Newsletter No. 25
HALCROW PENSIONERS ASSOCIATION
Newsletter No 25 : January 2017
You have been sent this newsletter because you may be a member of the Halcrow Pension Scheme. If you are not a member then please use the unsubscribe link at the bottom of this email to remove your name from the mailing list or email the webmaster to remove your name.
News Update From HPA
The webmaster apologises for the long delay since the previous newsletter (the pension scheme trustees have been equally quiet). There's actually quite a lot of news to report. Those HPS members who opted for HPS2 will have received the 2.5% pension increase in November 2016 and subsequently the much smaller increase effective 1st January (and some members have yet to receive all of their expected increase due to a backlog in doing the calculations) just as increased inflation is making the news headlines. Other hot news is the rumour that CH2M has been talking to WS Atkins about a merger. Use your favourite search engine to find out more.
We believe that the case for continuing with HPA is as strong as ever and we ask for your continued support. A number of members are following up cases with the Pensions Ombudsman and we await news of the outcomes. There is the underlying suspicion that the present rearrangement merely kicks the can down the road a few years and that CH2M will want to get rid of the HPS completely in due course. Alternatively, should inflation make the scheme appear over-funded then CH2M may demand that the trustees return some of the £80M recently put into the scheme instead of granting scheme members a discretionary increase. There are also changes in pension legislation under consideration and major financial uncertainties ahead.
Your committee therefore asks that members continue to support HPA, both through their postings to the forum and their annual subscription. The treasurer looks forward to receiving your subscriptions for 2017 (payment methods are here). This was fixed at £10 at the last AGM and the rate for 2018 will be reviewed at the next AGM. Please remember to email the treasurer when you pay your subscription.
Pension Scheme Stake in the Sponsoring Company
One feature of HPS2 is a nominal 20% share in Halcrow Group Limited (PPF also has a 5% share on behalf of HPS). The underlying theory is that the pension schemes can have a share of the benefit of the sponsoring company's better performance after removal of the demands of the pension scheme contributions. A precedent for this was the PPF receiving a stake in UK Coal in return for taking over the pension scheme. To quote from this 2013 PPF news report "The agreement means that, in return for taking on the pension scheme deficit, the PPF will receive regular payments from the new company which are expected, over time, to be materially higher than any sum it would have received had the company become insolvent."
Such an arrangement might work for a single company where the accounts are self-contained, but is open to abuse when the sponsoring company is a member of a multi-national organisation where profit shifting is easy and legal. Nor can the pension scheme members or their representatives question the operation of the business unless there is an insolvency event. The additional shares were created on 4th October 2016 as reported to Companies House when 3,333,333 A Ordinary shares valued at £0.01 each were added to the existing 10,000,000 shares each nominally valued £1.00. To quote from the Statement of Capital "Class A ordinary shareholders are not entitled to attend, speak or vote at a general meeting of the company other than in respect of a resolution proposing a liquidation". One has to wonder what the Pensions Regulator and PPF were thinking when they agreed to such terms.
Transfer Value of HPS2 Pension
It was indicated at the mid-2016 roadshows that there would be a period after the creation of HPS2 when deferred scheme members could expect a good valuation of any pension that they wanted to transfer out. Has anyone asked?
The Halcrow 2015 Accounts
The 2015 annual report for Halcrow Group Ltd were submitted to Companies House in October 2016. Although Halcrow Group is reported as being a principal subsidiary of Halcrow Holdings Ltd, the 10,000,000 shares in Halcrow Group are beneficially owned by Halcrow Consulting Ltd which is owned by Halcrow Holdings Ltd. A modest profit of £5.684M was reported for Halcrow Group - an improvement relative to 2014's £3.356M. The report includes mention of the restruction of HPS and note 1(b) on page 15 includes "A new intercompany loan of £78m to this company from the ultimate parent agreed as part of the pension restructuring, together with all other loans to the company from the ultimate parent of £48.8m totalling £126.8m at the date of approving these financial statements, may not be repaid, nor interest paid on these, for 8 years as agreed with the Parent and HPS2 Trustees. However, if HPS2 converts its newly issued Halcrow Group Ltd (HGL) equity to CH2M HILL shares, then HGL will be permitted to repay parent debt." This suggests that the £80M which CH2M agreed to put into the pension scheme is, in reality, an inter-company loan.
The January 2017 CH2M 8-K report states "Tax benefit related to Halcrow pension redesign. In Q3 2016, a non-cash tax benefit was generated totaling $46 million as a result of the Halcrow pension settlement. The Board of Directors believes that the market would exclude this tax benefit from CH2M’s profit calculation for valuation purposes.Therefore, the Board of Directors decided in Q3 2016 to exclude this benefit from the calculation of “P” parameter for stock valuation purposes. At the same time, given that this tax benefit is also part of CH2M’s cumulative earnings history, the Board determined that this tax benefit should be reflected in the stock valuation calculation as part of the “SE” parameter." Effectively, the £80M contribution to HPS has cost CH2M somewhat less.
The Fate of the HPS
The original HPS is now in the PPF assessment stage having been transferred to Project Magnolia Ltd which was then made insolvent. It is thought that between 200 to 300 members of HPS did not choose to transfer to HPS2 and therefore remained with HPS.
The need for HPA continues and among the possible ongoing tasks are:
1. To closely monitor HPS2 and watch out for CH2M trying to reduce pensions further or claim back contributions on the grounds of the scheme being over-funded (a few years of higher inflation could create this situation).
2. To lobby for improvement of legislation to prevent companies with complex corporate structures shifting profits and evading pension liabilities (which they will look on as another form of taxation). See this news feature, for example, which states "That means a tough-but-considered approach to issues such as tax avoidance. The OECD countries have already made progress in drawing up common rules to prevent companies from parking money in tax havens, for example. They have more to do, not least to address the convenient fiction that different units of multinationals are really separate companies.
3. To absorb the lessons learned during the past few months.
4. To pass on these lessons to the wider community of those whose DB pensions will now be at great risk from the CH2M/Halcrow “success”.
If you haven't been with HPA from the start or want to remind yourself of previous events then you can browse through the previous newsletters for which there is a full list here.