Proposed changes to the Employer Debt Regulations aim to assist some 50% of corporate restructurings. This article highlights potential issues under the current proposals.

General easement. Although welcome, the mandatory steps are too restrictive. In practice, it may be easier to accept that a debt is triggered and then apportion it.

The one-to-one transfer condition, where all pension liabilities and assets transfer to the receiving employer, and the exiting employer ceases employing active members on the same date, is impractical and may enforce artificial restructuring to avoid an employment-cessation event (ECE). Instead, a time limit reflecting the current 12 month "grace period" could apply, provided the trustees were satisfied that any restructuring test was met.

The restructuring test. The trustees must be satisfied that the receiving employer will be "at least as likely" as the exiting employer to meet the transferred liabilities. Instead, the test could reflect the current regulations, requiring that the trustees are "reasonably satisfied" that the remaining employers can fund the scheme.

A simpler test? Group restructurings could be simplified if the trustees had to satisfy themselves that the employers' covenant as a whole would not weaken significantly following reorganisation. The reorganisation could be structured in any way, with liabilities remaining in the scheme and guaranteed by any entity in a regulator-approved form. If the trustees were satisfied, then any event within the restructuring should not be regarded as an ECE.

Employer insolvency. The requirement for the employers to make expected solvency statements relating to 12 months post transfer appears problematic. There is also inconsistency with the current apportionment provisions which require no such declaration.

Retrospective ECEs. A cut-off date should apply, reducing the risk that the general easement conditions might hamper reorganisations. An ECE should arise only if the Regulator considers the transaction adversely affects scheme funding.

De minimis easement. It is impractical for the exiting employer to employ fewer than 2% of all final salary scheme members and have liabilities lower than GB£100,000. Instead, this limit could be a percentage of total liabilities.

Solutions? On sales, where the exiting company cannot pay the section 75 debt, it is often paid either by a group company or under an artificial mechanism. Allowing any group company to pay the debt (including scheme non-participants) would be simpler.