Aer Lingus 2014 Annual Report Download - page 122

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26 Defined Contribution Pension Schemes
In 2014, the Group’s operating subsidiary, Aer Lingus Limited, participated in a number of pension schemes for its staff. The two main
pension schemes are the Irish Airlines (Pilots) Superannuation Scheme (the “Pilots Scheme”), for its pilots, and the Irish Airlines (General
Employees) Superannuation Scheme (the “IASS”), a multi-employer scheme (daa, Public Limited Company (“daa”), Shannon Airport
Authority plc (“SAA”) and SR Technics being the other sponsoring employers) for other employees who fall within the category of
“General Employees” (collectively the “Irish Pensions Schemes”). Aer Lingus Limited is the sponsoring company for the Group’s
participation in the Irish Pension Schemes. Although similar rules apply to both Irish Pension Schemes, the contribution rates and benefits
differed between the schemes in 2014. Aer Lingus Limited’s contributions to these two schemes are set out in the table below.
2014
2013
€'000
€'000
Irish Airlines (General Employees) Superannuation Scheme
4,808
4,880
Irish Airlines (Pilots) Superannuation Scheme
11,501
10,819
Other defined contribution schemes
4,530
4,529
Total
20,839
20,228
The Irish Pension Schemes are accounted for as defined contribution schemes in both the entity accounts of Aer Lingus Limited and in the
Group’s consolidated accounts because the rate of contribution to these schemes is fixed. The trust deed governing the IASS (which was
recently amended on 31 December 2014) and the trust deed governing the Pilots’ Scheme to which Aer Lingus Limited contributes, state
respectively that no changes to those contribution rates are possible without Aer Lingus Limited’s consent. The Board remains of the
opinion that the responsibility of Aer Lingus Limited to contribute to the Irish Pension Schemes is fixed at Aer Lingus Limited’s current
contribution rates and, accordingly that Aer Lingus Limited has neither a constructive nor a legal obligation to increase its rate of
contributions to the Irish Pension Schemes, even if those schemes are found to have insufficient funds to pay all members the benefits
relating to their current or past service.
Irish Airlines (General Employees) Superannuation Scheme
The IASS is a multi-employer scheme with fixed contributions made by the employers and employees in accordance with the scheme’s trust
deed and rules. With effect from 1 January 2015, both IASS benefit accrual as well as employer and employee contributions to the IASS
ceased in line with the implementation of the IASS solution (described in more detail later in this note).
As at 30 June 2014 (the latest date for which IASS membership data is available from advisors to the IASS Trustee and taking into account
known membership movements between 30 June 2014 and 31 December 2014, e.g. retirements, leavers and deaths), the IASS had 14,204
members comprising 4,066 active IASS members, 5,179 deferred IASS members and 4,959 pensioners and approximately 68% of IASS
members are current or former employees of Aer Lingus Limited. The statutory Minimum Funding Standard (the “MFS”) is an Irish
legislative provision which requires a pension scheme to aim to hold assets which would be sufficient to meet accrued liabilities of the
scheme if the scheme were to be immediately wound up. Under Irish pension legislation, trustees of a pension scheme which is unable to
satisfy the MFS are obliged to submit a funding proposal to the Pensions Authority. At 31 August 2014 (the most recent date in respect of
which estimated MFS data has been provided by advisors to the IASS), the IASS was estimated by the IASS Trustee’s actuary to have a
statutory MFS deficit of approximately €707 million (the deficit at 31 December 2013 was approximately €715 million). Employees who
joined Aer Lingus Limited since late 2009 are not eligible to become members of the IASS.
Aer Lingus Limited’s and the other sponsoring employers’ consistent position is that there is no obligation to contribute anything other than
the applicable fixed rate of contribution to the IASS and in the absence of the assumption of additional voluntary commitments, the IASS
Trustee would have been required to take measures to address the funding position of the IASS. The IASS funding issue therefore resulted
in a risk that Aer Lingus Limited could have become involved in industrial disputes with its employees, which would have been
significantly detrimental to the operations of the airline and its financial performance. It was also possible that although Aer Lingus
Limited’s position that it has no responsibility for the deficit in the IASS, this position could be subject to legal challenge from various
potential claimants. Any such challenge would be strenuously defended. Lengthy litigation could ensue. If, contrary to the firm legal advice
that Aer Lingus Limited has received (that such a challenge was unlikely to succeed), a Court were to find against Aer Lingus Limited in
any such litigation, significant or very significant loss could arise.
Although Aer Lingus Limited is aware that certain parties have threatened proceedings against the company in relation to the IASS, no
proceedings have been issued to date and it is not therefore practicable to estimate the financial exposure, if any, of Aer Lingus Limited
should such claims be made and succeed.
Discussions with the relevant parties
In the context of the IASS funding shortfall, Aer Lingus Limited attempted to assist in the achievement of a fair outcome that improved the
pension prospects of IASS members in a way that balances the interests of all parties, including shareholders and employees. On this basis,
Aer Lingus Limited participated in a process of discussion under the auspices of the Labour Relations Commission which commenced in
2010 and which also involved the Irish Business and Employers Confederation (“IBEC”), the Irish Congress of Trade Unions (“ICTU”), the
Irish Labour Court and an Expert Panel established in March 2014 by two Irish Government departments, IBEC and ICTU. This process
was the subject of interim and final recommendations issued by the Labour Court on 2 January 2013 and on 24 May 2013, respectively,
which set the main parameters for the resolution of the issues arising. The report subsequently issued by the Expert Panel on 16 June 2014
built upon the Labour Court recommendations while varying certain elements of these recommendations.