The Bottom Line
- Unilaterally changing employee pension schemes from a defined benefit to a defined contribution model carries significant legal and financial risk.
- If a court finds such a change unlawful, it will seek to restore the employees’ position, even if the original pension product is no longer on the market, by finding the “next best thing.”
- Employers may be held liable for the full financial difference, including shortfalls in survivor’s pensions and the loss of valuable features like “back service,” requiring complex actuarial calculations.
The Details
In a long-running dispute between logistics giant DSV and a group of its employees, a Dutch appellate court is mapping out the remedy for what it previously deemed an unlawful unilateral change to a pension plan. The case began when DSV transitioned employees from a generous and predictable “final pay” defined benefit scheme to a modern, but less certain, defined contribution plan. The employees successfully challenged the move, leaving the court with the complex task of determining how to compensate them for the loss of their more favorable pension rights.
The core challenge is that the original final pay scheme is now obsolete and cannot be reinstated. Recognizing this market reality, the ‘s-Hertogenbosch Court of Appeal has appointed an independent actuary to investigate a practical solution. The expert is not tasked with finding a fantasy product, but with identifying comparable “average pay” schemes that were available in 2018. The actuary must determine if such a plan can still be implemented, potentially retroactively, and quantify any differences between it and the employees’ original, more valuable scheme. This demonstrates a pragmatic judicial approach: if the original promise can’t be kept, the court will construct the next best alternative.
The court’s detailed instructions to the actuary signal the potential scope of an employer’s liability. The expert must calculate the entire financial shortfall, explicitly including any reduction in the survivor’s pension—a crucial component of the overall benefit package. Furthermore, the court has ordered the actuary to assess the financial impact of losing “back service,” a feature of the old plan where pay rises would increase the value of all previously accrued pension years. This meticulous approach shows the court’s intent to make employees whole, suggesting that companies found to have unlawfully altered pension benefits may face a far higher compensation bill than a simple premium comparison would indicate.
Source
Gerechtshof ‘s-Hertogenbosch
