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(February-2002) Ansett case: a test for DB schemes
Trustees of three Ansett super funds have been granted leave to sue their employer after initiating legal action to determine redundancy numbers — a development that could have major implications for defined benefit schemes and even spell their death.
In the first superannuation case of its kind, trustees of the Ansett Australia Ground Staff, Pilots/Management and Flight Engineers plans initiated the legal action because they are unable to pay full benefits to members because redundancy numbers have not been decided by the voluntary administrator, Andersen.
Iain Lang, director of the $600 million Ansett Australia Ground Staff Superannuation Fund, says the critical issue for the plan is to determine the level of entitlements to ascertain whether the fund will be able to pay full or partial retrenchment benefits, or a retrenchment benefit at all, for defined benefit members.
Under the defined benefit plan, members are entitled to higher benefits if they are retrenched as opposed to sacked. As most defined benefit funds only make allowances for a small percentage of staff to be retrenched, larger than expected numbers would leave the fund with a shortfall.
In the ground staff’s defined benefit plan, 5,500 out of 9,000 fund members have been retrenched with only 3,500 set to be employed under the proposed Lindsay Fox/Solomon Lew Tesna Consortium.
Mark Abramovich, superannuation partner at Deacons and the trustees’ legal counsel, notes: “This [court] action sets a precedence in a number of areas because I am not aware of any case requiring a trustee to go to court to get clarification on retrenchments. Administrators have also questioned the obligations of the employer to fund any shortfall in a defined benefit fund.
“The outcome has significant ramifications for defined benefit funds in Australia as administrators or liquidators would then seek to disclaim any obligations to pay any shortfall (if the court rules against trustees), which could be the death for defined benefits in Australia.”
Andersen has said it decided not to make a declaration on retrenchment figures because it “may adversely impact upon the return available to the ordinary unsecured creditors”.
However, Abramovich says: “We are looking for the company to make up any shortfall, which could be around or in excess of $80 million.”
The legal battle began in the Federal Court, but was later moved to the Victorian State Supreme Court, because the trustees fall under the jurisdiction of the Victorian State Trustees Act.
The court order also required Ansett to release documents to prove it has paid retrenched members of the defined benefit scheme all their entitlements, to counter any refusal to pay the shortfalls.
Abramovich says once full redundancy benefits are requested from the fund’s assets and fail to meet the full entitlements, it becomes a subsequent issue for the court to determine whether there is a shortfall with the asset scheme.
The court case was expected to continue on February 8, but Abramovich believes it has already highlighted important lessons.
“It is clear that trustees need legal advice that is independent from that of the principal employer and should probably change actuarial reports to an annual basis to ensure that an adequate buffer is in place to pay accrued benefits,” he says.
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