How should trustees react to a request to suspend contributions to a defined benefit pension scheme?

Trustees need to consider the security of their members. While having a trading employer is the best outcome for the Scheme, we need to be realistic about the prospects of the employer surviving the crisis.

Understand what could trigger the insolvency of the employer. This could be due to some of their key customers falling over. Ask the employer to confirm how they would be affected by the loss of revenue that this would cause.

How will the suspension of contributions be arranged? Will contributions be reserved and paid into the scheme when the crisis is over? How about an escrow account to hold the funds, with access to the employer, but security for the trustees if the employer becomes insolvent?

You'll probably need to revise the Schedule of Contributions. Get advice from the actuary and lawyer.

Consider potential conflicts of interest. Any trustee who is also an officer of the company should recuse themselves from the decision. This might be the time to bring forward the plans to appoint an independent trustee.

Make sure that you have an audit trail for the transaction. Ask the employer to put a formal request in writing. Make notes of the discussions with fellow (non-conflicted) trustees and your advisers. Be prepared to have to explain why you came to your decision and demonstrate that you took a rational decision that does not give undue exposure to the members or to the trustees.

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