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Section 251 resolutions: act now to retain surplus power

If you are a trustee or a sponsoring employer of a defined benefit pension scheme, it is highly likely that your scheme rules contain a power for the trustees to make payments out of a funding surplus to the employer in certain circumstances. 

Under section 251 of the Pensions Act 2004, trustees have until 6 April 2016 to amend scheme rules by resolution to preserve this power. If the scheme rules had such a power prior to 6 April 2006 and a resolution retaining the power is not passed, then it will be lost. If your scheme did not deal with this issue when it was raised in 2010 then you may need to act now. 

Why should this power be retained?

Trustees should consider whether they would like to retain any existing right to pay a funding surplus to the employer, on the basis that it would be maintaining the status quo and could assist in future funding negotiations. 

From an employer perspective, there are obvious benefits in retaining the power. If it is lost, that may also limit how a scheme’s funding position can be reported under IAS19 and may have a detrimental effect on the employer’s balance sheet. 

Next steps

For schemes that have already passed a resolution, it would be prudent to check its validity given the proximity of the deadline. 

Before passing a resolution, trustees should be aware of the following restrictions:

  • they must be satisfied that a resolution would be in the members interests; and
  • they need to give the scheme’s employer and members at least three months’ notice in writing in advance of the resolution being passed. The last possible date for such notification is therefore 5 January 2016. 

TLT can review your scheme rules to check they contain the power to repay any scheme surplus to the employer, and also draft the resolution including the employer and member communication. Please contact James Dean on +44 (0)333 006 0717 or james.dean@TLTsolicitors.com, or your usual TLT contact.

This publication is intended for general guidance and represents our understanding of the relevant law and practice as at November 2015. Specific advice should be sought for specific cases. For more information see our terms & conditions on www.TLTsolicitors.com

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