Who’s Who? Identifying your statutory employer

Introduction

In July 2011, TPR issued a statement: Identifying your Statutory Employer. It reminds trustees that they should “identify and assess the legal obligations of each of the scheme’s employers, as well as the nature and extent of these obligations”.

This issue came to TPR’s attention after it emerged that the George and Harding pension scheme had been refused entry to the PPF as it no longer had a statutory employer.

Key points

TPR’s July statement reminds trustees of the importance of identifying the scheme’s statutory employers.
Statutory employers are legally responsible for some key statutory protections for members – including meeting the scheme funding test.
From November 2011, trustees will have to provide information about the scheme’s statutory employers on the Scheme Return.
After identifying the statutory employers, trustees should consider assessing the employer covenant for such employers.

Why is it important?

The statutory employers to a scheme are the only employers legally responsible for:

meeting the scheme’s statutory funding obligations;
paying the section 75 debt when an employment cessation event occurs on an employer’s departure from a multi-employer scheme, on scheme wind-up or on employer insolvency;
triggering entry to a PPF assessment period on insolvency.

Who is a statutory employer?

This is a technical, legal question based on legislation. A participating employer is not necessarily a statutory employer, unless it meets the legislative test. An “employer” is defined as “the employer of persons in the description or category of employment to which the scheme in question relates” (Section 124 of the Pensions Act 1995). Former employers may also be included in the definition.

The Pilots Case shed some light on what this definition means in practice. In this case, the judge concluded that the definition included employers of active members and also those employers of persons eligible to join the scheme. Although this case is going to appeal we understand these conclusions are not part of the appeal.

Employer Covenant

For DB schemes, the employer covenant is critical. It not only underpins the security of members’ benefits but will also drive trustees’ funding and investment strategy.

TPR’s December 2010 guidance on Monitoring employer support defines covenant as an employer’s legal obligation and its ability to fund the scheme, both now and in the future. Earlier guidance focused on ability and willingness, rather than legal obligations. Given this shift in thinking, it is not surprising to see TPR now focusing on encouraging trustees to establish which employers are the statutory employers (namely those who bear the relevant legal obligation) in relation to a scheme.

Scheme Return

From November 2011, the Scheme Return will include a requirement to identify statutory employers in relation to a scheme.

At present, the Scheme Return only requires the trustees to identify the principal employer, participating employers and any former employers. We currently have little information about what the new look section of the form will require as we understand it is still being drafted.

What next

Identifying a scheme’s statutory employers can be complex, particularly if there are employers who have previously left the scheme or if the scheme is closed to future accrual. It seems likely that any schemes which fail to identify a statutory employer (or identify only a DC employer) will be subject to further investigation by TPR. Therefore, trustees should look to their legal advisers for assistance in identifying the statutory employers ahead of the November deadline.