Our team understand the complexities of managing a Section 75 Debt, specifically when facing a company reorganisation. Call our Pensions experts today.
In a final salary scheme, an employer debt can arise when:
- The scheme starts to wind up
- A participating employer becomes insolvent
- The scheme has a deficit on the full buy-out basis
A debt will also arise in a multi-employer scheme when there has been an “employment-cessation event”. Broadly, this means the cessation employer no longer employs anyone who is an active member of the scheme, but another participating employer still does so.
The debt due from the cessation employer is its share of the scheme deficit, calculated on the full buy-out basis. The scheme deficit on this basis is split between the participating employers in proportion to the liabilities attributable to each employer.
An employment-cessation event can occur when:
- A participating employer ceases to participate in the scheme (for example, on the sale of a subsidiary)
- On an internal restructuring where all of an employer's employees who are active members of the scheme are TUPE transferred to a new employer
The section 75 debt can potentially be very onerous, but fortunately there are other ways of dealing with the debt which mean that the cessation employer can avoid having to pay the debt immediately in full. Broadly, the debt can be apportioned to the scheme's other employers in accordance with procedures set out by legislation.
These include flexible apportionment arrangements, scheme apportionment arrangements, regulated apportionment arrangements and withdrawal arrangements. Essentially these involve the transfer of liability from one employer (who is discharged from further liability in respect of the scheme) to another. These may be done at, before or after a section 75 debt being triggered, and may or may not involve a payment to the scheme by the cessation employer. Trustee consent is needed, and they must be satisfied that the funding test set out in the legislation is met before entering into any of these arrangements.
Further details are available in Pensions Restructuring.
Do Pitmans’ Section 75 Debt lawyers have any particular areas of expertise?
Pitmans’ Section 75 Debt lawyers can;
- Advise employers and trustees on when a section 75 debt will be triggered
- Advise how that debt can be dealt with
- Assist with collecting that debt
- Draft apportionment and withdrawal deeds
- Advise on the funding test and trustees’ duties