According to the BBC Radio 4’s Money Box, TH Global – formerly Kvaerner – will pay half of its deficit over a period of six years and attempt to fund the other half with an investment strategy mix that calls for putting a quarter of the investments into hedge funds and private equity.
The alternative would be to be for the company to hand over its shortfall to the PPF – the UK’s version of the Pension Benefit Guaranty Corporation – which was set up as a safety net for the retirement plans of current employees and retirees if a company goes under or can’t meet its pension obligations.
If the PPF would have absorbed the TH Global plan, pensioners would not likely get the same amount as promised by the company.
Pensions expert John Ralfe told BBC Radio that “[i]t looks like the first time the Pensions Regulator has allowed a company to walk away from its pension scheme without fully funding it.” In taking on a “risky” investment strategy, Ralfe told the UK broadcaster that the company might be turning its back on a future bailout from the PPF if the plan to fund its pension plan through investments goes awry.
The TH Global plan is a microcosm of a bigger debate among pension experts about the options left for a company if investment strategies fail. According to the BBC, TH Global contends that because it sought legal advice before signing on to their strategy, it would not be exempt from PPF help if the plan doesn’t work.
“The choice is between going into the PPF now, which is not what the members want. The alternative is to get some money into the scheme if you can and then modernize your investment strategy,” Ros Altmann, who advised the Kvaerner trustees, told the BBC.