The Pensions Regulator (TPR) has issued a new statement designed to help trustees of defined benefit schemes understand who legally stands behind the scheme. The driving force behind this statement, entitled "Identifying your statutory employer", is the increasing risk of a scheme being left without a statutory employer after closing to future DB accrual, particularly as a consequence of group restructuring or scheme transfer. In such a case the new employer might not employ an active DB member of the scheme and never have done so in the past, which means it's unlikely to be a statutory employer.

A statutory employer is an employer legally responsible for meeting the scheme specific funding requirements of a defined benefit scheme, paying the s.75 'buy-out' debt (s.75 PA 1995, as amended by s.271 PA 2004) if certain events occur and for triggering entry to the Pension Protection Fund (PPF) assessment period.

Not all employers associated with a scheme will necessarily be statutory employers. A scheme's statutory employer may be different from its principal or participating employers. If the statutory employer is incorrectly identified, this could mean the trustees' assessment of the strength of the sponsoring employer's ability to support the scheme (employer covenant) is inaccurate.

If a scheme loses its statutory employer (or employers if it is a multi-employer scheme), there are likely to be serious consequences for members. The scheme may not be eligible for PPF protection and may not qualify for the FAS. Without a statutory employer the scheme could be entitled to limited or no support from its sponsors.

The Government has recognised that some schemes have in the past lost their statutory employer, and is currently consulting on a limited extension of the Financial Assistance Scheme (FAS) (see Aries article; consultation closes 1 September). The proposed extension covers schemes:

• which lost their relevant employer before 10 June 2011;
• for which the last remaining employer had an insolvency event before 6 April 2005; and
• which commence winding up by the day before the new FAS regulations come into force.

For many, identifying the statutory employer will be straightforward as it will be an employer routinely involved in agreeing scheme funding matters. From November 2011, the scheme return will explicitly require trustees to identify the statutory employer(s) to their scheme.

The position becomes more complex where a hybrid scheme closes its DB section or where DB liabilities have been transferred in. The existence of former employers presents another hurdle: trustees will need to establish whether previous liabilities to the scheme have been discharged. If trustees meet resistance to requests for information from employers, they should contact TPR. Seeking legal advice may well be a prudent action.

Where no statutory employer can be identified, trustees will have to investigate and open discussions with the contributing employer and TPR. TPR will consider whether to use its anti-avoidance powers.

Update Wednesday 20 September

The Pensions Regulator has launched an online 'bite-sized' e-learning module to help trustees accurately identify their scheme's statutory employer ahead of the new requirement to report this on their scheme return form from November.