I started to pen this article back in January, ever before the more recent developments………

Lawyers and indeed politicians are constantly being criticised for using language in a somewhat corrupt way in order to bend the truth of what has been said to their favour. Well if that is the case, then both lawyers and politicians can learn from the outbursts of triumphalism on the part of the ESB Unions following the agreement reached in December 2013 which prevented electricity blackouts which could have decimated the pre-Christmas retail trade.

Let us first look back and see what happened here.  The ESB operates a defined benefit pension scheme for its employees, and in short that means that upon retirement each employee is guaranteed a certain portion of their final salary which usually involves an option to take a lump sum and a portion of your final salary, say two thirds.  Defined benefit pension schemes are very costly for the employer, in this instance the ESB, because if there is any deficit in the pot, the employer must make up the deficit.  You can readily understand, therefore, why many other employers, both State and private, are seeking to convert their employee pension schemes from defined benefit to defined contribution schemes.  A defined contribution pension scheme simply means that the employer and the employee make contributions towards the employee’s pension fund and when the employee retires he/she is entitled to the amount that was invested on his/her behalf together with any benefits or profits arising from investment of those funds in the markets.  If the markets have done well, the employee may have done well, if the markets have been in turmoil and there have been losses, those losses are for the employee to bear alone.  The employer has no other obligation to the employee, and certainly does not have to guarantee payment of a portion of the employee’s final salary, as is the case with a defined benefit pension scheme.

It has been known for some years that the ESB pension fund was in difficulties, frankly that it was underfunded.  Concerns had been expressed by the ESB unions, five unions referred to as the Group of Unions (“GOU”).  The problem for the ESB was that there was potentially a huge deficit in their own balance sheet and this prevented the ESB from going to the markets to get necessary funding.

What was the solution of ESB?  Make an announcement in 2010 that the company had changed its method of accounting for the pension scheme from defined benefit to defined contribution.  ESB just declared that it was entitled to account for the pension as a defined contribution pension.  This therefore removed liabilities from its balance sheet, improved the company’s financial status, thereby aiding it in borrowing funds in the markets if required.  Fortunately it appears that ESB management failed to inform the auditors, KPMG, that the GOU disagreed with that accountancy approach.  Furthermore, it was apparently requested by KPMG that the ESB management should approach the GOU to seek a formal agreement but ESB would not “countenance” that either.

Ok, put simply, what was a defined benefit pension scheme is now a defined contribution scheme.  Phew, that was easy ……..!

Not surprisingly, the GOU and its membership were very unhappy.  What did they do?  Four of the five Unions funded separate High Court actions by four of their members challenging the decision on the part of ESB.  As that litigation rumbled on, we were then approaching the Christmas of 2013 under a threat that the Irish State would have to sustain a series of electricity black outs which would devastate the pre-Christmas retail trade.

There is where Senator Feargal Quinn came into the mix and put forward a Bill which would ban electricity strikes or interruption of water supplies.  The Government said it would oppose his motion as “counterproductive” but none the less the pressure was being placed on the Unions by a member of the Oireachtas.

The Labour Relations Commission then became fully involved and on the morning of Monday 9th December 2013 it was announced that the proposed ESB strike had been averted as the parties did reach agreement on pensions.  Really?  Did they?  Let us see ………….

Well, the Labour Relations Commission certainly thought so and announced that an agreement had been reached, and that both sides now agreed that the ESB pension scheme is a defined benefit arrangement.  Let’s look to the terms of the statement issued by the LRC’s Chief Conciliator, Kevin Foley, who suggested that the company should go back to treating the scheme as a defined benefit arrangement in its accounts:

The Commission believes that accounting arrangements for the Company should reflect these realities, in other words, the Company accounts should state clearly that the Scheme is a defined benefit scheme”.

You just have to look at the response of the ESB in its own statement: “The resolution of this issue protects the financial strength of ESB – there will be no additional liabilities on ESB’s balance sheet.  There will be no change to the accounting treatment of the Scheme in the Company’s financial statements as a result.

Surely, you cry, the ESB Group of Unions picked up on this response on the part of ESB?  Patently not, for Brendan Ogle, Secretary of the GOU, claimed a “landmark victory for unions in the negotiation.  Our mandate – to secure the treatment of the scheme as defined benefit – has been fully vindicated”.”

So, the defined benefits pension scheme that the employees were entirely entitled to was declared a defined contribution scheme by the ESB in 2010.  The GOU launched High Court actions and funded four separate actions by members of the unions; in the run up to Christmas 2013, matters were brought to a head and strikes were threatened.  Ultimately, the matter became the Labour Relations Commission and an “agreement” was arrived at.  Post-agreement, what do the ESB management say, but “There will be no change to the accounting treatment of the scheme in the Company’s financial statements as a result”. And in the last few weeks, again this issue raises its head, when the unions again threaten proceedings because of the way in which the pension scheme is reported in the annual accounts….now where did I hear that before?

Quite. A victory for the unions indeed………