Employers frequently ask whether they may amend their existing pension plan schemes unilaterally. In the Netherlands, employees have to agree to pension plan amendments, separately from the works council. The employer may only amend the pension plan unilaterally in exceptional cases. The Gelderland District Court recently held that although a unilateral amendment to the final salary (defined benefit) pension plan was permitted in a career average plan (benefits calculated based on average earnings over career), a 5% increase in the personal contribution was not.

What was this all about?

A group of employees had a final salary pension scheme and did not pay personal contributions. The administration agreement at Nationale-Nederlanden (“NN”) ended on December 31, 2017 and NN no longer offered a final salary pension scheme. Other insurers likewise stopped offering a final salary pension scheme.

The employer then decided to convert the final salary pension scheme to a career average scheme starting January 1, 2018 and to introduce an employee contribution rate of 5% of pensionable earnings. The employer did so by relying on the pension scheme and the unilateral amendment clause in the employment contract. The works council agreed to the amendment. The employer informed the relevant employees of this in a letter dated January 17, 2018. The letter included an individual calculation, drawn up by an actuary, setting out the implications of the amendment. The employer offered one-off financial compensation for the difference between the schemes. One of the employees challenged the unilateral amendment.

The ruling

The judge found that the employer was permitted to amend the existing scheme unilaterally. The judge considered that the employer had a compelling reason for doing so, because (a) insurers no longer offered final salary pension insurance; (b) fines under the Dutch Pensions Act (Pensioenwet) were looming by continuing the final salary pension scheme; (c) the works council had agreed; and (d) the employees concerned received compensation for the change. Moreover, the employer had sufficiently demonstrated that the career average scheme with compensation offered to the employee was an appropriate alternative.

The judge disallowed the imposition of the 5% personal contribution, however. The employer’s argument that such a contribution was a society-wide trend and would avoid a negative financial impact on the business did not hold. The judge also considered that the financial sacrifice asked from the employee was substantial.

Takeaways:

• Check whether there is a compelling reason for unilaterally amending the pension scheme (e.g., to avoid a business downturn) and whether this outweighs the employee’s interests according to the principles of reasonableness and fairness;
• Prepare a list of criteria with which the new scheme must comply. Call in the assistance of a pension expert;
• Mitigate the employees’ objections where possible. For example, is compensation or a phase-out scheme an option?
• Ask for the works council’s consent in good time;
• Communicate well with the works council and employees. Illustrate the implications of the amendments using individual calculations drawn up by the pension expert.