The trust deed governing the IASS and the trust deed governing
the Pilots Scheme to which Aer Lingus Limited contributes, state
respectively that no changes to those contribution rates are
possible without Aer Lingus Limited's consent. The Board remains of
the opinion that the responsibility of Aer Lingus Limited to
contribute to the Irish Pension Schemes is fixed at Aer Lingus
Limited's current contribution rates and, accordingly that Aer
Lingus Limited has neither a constructive nor a legal obligation to
increase its rate of contributions to the Irish Pension Schemes,
even if those schemes are found to have insufficient funds to pay
all members the benefits relating to their current or past
service.
Irish Airlines (General Employees) Superannuation Scheme
The IASS is a multi-employer scheme. Historically, fixed
contributions were made by the employers and employees in
accordance with the IASS's trust deed and rules. With effect from 1
January 2015, both IASS benefit accrual as well as employer and
employee contributions to the IASS ceased in line with the
implementation of the IASS solution (described in more detail later
in this note).
The statutory Minimum Funding Standard (the "MFS") is an Irish
legislative provision which requires a pension scheme to aim to
hold assets which would be sufficient to meet accrued liabilities
of the scheme if the scheme were to be immediately wound up. Under
Irish pension legislation, trustees of a pension scheme which is
unable to satisfy the MFS are obliged to submit a funding proposal
to the Pensions Authority. At 31 August 2014, the IASS was
estimated by the IASS Trustee's actuary to have a statutory MFS
deficit of approximately EUR707 million. Employees who joined Aer
Lingus Limited since late 2009 are not eligible to become members
of the IASS.
Aer Lingus Limited's and the other sponsoring employers'
consistent position is that there is no obligation to contribute
anything other than the applicable fixed rate of contribution to
the IASS and in the absence of the assumption of additional
voluntary commitments, the IASS Trustee would have been required to
take measures to address the funding position of the IASS. For this
reason, in recent years, the IASS funding issue created a risk that
Aer Lingus Limited could have become involved in industrial
disputes with its employees, which would have been significantly
detrimental to the operations of the airline and its financial
performance. It was also possible that although Aer Lingus
Limited's position is that it has no responsibility for the deficit
in the IASS, this position could be subject to legal challenge from
various potential claimants. Any such challenge would be
strenuously defended. Lengthy litigation could ensue. If, contrary
to the firm legal advice that Aer Lingus Limited has received (that
such a challenge was unlikely to succeed), a Court were to find
against Aer Lingus Limited in any such litigation, significant or
very significant loss could arise.
Although Aer Lingus Limited is aware that certain parties have
threatened proceedings against the company in relation to the IASS,
no proceedings against the company have been issued to date and it
is not therefore practicable to estimate the financial exposure, if
any, of Aer Lingus Limited should such claims be made and
succeed.
Discussions with the relevant parties
In the context of the IASS funding shortfall, Aer Lingus Limited
attempted to assist in the achievement of a fair outcome that
improved the pension prospects of IASS members in a way that
balances the interests of all parties, including shareholders and
employees. On this basis, Aer Lingus Limited participated in a
process of discussion under the auspices of the Labour Relations
Commission which commenced in 2010 and which also involved the
Irish Business and Employers' Confederation ("IBEC"), the Irish
Congress of Trade Unions ("ICTU"), the Irish Labour Court and an
Expert Panel established in March 2014 by two Irish Government
departments, IBEC and ICTU. This process was the subject of interim
and final recommendations issued by the Labour Court on 2 January
2013 and on 24 May 2013, respectively, which set the main
parameters for the resolution of the issues arising. The report
subsequently issued by the Expert Panel on 16 June 2014 built upon
the Labour Court recommendations while varying certain elements of
these recommendations.
Principal terms and conditions of the IASS solution
The IASS solution, which was implemented in late 2014, seeks to
address the issues arising from the funding shortfall in the IASS
and to achieve certain targeted (but not definitive or guaranteed)
pension benefit levels recommended by the Labour Court during 2013
and supported by the Expert Panel during 2014.
The IASS solution involves a number of elements:
(a) a once-off payment by Aer Lingus Limited of EUR190.7 million
comprising:
i. EUR146.7 million once-off employer contribution for the
purpose of providing new pension arrangements in a defined
contribution pension plan for the benefit of Aer Lingus IASS
members (who are still in receipt of an income from Aer Lingus);
and
ii. EUR44.0 million once-off employer contribution for the
purpose of providing new pension arrangements in a new deferred
defined contribution pension plan for deferred Aer Lingus IASS
members (i.e. members of the IASS who have left employment and are
not in receipt of an income from Aer Lingus but who are not yet
receiving their pensions);
(b) the cessation of benefit accrual under and contributions
with regard to the IASS as well as the implementation of changes to
the IASS investment strategy;
(c) the Pensions Authority approving a funding plan (i.e. a
proposal from the IASS Trustee to the Pensions Authority outlining
how the IASS will satisfy the MFS over an agreed time period, in
this case 25 years) and a Section 50 Application (an application to
reduce the benefits under the IASS so that the MFS can be met) from
the IASS Trustee (i) to reduce accrued IASS benefits for both
active IASS members and deferred IASS members firstly through the
co-ordination of accrued IASS benefits with the Irish State pension
and then secondly through a further 20% reduction in benefits; and
(ii) to reduce the pensions of Retired IASS Members by between 0%
and 20% depending upon the level of their annual pension, and (iii)
removal of revaluation of benefits prior to payment;
(d) the revision of the existing Aer Lingus defined contribution
pension plan to a new current employee defined contribution pension
plan in respect of future service pension contributions for
employees of Aer Lingus who are currently IASS members and in
respect of the once-off payments for Aer Lingus IASS members who
are still in receipt of income from Aer Lingus and the
establishment of a new deferred defined contribution pension plan
in respect of deferred Aer Lingus IASS members who are not in
receipt of income from Aer Lingus or an IASS pension; and
(e) the transfer of a once-off payment to an escrow account and
for release into individual accounts in the new current defined
contribution pension plan and the new deferred defined contribution
pension plan only on receipt of correctly executed and signed
waivers. These waive any and all rights to legal action against Aer
Lingus Limited and the IASS Trustee in relation to the IASS.
Approval of the IASS solution by Aer Lingus shareholders and
subsequent implementation of the IASS solution
The resolution to authorise the Directors to proceed with the
implementation of the IASS solution was successfully passed at an
EGM held on 10 December 2014. Following this approval, Aer Lingus
Limited transferred the entire amount of the EUR190.7 million
comprising the once-off pension contribution to an escrow structure
and the IASS Trustee confirmed that the previously prepared funding
proposal and Section 50 application remained effective. On 23
December 2014, the Pensions Authority approved the funding proposal
and Section 50 application previously submitted to the Pensions
Authority by the IASS Trustee.
Following the approval by the Pensions Authority, benefit
accrual in the IASS froze and employer and employee contributions
to the IASS ceased with effect from 31 December 2014 and
implementation of the IASS solution commenced on 1 January 2015.
Specifically, with effect from 1 January 2015, once-off payments
from the escrow structure started to be released into individual
accounts in the new current employee defined contribution pension
plan and the new deferred defined contribution pension plan on
receipt of correctly executed and signed waivers. These waive any
and all rights to legal action against Aer Lingus Limited and the
IASS Trustee in relation to the IASS.
As at 24 July 2015, 63.4% of waivers were executed and EUR137.3
million had been paid from the pension escrow. Therefore, at this
date EUR53.4 million of the EUR190.7 million remained in escrow to
be administered.
Status of waivers (as at 24 July 2015)
Valid Received Valid % Outstanding Outstanding Total Total %
Received %
----------------- -------------- --------- ----------- ----------- ----- -------
Active members 1,980 78.9% 530 21.1% 2,510 100%
----------------- -------------- --------- ----------- ----------- ----- -------
Deferred members 1,565 50.8% 1,514 49.2% 3,079 100%
----------------- -------------- --------- ----------- ----------- ----- -------
Total 3,545 63.4% 2,044 36.6% 5,589 100%
----------------- -------------- --------- ----------- ----------- ----- -------
Irish Airlines (Pilots) Superannuation Scheme
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