Pensions black hole at INM adds to media group's woes

24 May 2009

By Kathleen Barrington

At a time when Independent News & Media (INM) is struggling to raise the funds required to meet €200 million in repayments due to its bond-holders, INM’s employees must be fretting about the ability of the company to plug the €149 million hole in its group pension fund.
The hole disclosed in the 2008 annual report is large relative to the size of the company which is now valued on the stock market at just €235 million following the collapse of INM’s share price. It comprises a deficit of €123.4 million in respect of the core pension scheme and €25.4 million in respect of the post-retirement medical aid scheme.
The size of the hole is such that there would not be enough in the pension kitty for INM to meet in full its promises to future pensioners if the company were to collapse under the weight of its substantial debt mountain in the near term.
The hole compares with the €148 million hole that existed in the Waterford Wedgwood pension scheme before the heavily indebted crystal and china combine went into receivership last January after failing to meet interest payments to bondholders.
The company that bought Waterford Wedgwood from the receiver did not buy the pension liabilities. The result is that many employees of Waterford Wedgwood will not get the full pensions they were expecting in retirement, unless the government bows to pressure to plug the hole, in part or in full.
By an unhappy coincidence, INM is also struggling to meet its liabilities to its bondholders with a €200 million bond originally scheduled for repayment last week. Fortunately, Independent has reached a temporary standstill agreement with its banks and the majority of its bondholders.
The move extends until June 26 the timeframe for INM to either pay the bondholders or renegotiate terms. INM also disclosed last week that it had secured an additional €15 million in working capital from its banks.
The deal gives INM some valuable breathing space in its efforts to raise cash. It is to be hoped that the company succeeds in raising the funds to meet its obligations to its bondholders as any failure to meet those repayments would likely have very serious consequences for the company.
But the question that concerns us here is why billionaire businessman Tony O’Reilly, who until recently chaired both INM and Waterford Wedgwood, allowed such large holes to emerge in the pension schemes of both those companies during the boom years when INM was reporting handsome profits.
There is also the question of why the regulatory authorities didn’t force him to plug the holes sooner and why the government has inadequate arrangements in place to compensate pensioners if their pension schemes become insolvent.
It is true that some of the factors which have caused deficits in company pension schemes are outside the control of companies and governments. These include the fact that people are living longer which makes funding their retirements more expensive. There is also the problem that the lower interest rates of recent years made the cost of buying an income in retirement more expensive.
Many companies cited these factors when deciding to close down their defined benefit schemes, which promise a certain income in retirement, because they felt the cost of funding those schemes was too high.
Other companies pleaded with the regulatory authorities for extra time to meet the funding standard required for pension schemes, requests which the authorities readily conceded as they wanted to encourage companies to keep open their defined benefit schemes rather than replacing them with less attractive defined-contribution schemes.
The motives of the regulatory authorities may have been honourable, but the effect of allowing companies to extend the time required for meeting pension funding standards has been disastrous.
For, at the end of what has been one of the longest periods of prosperity in the country’s economic history many employees find themselves members of pension schemes that are teetering on the brink of collapse.
This was confirmed last year when social welfare minister Mary Hanafin sent a memo to government warning that a number of high profile pens ion schemes were expected to collapse as the total pension deficit reached €20 billion to €30 billion.
And while there is some merit in the arguments advanced by companies and employer lobby groups about the soaring cost of providing traditional defined benefit pension schemes, there is another dimension to the story.
It should be recalled that many companies paid out handsome dividends to shareholders and fancy remuneration packages to the top brass even as they failed to plug the gaping holes in their pension schemes.
In that regard, it is worth noting that INM last year paid out €114million in dividends to its shareholders, a sum which would have gone a long way towards plugging the hole in the INM pension fund.
As a large shareholder in INM, O’Reilly was a major beneficiary of the company’s dividend policy himself during his time at the helm of the company.
Indeed, O’Reilly personally received dividend payments of over €100 million over the last five years alone, another sum which would have helped plug the hole in the INM pension fund on which many of the group’s 9,500 employees will have been relying for their retirements.
It is true that O’Reilly did invest hundreds of millions of his own money in Waterford Wedgwood in recent years, in an effort to save the company. But while that certainly stands to his credit, it is not a valid excuse for failing adequately to fund the company’s pension scheme.
The government is also at fault for failing to set up an insolvency fund in the good times that would have provided a cushion for pensioners in schemes that turn out to be inadequately funded. INM is not alone in these shortcomings.
However, the result is that the government is likely to face further demands from aggrieved pensioners for the taxpayer to plug the gaping holes in many private sector pension funds, demands which may yet prove too great for the taxpayer to shoulder on top of the already onerous costs of bailing out the banking system and plugging the hole in the exchequer finances.


© Thomas Crosbie Media, 2009