Carillion Collapse Leaves Pensions’ Fate in Doubt

Construction company’s 28,000 pension members transferred to lifeboat.

When Carillion, the UK’s second-largest construction company, was forced into receivership earlier this week, it left in doubt the future of the company’s 13 pension plans, which cover 28,000 participants.

The plans’ members have been transferred to the Pension Protection Fund, the government-backed pension lifeboat. Current employees who are participants of the pension plan will receive 90% of the pension they were expecting, while the 12,000 retirees already receiving their pensions will continue to receive 100%, although their annual increases may be lower.

“The trustees have been very closely involved in all discussions with stakeholders over the last few months in order to protect members’ interests as far as possible,” said Carillion in a statement. “They will continue to work to understand the next steps and what these may mean for members. This includes working with the Pension Protection Fund.”

The company added that, “at this stage, it is too soon to say what will happen to other companies in the Carillion Group.”

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On Monday, Carillion plc, Carillion Construction Limited, Carillion Services Limited, Carillion Integrated Services Limited, Carillion Services 2006 Limited and Planned Maintenance Engineering Limited entered into an insolvency process known as compulsory liquidation. The process is intended to help stabilize the business in the short term, and to allow PricewaterhouseCoopers, which was appointed to act as special managers for the liquidation, to work to protect the interests of all creditors of the companies.

In 2017, Carillion said its pension deficit was £587 million ($815 million), however, an independent pensions expert estimated that the actual cost to the PPF will be closer to £800 million, according to the Financial Times.

“The situation regarding Carillion is concerning for all those affected,” said Nicola Parish, executive director at The Pensions Regulator, in a statement.  “We continue to work closely with all relevant parties in what are very challenging circumstances, including the pension scheme trustees, the official receiver, and the government.”

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Kentucky Pension Reform Being Kept Under Wraps

Proposals not addressed at state budget meeting.

While all eyes are on Kentucky Gov. Matt Bevin and his pension reform plans, his Tuesday proposal for the 2018-20 state budget did not include them, the Courier Journal reports.

The bill, which has seen many setbacks over the past year, from regular session delays to a 2017 special legislative session that never materialized, was expected to be addressed alongside the budget. While a pension reform bill is being quietly written by the legislature and should soon be filed, the Bluegrass State currently faces a $41 billion shortfall.

While a budget Bevin proposed would fully fund pension plans under the current law with roughly $3.3 billion from the Kentucky General Fund until 2020, the Journal reported under a level dollar funding that would require nearly $400 million more in annual funding for the $19.8 billion Teacher’s Retirement System. While also not addressed at Tuesday’s meeting, the mortgage-like level dollar funding would have the state pay the same annual amount in order to pay off obligations over a 30-year period, with higher early payments in the beginning and lower payments in the end.

Pension plan contributions currently operate under a government payroll-based basis, linking payment increases with budget raises.

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The plans most affected by the level dollar funding strategy would impact the teachers, primarily due to the Kentucky Retirement System lowering the assumed rate of return for its Kentucky Employees Retirement System hazardous pension plan, County Employees Retirement System hazardous and non-hazardous pension plans, and five insurance plans from 7.5% to 6.25%. The assumptions also halted payroll growth for state employees.

On the subject of level dollar funding, House Speaker David Osbourne was one of several Republicans on board with the changes, telling the Journal the House has, “made a complete commitment to level dollar funding.” In terms of whether the funding will cost more in the budget, he determined that it’s best for the actuarial report on the bill’s fiscal impact to adhere to that.

Should the bill phase-in level dollar funding for teachers, Sen. Chris McDaniel reportedly warned that the required boost-in funds would not start until the next state budget in 2021.

While level dollar funding is just one of many variables that will decide what type of pension reform Kentuckians will receive, the Journal quoted Osbourne as revealing a bill, “just as soon as we have something that we feel like is ready to be unveiled.”

By Chris Butera

 

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