Restructuring Defined Benefit Pension via Industrial Relations - PowerPoint PPT Presentation

Restructuring Defined Benefit Pension via Industrial Relations Agreement - eircom case study IAPF Annual Conference : 13 th October 2010 www.iapf.ie

eircom Case Study • IAS 19 & Trustee ongoing Funding deficits remediated by Collective Agreement with Trade Union Alliance • Agreement on nature of future pay increases including limits on pensionability • No change to Trust Deed or Rules • No Trustee or Pensions Board consents required • Ballot by the four eircom Trade Unions resulted in 86% to 96% favourable result IAPF Annual Conference : 13 th October 2010 www.iapf.ie

Key Parties to Agreement Scheme Trustees • Main Fund (post ’84 service) • No 2 Fund – (pre ’84 service) Consultation Trade Union Alliance IR Negotiation IAPF Annual Conference : 13 th October 2010 www.iapf.ie

Main Fund Demographics 7,000 6,000 6,505 5,902 5,000 5,269 March 2010 4,000 3,000 Active 2,000 Membership = 29% of total 1,000 0 Active Members Deferred Members Benefits in payment •Average age of active members = 50.5 •Average age of deferred members = 51.3 IAPF Annual Conference : 13 th October 2010 www.iapf.ie

Main Fund Demographics 16,000 14,000 14,283 12,000 Projected 10,000 Active 8,000 membership in 6,000 2022 6,505 5,902 5,269 = 8% of total 4,000 1,374 1,043 2,000 0 Active Members Deferred Members Benefits in payment Mar-10 Projected 2022 IAPF Annual Conference : 13 th October 2010 www.iapf.ie

Active + Deferred Members reaching age 60 by year 1200 1085 998 1000 931 889 877 793 767 767 800 690 600 509 489 430 369 400 327 279 261 190 200 95 94 72 49 66 57 67 60 74 78 97 67 82 67 47 41 29 9 4 1 1 0 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020 2021 2022 2023 2024 2025 2026 2027 2028 2029 2030 2031 2032 2033 2034 2035 2036 2037 2038 2039 2040 2041 2042 2043 2044 2045 2047 IAPF Annual Conference : 13 th October 2010 www.iapf.ie

Extended periods for pensions in payment Current Retirees Current Retirees Current Retirees Future Retirees Future Retirees Future Retirees Life Life Life Expectancy Expectancy Expectancy Male Male Male Female Female Female Male Male Male Female Female Female 30-Sep-07 30-Sep-07 30-Sep-07 85.7 85.7 85.7 88.8 88.8 88.8 86.8 86.8 86.8 89.8 89.8 89.8 31 March '05 31 March '05 31 March '05 84.0 84.0 84.0 87.0 87.0 87.0 85.2 85.2 85.2 88.2 88.2 88.2 31 March '02 31 March '02 31 March '02 81.0 81.0 81.0 85.1 85.1 85.1 81.6 81.6 81.6 85.9 85.9 85.9 21 Dec '98 21 Dec '98 21 Dec '98 80.3 80.3 80.3 84.3 84.3 84.3 81.0 81.0 81.0 85.1 85.1 85.1 • Increase of over 5 Years in a decade (25%) • Pensions starting earlier at age 61 on average • Each 1 year increase adds approx €65m to liabilities • Preliminary figures for 2010 show further increase to 86.6 IAPF Annual Conference : 13 th October 2010 www.iapf.ie

Cash flow profile (1) 500.0 450.0 Pensioners 400.0 350.0 300.0 € Millions 250.0 200.0 150.0 100.0 50.0 - 2010 2013 2016 2019 2022 2025 2028 2031 2034 2037 2040 2043 2046 2049 2052 2055 2058 2061 2064 2067 2070 2073 2076 2079 2082 2085 2088 2091 2094 2097 2100 2103 2106 2109 Years IAPF Annual Conference : 13 th October 2010 www.iapf.ie

Cash flow profile (2) 500.0 450.0 Deferred Pensioners 400.0 Pensioners 350.0 300.0 € Millions 250.0 200.0 150.0 100.0 50.0 - 2010 2013 2016 2019 2022 2025 2028 2031 2034 2037 2040 2043 2046 2049 2052 2055 2058 2061 2064 2067 2070 2073 2076 2079 2082 2085 2088 2091 2094 2097 2100 2103 2106 2109 Years IAPF Annual Conference : 13 th October 2010 www.iapf.ie

Cash flow profile (3) 500.0 450.0 Actives Past Service Deferred Pensioners 400.0 Pensioners 350.0 300.0 € Millions 250.0 200.0 150.0 100.0 50.0 - 2010 2013 2016 2019 2022 2025 2028 2031 2034 2037 2040 2043 2046 2049 2052 2055 2058 2061 2064 2067 2070 2073 2076 2079 2082 2085 2088 2091 2094 2097 2100 2103 2106 2109 Years IAPF Annual Conference : 13 th October 2010 www.iapf.ie

Cash flow profile (4) 500.0 Actives Future Service 450.0 Actives Past Service Deferred Pensioners 400.0 Pensioners 350.0 300.0 € Millions 250.0 200.0 150.0 100.0 50.0 - 2010 2013 2016 2019 2022 2025 2028 2031 2034 2037 2040 2043 2046 2049 2052 2055 2058 2061 2064 2067 2070 2073 2076 2079 2082 2085 2088 2091 2094 2097 2100 2103 2106 2109 Years IAPF Annual Conference : 13 th October 2010 www.iapf.ie

Company & Trade Union Alliance conclusions • “Scheme too big, too expensive and too risky” • Need to contain pension costs, reduce risks and eliminate deficits to sustain company and pension fund • Action required to ensure pension scheme remains sustainable now and in the long-term to allow it to pay benefits due to all members IAPF Annual Conference : 13 th October 2010 www.iapf.ie

IR Agreement (1) • Formal closure of DB Scheme to new entrants • Scheme remains open to future accrual for existing members • No change to discretionary treatment of pensions in payment • No increase in member contributions or Normal Retirement Age • Increased company contribution for 3 years to Dec 2013 – floor of 8.5% pa or €20m pa IAPF Annual Conference : 13 th October 2010 www.iapf.ie

IR Agreement (2) • Pensionable pay freeze to Dec 2013 (follows previously agreed pay freeze to June 2011) • From Jan 2014 Cap on growth of pensionable pay at lowest of – actual pay increase or – annual rate of Consumer Price Index or – annual cap of (i) 4% for 2014,2015,2016,2017 (ii) 3.25% for 2018,2019,2020 and (iii) 2.5% thereafter • DC “top up” for increase in remuneration, if any, in excess of cap from 2014 IAPF Annual Conference : 13 th October 2010 www.iapf.ie

Q& A Thank You IAPF Annual Conference : 13 th October 2010 www.iapf.ie