The UK’s The Pensions Regulator (TPR) has agreed to a £74 million ($96 million) settlement with thread manufacturer Coats Group regarding a third defined benefit pension plan as part of its anti-avoidance investigation into the company.
Coats Group, formerly Guinness Peat Group, is one of the largest manufacturers and distributors of sewing threads in the world, and sponsors three defined benefit plans. The Staveley Industries Retirement Benefits Scheme (SIRBS) is the third and final plan in TPR’s investigation to reach a settlement.
The deal brings the total amount recovered by TPR in the Coats case to £329 million. In December, TPR announced a settlement that resulted in payment of £255.5 million from Coats to help fund the benefits of approximately 27,000 pension plan members in the Coats Pension Plan (CPP), and the Brunel Holdings Pension Scheme (BHPS).
In addition to an upfront payment of £74 million into SIRBS, the deal includes a change in the statutory employer to Coats Limited, and a full (buy-out) guarantee from Coats covering the liabilities of SIRBS. As a result of the agreement, TPR has agreed to end its regulatory action against Coats.
“The use of our powers in this case has led to an extremely positive outcome for pension savers and the group,” said Nicola Parish, TPR’s executive director of frontline regulation. “The ongoing trading operations of Coats have improved and are sufficient to provide ongoing funding for the schemes. This is an excellent result for scheme members, bringing greater certainty that future benefits will be paid in full.”
TPR said all three pension plans sponsored by Coats had “substantial deficits.” The CPP, which has approximately 24,000 members, had an estimated deficit of just over £400 million; the BHPS, with approximately 3,000 members, had an estimated deficit of approximately £80 million, and SIRBS, with 3,700 members, had an estimated deficit of just over £97 million. SIRBS and BHPS were inherited by Coats from businesses it had previously acquired.
In 2013 and 2014, TPR first issued warning notices outlining the reasons for exercising its “financial support direction” power in relation to three defined benefit plans sponsored by companies within the Coats corporate group. According to TPR, the three pension plans had been left with a weak employer covenant, and were running inappropriately high levels of risk relative to the strength of the employer covenants.
In December 2016, Coats and the trustees for CPP and BHPS reached an agreement for upfront payments totaling £255.5 million into the two plans, a change in the statutory employer for the two plans to Coats, and a guarantee from Coats of the full buy-out liabilities of the two plans.
“Even though our concerns about the funding of the schemes were enough to launch anti-avoidance action and issue warning notices, we maintained a strong working relationship with Coats and the trustee, allowing us to be flexible and achieve a fair resolution,” said Parish. “We will not hesitate to use our financial support direction powers where we see member benefits put at risk, even where the sponsoring employer is solvent.”