All pension scheme trustees are required to adopt internal dispute resolution (IDR) procedures (with some limited exceptions). This is a result of regulations that came into force on 2nd September, 2003. Similar obligations apply to PRSA providers, but this article will only deal with the impact of the regulations on pension schemes.

The regulations apply to all pension schemes, e.g. stand-alone single member schemes, top-up AVC plans, any type of pension scheme whether it be defined benefit or defined contribution, whether big or small. There are a significant number of SMEs operating small life office insured arrangements that are unlikely to be aware of the new rules. Usually the employers are the sole trustees of the plan.

Transitional provisions apply to schemes that are frozen or were in a wind up as at 2nd September, 2003. IDR procedures need not be adopted by those plans provided the Pensions Ombudsman is satisfied that the parties to the complaint or dispute had made reasonable efforts to resolve it.

Also, if the complaint has previously been referred to the Pensions Board, which has investigated it and issues a certificate to that effect, no IDR is necessary before the complaint can be sent on to the Pensions Ombudsman.

The idea behind the regulations is to enable the parties to a dispute to air their respective views so that the matter may be resolved without further referral to the Pensions Ombudsman. This is a sensible approach as it should to cut down the workload of that office and it ought to ensure that if the claim ends up before the Pensions Ombudsman he will have a comprehensive set of papers on which to base his investigation.

From a corporate governance perspective, it makes sense to have a formal grievance procedure. It is expected that schemes / PRSAs are likely to be more compliant as a result of adopting an IDR procedure.

It does not apply to all disputes affecting a pension scheme.

The IDR framework introduced by the regulations only applies to the types of disputes and complaints that can be brought before the Pensions Ombudsman. Broadly, these types of complaints require the claimant (or his/her agent) to demonstrate proof of financial loss owing to an act of maladministration done by the trustees (or their agents). They can also cover disputes in relation to an act done by the trustees (or their agents).

The Pensions Ombudsman has no jurisdiction to deal with areas where the Pensions Board can make determinations, such as whether a scheme is defined benefit or defined contribution.

Even though the scope of the mandatory IDR regime may be limited, it is open to schemes to embrace one regime that applies to all disputes irrespective of whether or not the Pensions Ombudsman may subsequently deal with the matter.

This is probably a sensible course for trustees to take, because they do not have to decide whether a particular scheme falls within the Pensions Ombudsman's jurisdiction. (If trustees decide to adopt such an approach it is sensible to check out whether their trustee powers enable them to adopt a wider IDR approach than the regulations require of them.)

The trustees must adopt an IDR procedure in line with the requirements of the regulations. The framework of the IDR process itself, as laid out in the regulations, is admirably simple: the trustees have three months from the date of receipt of the last relevant piece of information from the complainant in which to determine the matter of the dispute. Within that timescale the trustees can devise their own procedures. The regulations specify a minimum level of information that a complainant is required to supply to the trustees.

A person invoking IDR (a complainant) must supply their full name, address and date of birth, an address for service of documents, a statement concerning the nature of the complaint or the dispute and sufficient details to show why they are aggrieved and any other information the trustees may reasonably require. The application needs to be in writing and signed by on behalf of on the complainant. This can be an actual or a potential beneficiary.

Trustees are likely to adopt an outline framework of rules that are flexible. They will most certainly adopt an application form to be signed by the complainant that will be designed to make sure that the complainant supplies the information required by the regulations and any extra information that they think is appropriate.

Their IDR rules are likely to propose that they will respond to the initial complaint within a specified short period of time (e.g. four weeks), and request further follow up information from the claimant or other interested parties to be received within a further specified short period of time (e.g. a further four weeks). At the end of that process the trustees are likely to review the materials and, perhaps, seek further particulars or refer to external advisors for their input. The trustees will need to make sure that any person likely to be aggrieved or affected by the complaint will be given an opportunity to be notified of its terms so that they may address the criticism or issue which affects them and will be given an opportunity to be fairly heard. The legislation is silent on the point but it would be appropriate and necessary that the trustees in all cases follow fair procedures. In any type of adjudication process, under Irish law, there is a requirement to apply and follow the principles of natural justice.

The regulations specify certain particulars, which must be included in the trustees' formal decision, (described as a " determination" in the regulations).

Essentially, the trustees must make reference to any legislation, legal precedent, Pensions Board ruling or other ruling or practice of the Revenue or other material relied upon. If they have relied upon a particular rule in the pension scheme this must be specified. It appears that there is some erosion of the general rule that the trustees are not required to give reasons for any of their decisions because where they have exercised a trustee discretion they must indicate, in their determination, the rule under which they exercised their discretion.

They are also required to notify the parties that the determination will not be binding on them unless the parties consent to that course. This means that the person applying for IDR is always free to have the matter sent onwards to the Pensions Ombudsman.

The trustees must also formally tell the complainant that he should check out whether the complaint is one within the Ombudsman's remit.

Public sector schemes are likely to already have an existing IDR framework, which they can continue to use, and in that event the relevant Minister is the person who will be the determining body (in place of pension trustees). However, the Minister is also bound to make the determination with a three-month timeframe.

As far as the dos and don'ts of IDR procedures are concerned the following points have been raised. There may be data protection issues that may need in depth consideration. Also, if the trustees carry trustee insurance they need to check with their insurer whether or not the insurer could avoid the policy in the event that the trustees make a finding against themselves. In that event they should seek to get cover for such an eventuality. Under the legislation, the trustees are obliged to be the person who actually makes the determination.

In a case whether the trustees make a determination against a service provider they will need to be cautious as to whether the service provider may feel that they have been unfairly treated and that an unfair conclusion has been arrived at. In those circumstances the trustees need to tread carefully and will need to check out the scope of their exclusion and indemnity under the trust deed. It is entirely possible that in a particular case the service provider might contemplate suing the trustees (for example, where they to have unwittingly come to an incorrect conclusion).

At this stage most schemes are likely to be non compliant and not have adopted IDR procedures.

Failure to implement an IDR procedure is a breach of the Pensions Act and is open to being prosecuted. Non-compliance with this set of regulations is likely to be easy to prove and the Pensions Board might decide to speed up trustees getting to grips with these new obligations by initiating proceedings against non-compliant trustees. A successful summary prosecution carries a fine of up to about €2,000 and possibly one year's imprisonment or both.

My recommendation is that where a plan has not adopted an IDR procedure its trustees need to immediately start planning what type of procedure is suitable for the needs of their scheme. They need to establish a workable time frame by which responses by them and by the complainant will be required. They will need to do some guesswork until faced with a live situation. They ought to adopt flexible procedures and notify their members that these are subject to amendment in light of the plan's actual IDR experience and that the procedures are likely to be varied on a case-by-case basis. It is appropriate that the trustees produce a briefing note for members that sets out the scope of the procedures and a simple explanation of how this may operate in practice. Fiona Thornton LK Shields Solicitors 8th March 2004

March 2004.

For further information please contact Fiona Thornton.