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Trustees and administrators of pension funds run pension schemes for the benefit of the beneficiaries. This role imposes a heavy legal responsibility in an increasingly litigious environment. Trustees are obliged to act within the authority of the trust deed and the rules of the pension fund. Should they fall short of the standards required of them, scheme Trustees may be held personally liable for what could be very onerous amounts. Furthermore, sponsoring employers may become involved in litigation. The Pension Act 1990 created the Pensions Board, which is empowered to enforce regulations in respect of pension funds. Failure to meet the requirements laid down in this legislation can lead the Pensions Board to take action against Trustees personally. Pension Scheme Trustees and Sponsoring Employers can face a number of allegations, including:

- Negligence in the investment of trust funds - Failure to effect life insurance on behalf of a beneficiary - Benefits paid to the wrong person - Miscalculation of benefits - Incorrect payment of any surplus - Delays in investing trust monies - Default on an obligation to contribute to the plan - Violation of scheme documents - Conflicts of interest - Misleading disclosures - Improper advice - Denial or change of benefits External factors underlying potential liability The cost to defend an action can be expensive, not to mention the related fines, penalties or damages. The main external factors underlying potential liability are: - Increasing pensions legislation and regulations - Rising public awareness of the problems faced by defined benefit plans and defined contribution plans - Fund deficits as a result of recent poor performance of the stock market - Greater willingness of beneficiaries and other third parties to sue - Ombudsman cases focusing on mal-administration.

In the future there may be litigation in new areas of dispute, for example, the change from defined benefit to defined contribution.

This may lead to allegations regarding: - How the alterations to the scheme were agreed and communicated - Beneficiaries' expectations not being met because of low future investment returns and reduced contributions by employers. - Reduction in the value of defined contribution schemes as a result of errors and omissions. - Failures to explain how defined contribution schemes pass the investment risk to employees.

The increasing chance of schemes winding up may lead to claims being made against Trustees (retired or current) for past errors and actions. Insurance Protection Pension Trustee Liability Insurance is available to help protect against losses from alleged wrongful acts. It provides a good safety net, not just to individuals assuming personal liabilities as a result of their voluntary roles as Trustees within an Organisation, but also for the protection of the Sponsoring Employer and the Pension Scheme itself.

Recent Sample Actions The following are examples of actions brought against Trustees and the Sponsoring Employer / Fund in Ireland and the UK.

BORROWING FROM FUND ASSETS Directors and Scheme Trustees of a private company borrowed funds from a pension scheme to assist a newly created subsidiary in financial difficulties. The loan was repaid in the form of shares in other group companies. Scheme beneficiaries sued for fraud, maladministration and a €3,000,000 shortfall when the value of the shares plummeted.

LOAN AND LIQUIDATION - TRUSTEES PERSONALLY LIABLE AFTER INSOLVENCY Trustees loaned pension fund assets to the sponsoring employer who then went into liquidation. Further, solicitors involved with the loan misappropriated funds. Unable to recover the money, and with the Sponsoring Employer insolvent, the Trustees faced personal liabilities of €5,000,000.

LATE COMMUNICATION Professional administrators and assisting trustees were liable for the late and inadequate provision of information to an employee who, on redundancy, was entitled to have his pension transferred out of the scheme. The error and delay, compounded by stock market movements, constituted maladministration with the claim amounting to €50,000.

FAILURE TO ENROL Trustees were sued by the heirs of an employee for an administration oversight in failing to enrol the employee in the company pension scheme. This case is currently ongoing.

MIS-STATEMENT OF BENEFITS Trustees mistakenly overstated an employee's pension entitlement with the result that the employee believed he could not make additional voluntary contributions. The error came to light following a pension transfer in the corporate restructuring. The trustees were directed to compensate the employee for loss of investment returns and for emotional distress. It was no defence to assert that the complainant should have realised the mistake. This case is still ongoing.

Breege Lynn is Vice President Marsh Ireland, Financial Lines Specialist.

as a scheme trustee i am interested in this