Pension executives at U.S. multinational companies fear a U.K. pension law reform proposal will diminish their control of U.K. pension plans, warns consultants at Towers Perrin, Newbury, England.
Recently back from a trip in which they met with pension executives at about 60 U.S. companies, Towers Perrin consultants say U.K. defined benefit plans are falling victim to more government regulation. Ultimately, this might drive employers to switch to defined contribution or hybrid plans.
The U.K. government's concept-level White Paper released in June contained three elements that upset U.S. pension executives, said Lawrence Clark, a principal at Towers Perrin. Proposed legislation will be unveiled this fall for enactment in the next parliamentary year.
First, imposition of mandatory cost-of-living adjustments could impose a significant cost burden on employers.
Second, requiring that plan participants comprise at least one-third of boards of trustees alarm employers, who worry such trustees will cause the fund to make more conservative - and ultimately more costly - investments.
Third, creation of a minimum funding standard also could steer funds into more conservative investment policies. Participant trustees might be more worried about explaining any short-term dip below full funding to fellow workers, Mr. Clark said.
But some U.K. pension experts say participants never have impaired investment policies. "We have not experienced any difficulty whatsoever in the 11 years in which we've had member trustees on the board," said Peter White, group pensions manager for Tate & Lyle PLC, Bromley, England.
The 480 million ($744 million) pension fund is split evenly between employer- and employee-nominated trustees.