Tue | Sep 19, 2017

Pension plan revolt

Published:Wednesday | September 21, 2016 | 9:00 AMNeville Graham

A series of meetings to discuss the distribution of surplus from the D&G Pension Plan kicks off today in Kingston, with sources already indicating that they plan loud opposition to a pre-circulated proposal that gives the beer company a lump sum payment, but not the plan members.

Desnoes & Geddes Limited, which trades as Red Stripe Jamaica, proposes to dissolve the current defined benefit or DB pension scheme and replace it with a defined contribution or DC plan, and distribute the $3.8-billion surplus in the scheme, according to documents seen by Gleaner Business.

A group of members say they plan to protest both the proposal for the migration from a DB to a DC scheme, as well as the payout to the brewery.

Red Stripe Jamaica's proposed share of the surplus amounts to $1.9 billion. The beer company plans to collect half of that amount upfront, around $900 million, and plans to use the rest of the funds to finance its employer contributions under the new DC scheme for the next 20 years.

Each member's contributions in the DB scheme, and their share of the surplus, is also to be transferred to the newly created DC plan, according to the documents.

Red Stripe will need approval of more than 50 per cent of the membership present at the meetings for the proposal to be accepted. Gleaner Business understands that there are more than 1,000 members of the D&G pension scheme. This includes present employees who are currently enrolled or 'active members', pensioners, former employees currently receiving a pension, and deferred vested members.

Three meetings are set for active members on September 21, 23 and 24 at the Red Stripe plant in Kingston. Two meetings are scheduled for pensioners on September 22 at the Terra Nova Hotel in Kingston and September 26 at the Wexford Hotel in Montego Bay. The meetings for deferred vested members will be on September 26 at the Wexford and September 27 at the the Terra Nova.

HOPING FOR FULL TURNOUT

Asked why it chose to conduct seven different meetings, Red Stripe Jamaica said it was "meeting with each separate class to address their specific circumstances" with the hope of full turnout so that "members can make an informed decision".

A defined benefit pension plan usually provides members with a guaranteed pension upon retirement. The plan's assets are projected to meet specific performance targets annually, and where this falls short, the employer would be called upon to make an additional contribution to ensure that the plan can meet its obligations to members.

Gleaner Business understands that the D&G Pension Plan has been surplus for more than 20 years. As a result, it makes a contribution of around one per cent annually. Employer contributions are typically five per cent.

"In recent years, the company has paid less than 1% p.a. because the plan is well-funded and there is a surplus," said the documents seen by Gleaner Business.

"Essentially, this is additional cash that Red Stripe has been able to retain as the large build-up of surplus makes the plan overfunded, and hence there is no need for the employer to make anything more than a token contribution as required by the Pensions Act," said a source, who is one of the dissenting voices to the surplus distribution proposal.

Red Stripe agreed that the pension plan has performed well over the years, but is defending the proposed changes as a way to ensure its long-term viability and guard against volatility.

"The surplus is subject to high uncertainty, and this has arisen from the uncertainty of future economic conditions, therefore, the company and the trustees gave prudence to remove this uncertainty by distributing the surplus among all stakeholders, members and the company," the beer maker said.

POTENTIAL $900M WINDFALL

The company is downplaying talk that it will be pocketing a potential $900-million windfall, saying the funds will be reinvested in the beer operation for the benefit of all.

"This $900 million will be reinvested in Red Stripe to support our growth agenda, which is not dependent on the surplus release. The $900 million, albeit a mere fraction of the planned investment, is earmarked to pay for improvements in our facilities, to offer employees better working conditions and add to the planned investment in plant expansion aimed at ensuring competitiveness and sustainability," Red Stripe said.

Red Stripe plans to migrate to the DC scheme by March 1, 2017.

Documents from the company indicate that for the proposal to be accepted, more than 50 per cent of the membership must vote to support the changes.

If the votes fall short, the current scheme will remain intact. But if the proposal is approved, then the trustees will request final approval from the Financial Services Commission prior to implementing the changes.

However, dissenting shareholders say they plan to launch a revolt and are prepared to vote some of the members off the Board of Trustees.

"Members should get their act together and vote a strong no ... ," said one source.

"They should remove the current crop of member-nominated trustees and elect persons who have the experience and the capability to manage a multinational and its advisers ... ," the person said. Red Stripe was acquired by international beer maker Heineken last year.

neville.graham@gleanerjm.com