Aer Lingus 2014 Annual Report Download - page 123

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The Expert Panel Report
The purpose of the Expert Panel (referred to above) was to investigate how a final resolution of the industrial relations issues relating to the
IASS could be achieved following the inability of the parties to implement the recommendations issued by the Irish Labour Court in January
and May 2013, respectively.
The Expert Panel issued its report (the “Expert Panel Report”) on 16 June 2014. This Report built on the Labour Court Recommendations
but with some variations between the Expert Panel Report and the Labour Court Recommendations. These variations related to the
application of more conservative assumptions in relation to certain pension benefits as well as the buy-out of certain trade union pension
funding claims. The effect of these variations increased the €110 million payment previously proposed to be paid by Aer Lingus Limited in
respect of IASS members in receipt of income from Aer Lingus Limited to a proposed payment of €146.7 million while preserving the staff
cost stabilisation measures previously proposed by the Labour Court Recommendations.
The Expert Panel Report did not quantify a recommended amount in respect of deferreds. Instead, the Expert Panel recommended a set of
principles with Aer Lingus Limited and daa (on its own behalf and on behalf of SAA) with regard to an increased payment to deferreds.
Based on this set of principles, Aer Lingus Limited calculated that the €30 million once-off payment previously proposed to be paid by it in
respect of deferreds would increase by €14.0 million to €44.0 million.
The aggregate effect of the variations recommended by the Expert Panel and discussed with the IASS Trustee was to increase the total once-
off payment to be made by Aer Lingus Limited from €140.0 million to €190.7 million in addition to implementation costs.
On 27 June 2014, Aer Lingus announced that it accepted the recommendations of the Expert Panel on the basis that the Expert Panel’s
report represented a full and final solution capable of acceptance by all the parties and which would definitively address the funding issues
in the IASS.
Principal terms and conditions of the IASS solution
The IASS solution seeks to address the issues arising from the funding shortfall in the IASS and to achieve certain targeted (but not
definitive or guaranteed) pension benefit levels recommended by the Labour Court during 2013 and supported by the Expert Panel during
2014.
The IASS solution involves a number of elements:
(a) a once-off payment by Aer Lingus of €190.7 million comprising:
i. €146.7 million once-off employer contribution for the purpose of providing new pension arrangements in a defined contribution
pension plan for the benefit of Aer Lingus IASS members (who are still in receipt of an income from Aer Lingus); and
ii. €44.0 million once-off employer contribution for the purpose of providing new pension arrangements in a new deferred defined
contribution pension plan for deferred Aer Lingus IASS members (i.e. members of the IASS who have left employment and are not
in receipt of an income from Aer Lingus but who are not yet receiving their pensions);
(b) the cessation of benefit accrual and contributions with regard to the IASS as well as the implementation of changes to the IASS
investment strategy;
(c) the Pensions Authority approving a funding plan (i.e. a proposal from the IASS Trustee to the Pensions Authority outlining how the
IASS will satisfy the MFS over an agreed time period, in this case 25 years) and Section 50 Application (an application to reduce the
benefits under the IASS so that the MFS can be met) from the IASS Trustee (i) to reduce accrued IASS benefits for both active IASS
members and deferred IASS members firstly through the co-ordination of accrued IASS benefits with the Irish State pension and then
secondly through a further 20% reduction in benefits; and (ii) to reduce the pensions of Retired IASS Members by between 0% and
20% depending upon the level of their annual pension, and (iii) removal of revaluation of benefits prior to payment;
(d) the revision of the existing Aer Lingus defined contribution pension plan to a new current employee defined contribution pension plan
in respect of future service pension contributions for employees of Aer Lingus who are currently IASS members and in respect of the
once-off payments for Aer Lingus IASS members who are still in receipt of income from Aer Lingus and the establishment of a new
deferred defined contribution pension plan in respect of deferred Aer Lingus IASS members who are not in receipt of income from Aer
Lingus or an IASS pension; and
(e) the once-off payment will be transferred to an escrow account and will only be released into individual accounts in the new current
defined contribution pension plan and the new deferred defined contribution pension plan on receipt of correctly executed and signed
waivers. These waive any and all rights to legal action against Aer Lingus Limited and the IASS Trustee in relation to the IASS.
Approval of the IASS solution by Aer Lingus shareholders and subsequent implementation of the IASS solution
The resolution to authorise the Directors to proceed with the implementation of the IASS solution was successfully passed at the EGM on 10
December 2014. Following this approval, Aer Lingus Limited transferred the entire amount of the €190.7 million comprising the once-off
pension contribution to an escrow structure and the IASS Trustee confirmed that the previously prepared funding proposal and Section 50
application remained effective. On 23 December 2014, the Pensions Authority approved the funding proposal and Section 50 application
previously submitted to the Pensions Authority by the IASS Trustee.