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British Steel Pension Scheme, Tata Steel U.K. agree to pension plan severance

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A regulated apportionment arrangement, which severs a pension fund from its sponsoring employer, has been agreed in principle between Tata Steel U.K. and the trustee of the British Steel Pension Scheme, London.

The move was reported in parent company Tata Steel's annual results Tuesday.

A statement published on the BSPS website said the agreement followed “prolonged and intense discussions with the BSPS trustee, The Pensions Regulator and the Pension Protection Fund,” the lifeboat fund for defined benefit plans of insolvent companies in the U.K.

The arrangement is subject to detailed documentation and formal approval by the regulator and no objection from the PPF. “The parties are in positive discussions and are hopeful of reaching final agreement shortly,” added the statement.

The separation from the sponsoring employer would take effect once agreed conditions are satisfied, which includes an agreed payment of £550 million ($708.4 million) by Tata Steel to the £13.3 billion pension fund. The fund will also be given a 33% equity stake in Tata Steel U.K.

All pension plan participants would be offered an option to transfer to a new Tata Steel U.K.-sponsored plan offering modified benefits or remain in the BSPS and receive benefit payments from the PPF. The PPF pays 100% of accrued benefits to retirees and 90% to active participants, according to its website. Further details on the new plan, and what type of plan it is, could not be learned by press time. A spokesman for Tata Steel could not be reached for comment. The company announced in March it would freeze the British Steel Pension Scheme and place participants in a new defined contribution plan.

Any new plan will be subject to certain qualifying conditions relating to factors including size and funded level. If these conditions are not met, the new plan will not come into effect and all participants will receive benefits from the PPF compensation.

“Although the PPF is an important safeguard for pension schemes generally, the trustee believes that the BSPS has sufficient assets to offer members the potential for better outcomes by enabling them to transfer to another scheme offering modified benefits,” said Allan Johnston, BSPS trustee chairman, in the statement. “For most scheme members, these modified benefits are expected to be of greater value than those they would otherwise receive by transferring into the PPF.”

A TPR explanation of a regulated apportionment arrangement said they “are extremely uncommon; the expectation when they were introduced into legislation was that they would be used rarely, which has proved to be the case.”

In a statement provided by a spokeswoman, the PPF confirmed the key commercial terms of a RAA had been agreed, and that it anticipates “discussions concluding in the near future.”