At the same time as the IBM judgment have been two much shorter judgments about pension schemes which are just as relevant, and probably more so, to HR professionals.These two cases, the Court of Appeal decision in Honda Motor Europe Limited v Powell and the High Court decision in Briggs v Gleeds, both deal with situations where the paperwork had not been properly dealt with for a pension scheme and attempts to deal with the result, many years later. Unlike IBM, which involved relatively unusual and extreme circumstances, the Honda and Gleeds decisions have the air of something that could happen to anyone, where businesses, following instructions given to them, tried to keep to the correct process and thought they had done so.
The Honda case involved the employer deciding to add a different group of employees into the pension scheme, but give them different (less generous) benefits. The employees were told about the different benefits, and the employer and the trustees agreed that this would be the benefit structure. However, the deed that allowed this group of employees to join the scheme was not sufficiently clear about the benefit structure and the court held that, for another twelve years until a new deed was signed, the new employees got the same, more expensive, benefits as the existing employees.
The deed that caused all the problems was executed in 1986, a time in which pension schemes tended to operate with less obsession with detail and legal processes. Many advisers would have looked at what had been done in the 1980s and 1990s and agreed that, although it was not perfect, it would be acceptable, and certainly would be valid in court. However, the cases since that time, and the culture surrounding pensions and their costs, have changed, and Honda is now paying for benefits that it never intended to give, and that employees never expected to receive, because the deed in 1986 was less clear than it should have been.
The Gleeds case seems even more unlucky. Gleeds, a construction consultancy, was established as a partnership, which means that the partners need to each sign documents, rather than just one or two officers, as a company might. As a result of legislation passed in 1989, all deeds signed by a partner had to be witnessed by another individual. Unfortunately, no one told the partners of Gleeds who continued to sign deeds by all partners signing, but without witnesses. This meant that all the deeds signed by Gleeds from 1989 onwards were not properly executed.
Everyone in this case clearly tried to find ways for the deeds to be effective, but with some few exceptions they were not. This means that nearly everything that had been done to the scheme for over thirty years, including allowing different categories of employees to join, adding a defined contribution section, increasing employee contributions and closing to accrual, was not effective, and the scheme is largely as it was in 1989. Some employees who thought they were in the scheme were not, and some who thought they had defined contribution benefits had defined benefit pensions instead. The communications challenge from this will no doubt fall on the HR department, who may not be looking forward to explaining the situation to employees! The lessons from both cases are ones that we all know. Pensions are expensive and old mistakes can cast very long and costly shadows. Most of all, it is important to get the paperwork right and, wherever there is uncertainty, to check the legal position rather than assume that it is correct, or even (as the Gleeds partners have now learnt to their horror) that it is the same as it was a year earlier.
