Synopsis: TPR Issues a report under section 89 of the pensions Act 2004 in respect of the Kodak Pension Plan. TPR has explained the novel solution that has been reached.

Date posted: Friday, November 14, 2014

The Pensions Regulator (TPR) has published details explaining how it helped to facilitate an innovative rescue plan for Kodak’s UK pension scheme.

In January 2012, the Kodak group’s US parent, Eastman Kodak Company, entered Chapter 11 bankruptcy proceedings. This meant that the Kodak Pension Plan was at risk of losing both existing support from the wider Kodak group and ongoing contributions from its sponsoring employer.

In order to maximise the value available to the Kodak Pension Plan, a deal was agreed under which the trustees acquired Kodak’s cash generative ‘personalised imaging’ and ‘document imaging’ businesses. In exchange, the Kodak group was released from its liabilities to the Kodak Pension Plan.

Despite the acquisition, there remained serious doubts as to whether the assets could provide adequate support for the scheme’s existing liabilities. Therefore members were given the option to transfer to a new scheme which would offer benefits better than the Pension Protection Fund, but lower than in the Kodak Pension Plan. Members representing in excess of 94% of liabilities have decided to transfer.

TPR and the trustees have agreed a governance framework to limit risks to member benefits and the PPF, including monitoring the performance of the acquired businesses and imposing restrictions on discretionary pension benefit awards and investments.

TPR’s Interim Chief Executive Stephen Soper said:

‘We are prepared to work constructively with employers in a distressed state, in conjunction with the pension trustees, to explore the merits of the available options. In these situations, the chances of a successful outcome are greatly improved when we are in dialogue with all parties at an early stage.

‘The continuation of a scheme without a material sponsoring employer covenant will be extremely rare. However, in the Kodak case, the voluntary transfer of members to a new scheme offering lower benefits resulted in a reduced level of risk, improving the balance between the interests of members and the PPF.

‘We recognise that the continuation of the new scheme leaves the PPF exposed to risk. Therefore the regulator and trustees have agreed a number of mechanisms to protect the PPF and we’ll continue to monitor the situation closely.

‘Although the reduction of member benefits was considered appropriate in this case, it is a step that trustees should approach with utmost caution and care.’

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