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Pension Funds

British Airways will not have to pay discretionary pension benefits trustees approved, court rules

British Airways, Harmondsworth, England, the plan sponsor for the Airways Pension Scheme, will not have to pay an additional 12 million ($16 million) in discretionary benefits to participants of the 13.3 billion pension fund, according to a ruling Thursday by the Court of Appeal for England and Wales.

Airways Pension Scheme Trustee Ltd., the trustee of the defined benefit fund for certain BA staff, had approved a discretionary increase in pension benefits after switching to the consumer price index for inflation adjustments from the retail price index.

In 2010, then-Chancellor of the Exchequer George Osborne announced that public-sector pension benefit increases would in future be based on the CPI — which excludes mortgage, rent and other housing costs — rather than the RPI.

In early 2011, the trustees of the BA pension fund gave themselves the power to award discretionary increases to pension benefits without needing BA's consent. In November 2013, the trustees voted to grant a discretionary increase of 0.2%.

BA challenged the validity of this new authority in a trial that ended May 19, 2017, resulting in Justice Paul Morgan of High Court of England dismissing BA's claim. BA appealed Mr. Morgan's decision to the Court of Appeal.

"The Court of Appeal paid close attention to the description in the trust deed of the role of the trustees, concluding that their function was to manage and administer the scheme, not design the benefit structure," said Stuart Pickford, a partner at law firm Mayer Brown International, in an emailed statement. Mr. Pickford was not involved in the case.

Mr. Pickford added: "When trustees are considering exercising their powers, they need to look both at the scope of the power and also at the purpose for which it was conferred upon them — the second aspect is more difficult as it will often not be set out expressly in the documents. The BA case shows that this (i.e., looking at the purpose for which a power was conferred) involves considering the balance of power between the trustees and the employer, so that trustees perform their own constitutional functions and do not stray into the employer's area of responsibility — benefit design will usually be a matter for the employer."

Law firm Linklaters represented British Airways, and Eversheds Sutherland International represented the trustees.