Extension to Powers of UK Pensions Regulator

The UK Government has proposed changes to certain Pension Funding rules that would significantly increase the powers of the UK Pensions Regulator. If approved, the proposal would permit the Pensions Regulator to require additional contributions to defined benefit pension schemes in connection with corporate transactions or even as a result of ordinary-course corporate actions to the extent any such action is “materially detrimental” to the pension scheme. Unlike the current rules, the new rules would not require a finding that a purpose of the transaction is to reduce the security of the pension creditor. In addition, media reports have indicated that the new rule would allow the UK Pensions Regulator to impose liability on any portfolio company owned by a PE fund in relation to the deficit in a defined benefit pension scheme of another portfolio company of that fund.

We understand that the actual consultation paper will be issued some time this week and we will continue to monitor the situation. In the meantime, given the potential adverse impact of this rule, we think PE fund sponsors should consider the potential impact of this rule in any currently contemplated transaction to determine whether a pre-clearance from the UK Pensions Regulator should be sought.

The Government’s announcement can be viewed at: http://www.dwp.gov.uk/consultations/2008/planned-consultations/powers-pensions-regulator.pdf

You may also find two recent Financial Times articles on this subject to be helpful: “Owners of Pension Schemes in Deficit Face Fine” by Martin Arnold (April 16, 2008) and “Death Knell Sounds for Pensions Model” by Steve Johnson (April 20, 2008).

Please feel free to call any of your regular contacts at the firm or any of our partners and counsel listed under Employee Benefits or Private Equity in the Our Practice section of this website if you have any questions.