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DUBLIN, Ireland-Trustees of Irish employer-sponsored pension funds fear the historic introduction of divorce into Irish law last month will mean new headaches for them.
Despite a plethora of regulations issued to pension trustees alongside the Family Law (Divorce) Act 1996, a number of gray areas surround the splitting and administration of pensions after a divorce.
Although judicial separation was passed into law in the Family Law Act 1995 and became available late last year, it has not proved particularly popular as it does not allow for remarriage, which the 1996 act allows. As a result, issues facing pensions trustees-issues that are the same in both acts-remain to be tested. The first divorce cases involving pensions are expected to hit the courts later this year.
"I think it's going to be a minefield," said Mary Wade, a legal consultant at Dublin benefit consultant Mercer Ltd. "There is a huge amount of regulations, guidance notes and booklets, but a lot of issues have not been covered yet."
Pension fund administrators and trustees still are waiting for the guidelines to be issued by the Pensions Board, said Brian Aylward, chairman of the Irish Assn. of Pension Funds, an association of pension fund professionals. Until the Attorney General has approved them, administrators and trustees remain in the dark about their bottom-line duties. Nevertheless, "generally speaking, it would be clearly better if a (non-member) spouse left the pension in the scheme," said Mr. Aylward, who also is personnel director of Irish Cement Ltd. in Dublin.
Under both Family Law acts, courts are able to make a pension adjustment order covering retirement benefits and contingency benefits, such as death-in-service provisions. This enables the benefits to be split between the plan-member spouse and the non-member spouse. The non-member spouse is allowed either to transfer the funds out of the employer-sponsored plan or to leave the benefits in the plan, gaining further benefit from the member spouse's salary increases. The proportion due to the non-member spouse will be decided by the court and is only for benefits up to the date of the judicial separation or divorce; the proportion would not change, but that amount would grow as the member spouse earns more.
Alternatively, "people can reach agreement and the courts will have respect for that," predicted Mr. Aylward.
Most important from the trustees' point of view is maintaining contact with a spouse who has become a member of a pension plan as part of a divorce agreement. "It is terribly important to note records and insist the non-member spouse keeps in touch," said Ms. Wade, pointing out that they may be living on the other side of the world when it's time to pay out the pension benefits.
"I envisage that unless they are very, very young and want a clean split, the non-member spouse will leave the benefit in the scheme until just before retirement," she added.
Another hurdle facing trustees is the amount of information provided to the non-member spouse. Certain information is required to be divulged under disclosure regulations, but after that point it can only be provided with the agreement of the member spouse.
Nevertheless, the non-member spouse can obtain a court order for that information to be disclosed. "If the trustee gives out too much information to the non-member spouse, they could be sued for breach of trust," warned Ms. Wade. "We are advising people that they don't give out anything except under the disclosure regulations, unless they have the agreement of the member spouse."
What's more, trustees could be opening themselves up to litigation if they reveal more than the plan member consents to, warned Paul Kenny, director of technical services at Irish Pensions Trust Ltd., a pension fund administrator in Dublin.
"If trustees divulge information without the specific and proper consent of the scheme member, they could be sued for damages (to the individual) and for breach of the Data Protection Act," Mr. Kenny said.
As the legal system starts rolling for divorcing couples, pension fund administrators may well find themselves deluged with requests for information. Only one divorce has been finalized since the implementation of the 1996 Act, and that came after a judicial separation.
"First of all, there will be lots of applications for information, probably a lot of court orders for discovery," said Mr. Kenny. "And they may not necessarily end up with pension-adjustment orders being made. There could be a lot of work involved with maybe not much to show at the end."
Expenses are proving a major headache. Although there are provisions for the divorcing couple to meet certain administrative costs, the act doesn't provide clear provisions for all the administration costs, said Mr. Kenny.
He called the act vague and said it does not specifically provide for items such as the increased administration costs of having a new category of plan member-the non-member spouse who has joined the plan-and the expense of keeping records on two people instead of one, issuing two checks instead of one, and so on. "It has the potential for hidden expense that isn't readily realized," he said.
These costs will have to be shouldered somehow. Although defined benefit plans could find the expenses being vacuumed up by the system, for defined contribution plans, "the choice is fairly stark," said Mr. Kenny. Either the employer or the plan itself picks up the tab.
"There will be a certain administrative burden for pension funds," agreed Mr. Aylward, but at the moment its impact is hard to assess. Official estimates are that 80,000 people in Ireland are separated, but he put the total number as "substantially more."
Spouses may choose the option of leaving the pensions alone, instead buying products such as annuities for the benefit of non-member spouses, Ms. Wade explained. But the popularity of that option will only be known over time, and it could become an avoidance measure, she warned, in which case the regulations would have to be tightened.
There is a lot of learning to be done by trustees and legal professionals alike. Neither judges nor lawyers in Ireland have faced these types of issues before.
"I don't know what the attitudes of judges are going to be," said Ms. Wade, though she said she suspects they will stick very closely to the letter of the law. "Under the legislation, it is very much the duty of judges to take account of the whole situation and ensure the spouses are provided for."
In practice, this could also mean that arrangements made on separation decades ago may now be changed under the new provisions.
With all the uncertainty surrounding the issue, the best way forward for trustees will be to get agreement between the spouses as to how the pensions are dealt with, advised Ms. Wade.
Meanwhile, the Irish Pensions Board is undertaking a major review of the country's pension system. The National Pensions Initiative is examining pension provisions "from the ground up," explained Mr. Kenny.
"There is a substantial gap in private sector (pensions) coverage," explained Mr. Aylward, with official figures stating that about 60% of employees do not have a private pension. The IAPF is undertaking its own survey of the level of private sector pensions coverage and will be using it as the basis of its submission to the NPI.
All submissions must be received by the end of May. They will then be collated and submitted in a report to the Minister for Social Welfare in September.
Copies of the questionnaire that forms the basis of the submissions are available free from the Pensions Board, Holbrook House, Holles Street, Dublin 2.