International Business Machines Corp., Armonk, N.Y., breached its duties to U.K. pension fund participants in the way it implemented a restructuring of its arrangements, the High Court of Justice, Chancery Division has ruled.
Justice Nicholas Warren said IBM acted in breach of its contractual duty relating to the way it consulted with employees over the changes — a consultation that “was not carried out in a way which was open and transparent,” according to the judgment text.
According to the 435-page ruling, IBM restructured its occupational pension arrangements in the U.K. under a project known as “Project Waltz.” The project closed the company's U.K. defined benefit funds — its IBM Main Plan and the IBM IT Solutions Pensions Scheme — to accrual, saw participants agree to future pay increases being non-pensionable, and to a new early retirement policy, under which IBM could stop consenting to enhanced early retirements, according to the court ruling. The asset sizes of the pension funds could not be learned by press time.
Members were notified in 2009, with the closures effective in April 2010.
According to the judgment, published April 4, IBM acted in breach of its “Imperial duty” — a duty of good faith — and of its contractual duty in the Project Waltz changes, by giving members “a choice of either agreeing that pay increases would not be pensionable or not receiving future pay increases,” according to the ruling.
The ruling relates to the Mr. Warren's decision that IBM had created reasonable expectations among employees of further DB accrual and continued rights to enhanced early retirement pensions. Employees had made decisions about their pension benefits based on this past experience. However, Mr. Warren said the company had the right to exclude active members of the DB section of its Main Plan and IT Solutions plan from being active participants of the plans.
“In the light of all the evidence, no reasonable employer in IBM's position would have adopted the Project Waltz proposals in the form that they took,” according to CMS Cameron McKenna's summary.
A future hearing will consider the remedies the court can or should impose on IBM as a result of the breaches.
“IBM respectfully, but fundamentally, disagrees with the court's decision,” said a statement provided to Pensions & Investments by a spokesman for IBM in the U.K. “The court's opinion acknowledges IBM's right to make changes in its U.K pension programs, but we believe the court applied an incorrect legal standard in invalidating IBM's exercise of that right. IBM fully intends to seek leave to appeal at the appropriate time, and remains committed to providing its employees and retirees compensation that is competitive and in line with market conditions.”