Irish fund buys out pensioners, transfers €340m to DC fund

US manufacturer Analog is to close its €190m Irish defined benefit (DB) scheme, buying out pensioners and transferring the remaining members to an existing defined contribution (DC) arrangement.

The firm announced its plan despite the DB scheme reporting a funding level of 125% under Ireland’s minimum funding standard (MFS).

Trustees have used €40m of the DB fund’s assets to complete a buyout for retired members using an unnamed Irish insurer. It is understood the individual annuities bought for members are regular annuities, rather than Irish sovereign annuities.

The remaining assets will be transferred to a pre-existing DC fund currently used to accrue additional voluntary contributions.

In addition to the transfer of the remaining €150m DB assets, the company has agreed to pay €190m into the DC pots of active and deferred members. The sum was calculated based on what Mercer’s Irish head of retirement consulting Roz Briggs said were “prudent” assumptions to ensure members did not suffer any loss of retirement income as a result of the shift to DC.

Briggs said that the assumptions underlying the MFS were regarded as too optimistic by Analog, and it therefore calculated the €190m as the sum needed to reach replacement ratio targets based on lower return expectations.

“It’s closer to market-related investment return assumptions,” she told IPE.

As part of the transfer, the DC fund’s trustees have agreed to launch a new, lower-risk default fund, Briggs added, while maintaining a choice of investment options for members opting out of the default.

Denis Doyle, vice president of manufacturing at Analog noted that the DB scheme’s funding was “secure” at 125% of the MFS.

“We’ve designed this transaction so that all benefits accrued for past service and a substantial portion of prospective future service will be paid to members of the DB scheme now,” he said.

“Reducing the volatility and uncertainty is important to everyone and we expect this will become a model of best practice.”

The company explained that it hoped the agreement would help with staff retention. It currently employs around 1,100 staff across two factories in Limerick and Cork.

Analog added that it hoped to have completed a staff consultation and transferred the DB fund’s assets to the DC scheme by the end of its financial year in October, boosting the DC fund’s assets under management by €340m.