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CCH® PENSION — 04/23/10

Obscure Pension Provision Leaves Cadbury Participants A Not-So Sweet Choice

from Spencer’s Benefits Reports: An obscure clause in the Cadbury Pension Trust which makes it almost impossible to close the plan has forced Cadbury’s new owner, Kraft Foods, to require the 3,600 employees still covered by the plan to chose between continued plan membership or a three-year pay freeze, according to the Financial Times.

The 3,600 employees are participants in the final pay plan which was closed to new participants in July 2001. All new employees are enrolled in a career average plan. The plan also has a cost-of-living increase provision that guarantees an annual increase of the lesser of 5% or the rise in the retail price index on the portion of the benefit in excess of the guaranteed minimum pension. The Financial Times quoted one person as saying “The plan is unaffordable going forward.”

According to the Financial Times, Kraft did not know about the clause until after it had acquired Cadbury although consultations about the plan had taken place before the acquisition.

The plan actuary stated that the clause, which was added at least 30 years ago, prevents Kraft from changing benefits to plan participants in any way that is “unfair or materially detrimental.” The plan deficit was £258 million, according to Cadbury’s 2008 annual report. “While Kraft is not explicitly forbidden from closing the [plan],” the Financial Times reported, “the cost of doing so would be punitive: it would have to pay an insurance company the full cost of taking on the plan, which would run into hundreds of millions of pounds.”

For more information on this and related topics, consult the CCH Pension Plan Guide, CCH Employee Benefits Management, and Spencer's Benefits Reports.

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