Chapter 38: surplus and surplus management for benefit schemes

[ST6_aspirant]

Hi.

Please refer page 32 of chapter 38: surplus and surplus management

There is a paragraph in bold on top which says:

Legislation may require that the liabilities of the benefit scheme be met whether or not any funds set aside prove to be sufficient, if a benefit promise is made. Thus there is legal obligation on sponsor to make good any deficit even if doing so results in insolvency of sponsor and affects other interests of employees such as their continued employment.

My question is why will it affect the employment of employees? And is it the employees of the sponsor or the company which is benefitting from the benefit scheme.

 

[didster]

The sponsor is usually the employer of the members of the benefit scheme. Ie the benefits are part of their remuneration package and the employer pays for it.

If the Company is bankrupt because it is struggling to fund its pension plan, it may have no choice but to close. If the Company closes then everyone is out of work.
If they are struggling to pay pension plan contributions, there will be less money to go around otherwise as well even if it stays open, leading to say smaller bonuses, smaller pay increases ...