Republic Bank Ltd, the trustees of the Petrotrin Employee Pension Plan (PEPP), has expressed concern over the company’s attempt to change the provisions of the plan as it is winding down.
In a letter to Petrotrin chairman Wilfred Espinet dated November 13, 2018, which has been widely circulated on social media, the bank said the PEPP will run at a whopping $2.73 billion deficit if wound up. The company is also responsible for a further $1 billion pension payment for all workers who become liable for pension when the company shuts down on November 30.
According to the letter, Petrotrin was seeking to change the composition and functions of the management committee “to enable it to continue to operate in circumstances where there may be no employees.” The bank asked for further details on this proposed amendment so it could work out the impact of those amendments on the PEPP.
In the letter, the bank cited an earlier meeting at which Petrotrin was “of the view that the PEPP was fully funded.” However, according to the bank’s last Actuarial Valuation done on September 30, 2016, there is the massive billion-dollar deficit.
“If the plan had been wound up, benefits for all pensioners could have been secured in full, but only 60 per cent of the benefits for non-pensioners could have been secured,” the letter said.
As the trustees of the pension plan, the bank is concerned that “the operation of the PEPP as a closed plan is likely to result in the PEPP being unable to meet all benefit obligations in the future.” Regarding employees terminated by November 30, the bank said it would also require “100 per cent of the Benefit Statements to be audited by an independent third-party actuary and delivered to us at least one week before payment is due in order to facilitate a smooth transition.”
“Further we wish to document that we consider that all parties involved should be taking every action that can reasonably be taken to avoid (or if not possible, mitigate) any future scenario in which members benefits are not paid in full,” the letter said.
“Finally, we note that it may be in the best interests of many of the members of the PEPP if it were to be wound up rather than continued as a closed plan, as this may enable a fairer split of the plan’s assets.”
The bank cited a letter from Bacon, Woodrow and de Souza on the long-term impact of Petrotrin restructuring the PEPP and said five scenarios were outlined.
“In four of the five scenarios, the funds of the PEPP would be estimated would be exhausted in 25-30 years. The only scenario where the PEPP would have estimated to have enough funds to meet all benefits payments is predicted on the PEPP continuing to invest in equities. And these equities performing in line with expectations,” the letter stated.
It further noted that scenario did not take the $1 billion payment to Petrotrin’s new pensioners.
“Although we have taken no steps to pursue the wind-up of the PEPP, we wish to communicate that this is an option we are actively considering at this point in time and on which we would welcome your thoughts,” the bank told Espinet.
Espinet last evening confirmed the letter is authentic, adding as Petrotrin comes closer to closing down, “things like this are going to happen,” referring to internal matters being made public.
“We have since had meetings with Republic Bank,” Espinet said.
He said the union the Oilfields Workers’ Trade Union (OWTU) was at the meeting with Republic Bank last Thursday.
“The union participated in the meeting and we all agreed on the way forward and we are working things through,” Espinet said.
He said that the company will be issuing a formal response soon to address the pension matter formally. He said the key points to address were highlighted and the company has “adopted an approach” to address all the concerns raised in the bank’s letter.
The OWTU last evening confirmed it was represented at the meeting but was unable to give any details at short notice.