A Cushing (Ericsson), >A Lilley (Ericsson), S Radford (deferred),
S Requena-Rueda (Ericsson), D Slack (telent Field Force)
It was explained that Sean Leahy would be participating by phone.
Mick Elliott asked what was meant by the two sentences beginning on line 5 of item 11 ‘If Ericsson… to pay pensioners’. Chris Holden thought that the wording was not particularly accurate and it was agreed that the two sentences should be deleted from the minutes.
In his absence, Sergio had asked for a status report on the Escrow fund. It was stated that it is the intention to pass it to HSBC, but this would not happen till the Fortress situation is clarified. Chris Holden added that HSBC, as the custodian for the Escrow, would be responsible for making sure that the money is being safely managed as per company instructions, and being safely managed as per the Escrow agreement. The Trustee will get periodic reports from HSBC.
Pete Harris explained that there are two entities involved in the management of the Escrow, the custodian who is basically responsible for policing the agreement, and the investment manager who is responsible for investing the funds in line with the agreed strategy and for delivering targeted returns. The initial proposal is for two different parts of HSBC to take on these two functions.
None reported.
Chris Holden referred to the SPT letter recently published on the Pensions Office website http://www.telentpensions.co.uk/. Copies were handed out at the meeting. Chris said that approval of the Fortress deal was subject to a shareholders meeting, due on the 21st July 2006, with completion due on 11 August 2006.
Chris started his explanation by saying that while the Ericsson deal had put the fund into a strong position, one issue which had not been resolved was when additional funding might be provided if required. The agreement reached between the Trustee and Fortress went some way to addressing this.
He went on to explain that the Trustee, at the time of the Ericsson deal, had established an objective of having the Plan in a position whereby in 16 years time (when most pensions would be in payment) it could be fully invested in bonds with efficient funds to be able to cover the greatest reasonably expected increase in longevity. An investment strategy has been developed which provides the Trustee with an appropriate level of confidence that this target can be met.
The agreement with Fortress provides an underpin to this. If, after a three year grace period, the funding level of the Plan falls below an agreed “floor”, funds will be placed in a second Escrow (Escrow 2).
If, after 9 years, the funding is below the agreed floor, the money in Escrow 2 (and any additional funds requires) will be paid into the G.E.C. 1972 Plan or Escrow 1.
Mick Elliott asked whether the assumptions being used were the same as those in the normal valuation. Chris responded that the Trustee’s objective was based on a more conservative set.
Pat Moloney noted that this agreement would provide additional funding for the Plan if the conditions were satisfied where no such agreement had existed previously. It was noted for clarification that Company contributions for ongoing service would continue as normal.
It was also noted that the Trustee’s funding target, while being similar to the way in which an insurance company would value the Plan, would not allow a buy out, primarily because insurance company profit margins were not included.
Pete Harris stated that Fortress had a history of medium term (3-5 years) rather than short term (6-18 months) investments. However, were Fortress to sell telent, the Trustee would have the right (acting reasonably) to either take the funds from Escrow 2 if required. Also, Fortress may explore other alternatives for the Plan which the Trustee would consider but would only accept if they were in the interest of the members.
Vic Webster asked for an overview of the investment strategy designed to achieve the Trustee’s target which Pete Harris gave.
80% would be invested in bonds or bond like assets with index linked gilts and swaps used to reduce risks associated with increasing inflation and changing inflation rates.
Also, the Trustee was aiming to achieve a return over this 80% equal to that available from AA corporate bonds.
20% would be invested in diversified “return seeking assets”. Having a range of assets reduces risk. If one asset class falls it is not necessarily the case that all do. The asset classes being considered are equities, property, secured loans, fund of hedge funds and global tactical asset allocation.
Overall the strategy had been arrived at by choosing assets which would deliver the required rate of return for an acceptable level of risk.
Pete Harris confirmed that transition costs and manager fees had been taken account of in the investment model.
Chris Holden then gave his thoughts on the PCC/MND structure. He thought that the MNDs had done a great job for the members and Trustee. He thought that even though not as much activity may now be incurred as in recent times, it was still important to have people of high calibre on the Board. Thus the PCC needs to ensure that the right quality of MNDs are available when existing members move on.
Pat Moloney called for more regular training sessions for the PCC, now being a good time if other things were settling down. Could the Pensions Office and Secretary agree on training topics for the next meetings?
Chris Holden was thanked by the PCC chairman and left the meeting at this point.
This was presented by John Leaney, and based on the meeting of the 27th June 2006, although, due to the Fortress negotiations, there had been twelve Board meetings since the last PCC meeting. A summary of the main points raised is shown below. More detail, if required, is available through the MNDs and PCC reps
There had been an agreement that Andy Barker, MND, now of Ericsson, would not attend the Fortress discussions. This meant that in more than one Board meeting, there had been an imbalance of CNDs to MNDs, although in the end, it didn’t affect the results. However, Vic Webster thought there was a principle involved. Mick thought that all MNDs should have attended. It was, however, noted that the company had said that if it looked as if it might have affected the vote, then some allowance would be made.
Sean Leahy asked how Ericsson planned to interface with its employees. Andy Barker said there was no indication as yet. Peter Harris noted that they would be required to comply with the law in terms of appointing Member Nominated Directors. He (Peter) would do his best to get information, adding that although he would raise the matter with them, Sean etc. should be talking to Ericsson directly. Vic Webster added that those Ericsson employees who remained as deferreds in telent had the opportunity to be PCC reps in telent. Ian Wood reiterated the concern. (Post meeting note: Pete Harris reported that Ericsson had told him that they would not establish a PCC.)
Peter Harris noted that back in January, the Trustee had said they wanted three things for the Ericsson transfer:
Peter said that an updated version of item 1 had been seen just this week. He has been having weekly meetings during which he has repeatedly requested a project plan and asked them to appoint a project manager. Some progress has been made, but not as much as expected. The situation is now being escalated to the higher levels of telent and Ericsson.
Pat Moloney had a question from the Chorley site. Members there are now contributing to the Ericsson plan, but if they became redundant before the transfer from the Plan takes place, they have been told their Ericsson contributions will be refunded and they will just have the deferred pension in the GEC Plan. In this situation, they could lose the potential tax saving opportunity of being able to pay redundancy money into a pension plan. Pat said that the question was – are Ericsson prepared to (or can they) pay any such redundancy money in a suitable place to enhance the lump sum?
Vic Webster believed it would be at the company’s discretion, noting that only in the later stages of Marconi redundancies was this done.
Andy Barker noted that there was as yet no AVC scheme with Ericsson, although there should be in the future.
Sean Leahy added that he thought Ericsson people were still in limbo, and those facing redundancy were being treated as second class citizens.
John Leaney noted that the subcommittee, set up at the last PCC meeting to consider the future of the PCC/MNDs, had not yet met. There was an initial deadline of 31st December 2006 to meet certain legal criteria. Peter Harris said that he had written up, and added to, the discussions of that meeting. He expected to set up a subcommittee meeting within the next two or three weeks.
Andy Barker said that this could be his last meeting. He expected to be stepping down as a PCC rep and MND. He said he had enjoyed what he had done, and it was amazing how much had been covered in the last year. He noted that the online toolkit (see http://www.thepensionregulator.co.uk/) was frighteningly similar to what he had experienced. On behalf of the PCC, Pat Moloney gave thanks to Andy, saying he had been 100% effective as an MND. Pat hoped Andy would maintain his pensions interest – he would give great service to Ericsson.
It was noted that for Ericsson employees, once their benefits were transferred to Ericsson, they were no longer eligible for the PCC. On behalf of the PCC, the chairman thanked all such PCC reps for their work.
Vic Webster noted that with respect to the annual statements for the deferreds, there was now a proposal from the company to send these out just every two years. He asked that if this was to be so, could they still go out this year, as he thought there were important matters which could be communicated through the statements. Peter Harris said he would take the request to the Board.
Chris Walton proposed that the PCC should show its appreciation for Chris Holden’s attendance at the PCC meetings – making time and the effective manner of his communication. This was seconded by the chairman and endorsed by the meeting.
The next PCC meeting was scheduled for Wednesday the 11th October at Coventry, 10.30am.
(John to book a conference room).
Ken Buckley
16th July 2006
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