become insolvent.

Mr Cardiff said it was not possible for the Government to guarantee either the €13bn actuarial cost of full pension entitlements in insolvency situations or the lesser — unspecified — cost of paying less than 100% of the entitlements of persons still working at the time of insolvency.

The action, which has implications for the pension entitlements of all workers whose employers become insolvent, opened at the Commercial Court on Tuesday. However, as key issues in the case depend on proper interpretation of the directive, Mr Justice Brian McGovern said yesterday he would refer the case to the European Court of Justice (ECJ).

The action has been adjourned to today to allow the sides prepare draft questions for referral which would then have to be approved by the judge.

The case arose after Waterford Crystal was placed in receivership in January 2009 and its pension schemes were wound up with a deficit of more than €100m. All 10 plaintiffs are aged around 65 and ceased employment with the company on dates in 2008 and 2009.

Given the funding levels in the pension schemes, each plaintiff has been offered payments representing between 18-30% of their entitlements but contend, following an ECJ decision in 2007 (the Robins decision), they are entitled to at least 49%.

They also allege measures taken by the state in purported transposition of the directive are inadequate, including the Protection of Employees (Employers’ Insolvency) Act 1984, the Pensions Act 1990 and the Pension Insolvency Payments Scheme (PIPS). None of those measures guarantee a minimum entitlement when there is a deficit in the pension fund following an employer’s insolvency.

The plaintiffs claim the directive does not necessarily require a state guarantee of pension entitlements but does require the state to take measures to protect workers as, for example, in Britain where, under the Pension Protection Fund, a levy imposed on pension schemes is funded by the industry.

In his witness statement, while rejecting claims the state failed to properly transpose the directive, Mr Cardiff said the severe economic crisis and demanding budgetary constraints arising from the IMF-EU programme mean the Government does not have the resources to provide the commitment sought by the plaintiffs.

A guarantee for pension schemes, no matter how qualified or limited, would amount to a “serious threat” to the commitments made to the IMF and EU given the likely costs involved and the implications for the Government’s creditworthiness. Breach of those commitments could have very severe implications for Ireland, including potential loss of funding, he added.

Mr Cardiff said the problems confronting pension schemes had been examined by the Government in recent years and the issue featured prominently in discussions with the social partners. The financial pressures associated with maintaining adequate funding of Defined Benefit Schemes were fully acknowledged but no formal agreement was reached with the social partners.