SA4 Oct2007 Paper

[Steve]

Q3 of the Oct 2007 paper is on the subject of a sale/purchase of a subsidiary. A scheme is being set up for those members of the subsidiary to provide mirror benefits.

The answer to (i) implies there is to be a transfer of past service benefits, and yet there is no mention in the question of this. How am I supposed to have interpreted this from the question?

Thanks.

 

[olly]

Steve

Others may be able to expand on this but simply put, if past service wasn't a consideration for the transferring active members there would be very little to talk about. Future service benefits are something for the buying company to decide with the new workforce but there is much legislation and regulation around the preservation of accrued rights.

In M&A work, alot of energy goes into the consideration of how to deal with past service rights for those active members of the seller's scheme who will become employed by the buying company. The new employees accrued pension rights traditionally and for good practical reasons almost always become a liability of the buyer.

I would suggest you re-read chapter 18 if you need further info. I would also add that where you see M&A type questions there will almost always be questions testing your knowledge of how accrued rights transfers operate.

Best of luck.

Olly

 

[YetAnotherStudent]

Hm... yes, I've read the question and it doesn't say anywhere that the buyer will take responsibility. However, if you hadn't raised the point, I would have assumed the buyer would....

I agree with Olly though in that most M&A questions will deal with accrued rights. I don't remember reading anything in Ch18 specifically dealing with this, but I suspect there might be some employment legislation relating to what happens when these type of corporate transactions take place. A member leaving service of their own accord is entitled to a deferred pension with no more salary link, normally, but I'm not sure what the standing is when a member leaves service because their entire department gets sold....

Will ask about this at work tomorrow

Or possibly our tutor could enlighten us?

 

[Steve]

Olly, YAS,

Thanks for your comments. I agree there is far more to talk about with the transfer of past service benefits, and that the majority (but not all!) of transactions will involve the transfer of accrued benefits - what I found strange was that the answer seemed to fall into the trap of writing a standard answer to a different standard question, if you see what I mean.

I'm not aware (but am obviously willing to be corrected) that past service rights MUST be transferred in a sale/purchase situation - therefore I thought that I shouldn't assume it was the case here (and I stated that in my answer).

Going forward, I will probably assume that the transfer of past service rights is implicit unless the question states otherwise - best to learn these things now than in two weeks time I guess.

Thanks again.

 

[Elizabeth Horner]

Steve

You're correct to say that, although it is usually the case, past service rights do not HAVE to be transferred across in this type of situation. The first few paragraphs of Chapter 18 cover this.

This question does ask about the particular 'pensions aspects of the deal' - which would imply that past service benefits are involved in the negotiations and likely to come across. Also, as noted, there's not too much to say on these types of question if they're not!