CJEU: Ireland "breached obligations" by failing to guarantee workers' pension entitlements

Pensions law expert Robin Ellison of Pinsent Masons, the law firm behind Out-Law.com, said that the ruling would come as an "expensive and unexpected shock" to Ireland. The country will now have to decide whether to fund the scheme through general taxation or through levies on solvent pension plans, in the same way as the UK's Pension Protection Fund (PPF), he said.

The case had been brought by 10 former employees of glass manufacturer Waterford Crystal, which went into receivership in 2009. The workers had been members of the company's defined benefit (DB) pension scheme, which was operating at a deficit of around €110 million at the time of receivership. The workers were told that they would receive between 18% and 28% of the amounts to which they would have otherwise been entitled from the scheme as a result of this deficit.

In its judgment, the CJEU said that Ireland had been in "serious breach" of its obligations to guarantee the DB pension entitlements of the country's workers, as set out in a 2007 decision against the UK and 2008 Insolvency Directive. The measures taken by Ireland to comply with these rules had not "brought about the result that the plaintiffs would receive in excess of 49% of the value of their accrued old age pension", the court said.

Under the Insolvency Directive, member states must take "the necessary measures" to protect the "immediate or prospective entitlement" to old-age benefits owed to employees and former employees of an insolvent company, as of the date of the onset of the insolvency event.

In a 2008 decision against the UK, the CJEU said that member states had "considerable latitude" to decide the type of scheme and level of protection they granted to members of pension schemes in the event of employer insolvency. However, it held that if that guarantee was limited to "less than half of the benefits to which an employee was entitled", then it did not "fall within the definition of the word 'protect' used in [the Insolvency Directive]".

"The measure mentioned by the national court [in the Waterford case] ... does not seem ... to be capable of guaranteeing the minimum level of protection required [by the previous UK decision]," the CJEU said.

"The economic situation of the member state concerned does not constitute an exceptional situation capable of justifying a lower level of protection of the interests of employees as regards their entitlement to old-age benefits under a supplementary occupational pension scheme," it said.

The case will now return to the national courts, which will rule on the extent to which the workers' pensions must be protected.

Pensions law expert Robin Ellison said that the Irish Government was "entitled to feel a little aggrieved" by the decision, which could have serious economic consequences for the country. According to the Financial Times (registration required), four out of five DB pension schemes in Ireland are technically insolvent as a result of the country's economic crisis.

"The decision was made without any advice from an advocate general, which is rare," Ellison said. "It failed to make any distinction between the limited promises that Anglo-Irish DB schemes historically gave and those of continental DB plans. And it also failed to give credit for the very high state pension in Ireland, which is intended to offer some kind of fallback position."

"Ireland can be forgiven if it feels it has been harshly treated in this case, and the CJEU may have cause for some remorse for its cavalier decision when it realises the economic harm that it may cause. Meanwhile, the government will be seeking to devise a proposal which will limit the damage," he said.