European employers could end up paying out billions of dollars in additional pension benefits to cover part-time workers since 1976 because of a European Court of Justice ruling last week.
The Luxembourg-based court's ruling in Coloroll Pension Trustees Ltd. vs. Coloroll Group PLC, James Richard Russell et. al. - and five other cases decided concurrently - also could jack up pension liabilities in the short term for thousands of employers. The court could require them to retroactively provide men with full retirement benefits at age 60 - the traditional retirement age for women - instead of at age 65.
Nor can employers equalize pensions by lifting the retirement age to 65 for women and cutting back on benefits already owed them.
Employers could end up saving money in the long term, however, because this ruling, upholding the court's May 17, 1990, decision in Barber vs. Guardian Royal Exchange Assurance, only applies from that date to the date companies equalize benefits for both sexes. Once employers create parity, they can then lift the retirement age for women, rather than lowering the retirement age for men in order to comply with the court's ruling.
And most employers are likely to simply scale back benefits for women going forward, employee benefits consultants say.
"In the long term, they could get some of their costs back," noted David Marshland, employment law consultant with William M. Mercer Ltd., Chichester, England.
Employers also will be hit by the court's ruling that they must make up for discriminatory pension benefits accrued to workers - generally men - in their previous jobs, but can then sue the previous employers for the new liability imposed on them.
Last week's rulings also would require European employers that exclude married women from their pension plans to include them. The practice is still prevalent in The Netherlands, for example, but not in the United Kingdom.
But the court made a concession to European employers in allowing them to still take longevity and other sex-related factors into account in calculating the amount of benefits payable to workers who quit their jobs before retirement age, or for workers who decide to trade in a lifelong pension for a lump-sum payment. These should lessen some of the paperwork and additional financial burden on employers, according to Valerie Vardy, a technical consultant at Towers Perrin, London.
Even so, the court's failure to explain whether employers must provide equal benefits to workers when converting contributions to defined contribution plans into annuities leaves it to employers to muddle through. This is important because there are more money purchase defined contribution plans in the United Kingdom than defined benefit plans, although defined benefit plans hold more assets, according to the National Association of Pension Funds Ltd., London.
The rulings by the highest court in the 12-nation European Union cannot be appealed. They are expected to have the biggest impact on employers in the United Kingdom, the Netherlands and Germany. Businesses hardest hit include supermarket chains and other retailers as well as hotels, banks, building societies, insurance companies, hospitals and schools that depend on part-time employees, primarily women.
European subsidiaries of American companies, such as PepsiCo Inc., the fast-food operator, and IBM Corp., which has a vast European operation, also will have to comply with the court's rulings.
"That's quite a bombshell, because by the government's own estimates it could hit the bottom line by 7 billion," about $11.06 billion, said Richard Malone, European policy director at Sedgwick Noble Lowndes, Britain's biggest employee benefits consulting firm, Croydon, England.
But Roger Key, a partner at Watsons Investment Consultancy, a Reigate, England, employee benefits consulting firm, estimates the decision on part-timers could cost far less, to the tune of 2 billion, because few part-time workers will be able to afford making backdated contributions in order to qualify for pensions, as is customary in the United Kingdom. U.K. workers typically pay between 3% to 5% of their base pay - net of contributions - to state pension programs, consultants say.
"That's quite a lot of money, especially since part-timers tend to be lower paid," Mr. Marshland said. At about 4% of net pay for 18 years, part-timers would have to contribute almost a full year's salary in order to claim pension benefits, he said.
Then too, British employers' pension liability for part-time workers also is likely to be adjusted by the income-related state pensions provided to all lower-paid workers. Employers will only be liable for the additional amount they would have provided from their pension plans, over and above the state pensions, he noted.
Moreover, part-timers who worked occasionally still will not qualify for back pension benefits because of the typical two-year vesting period, Mr. Key noted.
Also, the NAPF estimates half of British employers already extend pension coverage to part-timers - almost all women - and only around 16% exclude part-timers from their retirement programs.
But about one-third of British employers do not require employees to contribute to their pension programs, and those are likely to be flooded with claims by part-timers for service going back 18 years. Towers Perrin's Ms. Vardy, for example, says she is contemplating claiming pension benefits for the 10 years she worked part-time at another consulting firm.
Many large companies that already provide pension coverage to part-time workers and allow both men and women to receive full pension benefits at age 60 will not be affected by the court's rulings. British Telecommunications PLC, London, which employs 150,000 workers, does just that and will bear no additional costs, according to Aileen Boughen, a spokeswoman.
Guinness PLC, Edinburgh, which employs 8,500 workers in the United Kingdom, isn't sure of the impact of the rulings but expects it will be a bigger paperwork headache than a financial burden, said Chris Lewin, head of group pensions.
The brewery already provides pension benefits to its 160 part-timers, and began offering men and women equal pension benefits in January 1993 - allowing them to retire with full benefits at any age between 60 and 65, he said. As a result, its additional pension liability will be limited for the period between May 1990 and January 1993, and may not even be as much as a 1 million, he said.
Moreover, Mr. Lewin said the British government is expected to introduce legislation mandating equal benefits for men and women, and the company will wait to see how that is implemented before taking any corrective measures.
The company already introduced a bridge pension in January 1993 - for men only - to provide additional coverage for those who retire at age 60 to cover them until state pensions kick in at age 65. And the company is expected to do the same thing for younger women, who will be hurt by the government's decision to raise the retirement age for women to age 65 in the next decade, he said.
