Allowance may be made for sovereign bonds or sovereign annuities (see Appendix 1)

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1 Funding standard (FS) To 31 May '12 No change to FS 1 June '12 to 31 Dec '15 Allowance may be made for sovereign bonds or sovereign annuities (see Appendix 1) 01 Jan '16 and after Allowance may still be made for sovereign bonds or sovereign annuities Additional risk reserve required, amount depends on asset mix Risk reserve = 15% of assets other than bonds/cash, plus the net effect on assets & liabilities of a 0.5% reduction in interest rates Risk reserve may be fully or partially met by an employer undertaking A s finances be checked annually by the actuary. If the certification is negative, the Pensions Board be advised and a funding proposal may be required: Funding proposals Funding proposal not required Funding proposal required Scheme satisfies FS Underfunding resolved & new positive certification submitted Existing FP on track Existing FP expected to meet FS within 2 years of scheduled date Scheme does not satisfy FS and scenarios to left do not apply Board gives temporary extension from requirement Special rules re pre-dec 2011 FPs - no risk reserves while on track Page 1 Trident Consulting June 2012

2 Where the terms of an existing funding proposal are not complied with, the trustees notify the Pensions Board who may declare the existing funding proposal invalid. In particular, contributions cannot be reduced below the amounts committed. Funding proposal rules: - Term of more than 3 years requires Pensions Board approval - Normal maximum term is the later of 6 years or until Pensions Board will consider investment strategy when considering a proposal - Must state primary reason for failing FS - Basis of projections reflect Society of Actuaries guidance - Investment return assumption cannot exceed 6% p.a. or the expected return if lower - Pensions Board expects pensioner liabilities to be matched by bond investments Benefit reductions Where a does not meet the FS, the trustees may apply to the Pensions Board for a section 50 direction to reduce benefits. The section 50 application may be standalone (if the is expected to meet the FS) immediately after benefits are reduced or in conjunction with a funding proposal. Scheme doesn't meet FS conducted a full review of the Employer has declined to pay the amount required to sustain the without benefit reductions notified all (& unions) and considered comments Section 50 application can be made Section 50 rules: - Existing pensions in payment may not be reduced, but future increases can be removed or curtailed. - state in the application the contribution rate needed to sustain the if the assets were invested entirely in Government gilts effectively a 4.5% return assumption - If the application is accompanied by a funding proposal, the maximum return assumption is 4.5% - Members and unions be given one month to make written observations and the trustees consider these observations before making an application to the Pensions Board - obtain legal and actuarial advice Page 2 Trident Consulting June 2012

3 Employer undertakings The risk reserve part of the funding requirement may be met through - A lien on specific assets - A commitment from an investment grade company ( be rated at least A by S&P or equivalent rating from another rating agency) The guidance implies that any events even if the such employer undertaking is payable in specified does not require the additional funding at the time. The conditions associated with employer undertakings make them largely irrelevant to most employers. Funding proposal deadlines Scheme already fails FS & ends Jun - Dec Scheme already fails FS & ends Jan - May If in conjunction with section 50 application New fail because of negative AFC New fail because of negative statement in annual report 31 Dec months from end i.e. Jan-May 2013 At least 28 Feb 2013 or later if end Mar - May Within 9 months Within 12 months This reflects our understanding of current funding standard requirements. You should not take action on the basis of this information without discussing your specific circumstances with us. Further information is available from Ciaran Murphy ciaran@tridentconsulting.ie or John O Connell john@tridentconsulting.ie. Page 3 Trident Consulting June 2012

4 Appendix 1: Sovereign bonds and sovereign annuities For the purposes of assessing liabilities under the FS, actuaries are normally required to assess pensioner liabilities by reference to the annuity cost. An alternative is to value pensioner liabilities on the section 53B basis, described below. Before doing so, the following steps be taken: take advice resolve that they would secured the specified level of pensions through sovereign annuities on windup now resolve that it is intention to secure the specified level of pensions through sovereign annuities on future wind-up notify all and unions of and the resulting risks confirm to actuary & that informed. Must supply copies of above to actuary. Actuary may apply section 53B basis, but check that still valid annually What and unions be told: - The background and the reasons why the trustees believe that this is in compliance with fiduciary duties - Payment of pensions which are secured using sovereign annuities are contingent on the performance of the underlying EU Government bond(s) - Default of the underlying EU Government bond(s) will reduce the pension in payment under a sovereign annuity. The pensioner will lose and will no recourse to the for loss - That the trustees will notify the recipient in the event of a change in in the future Section 53B basis 1. Sovereign annuities may be omitted or valued as an equal asset and liability 2. Sovereign bonds in respect of which there is an active sovereign annuity market value of pension that could be purchased on a sovereign annuity basis can be deemed to be covered by the value of sovereign bonds held 3. Sovereign bonds where there is no active sovereign annuity market 20% reduction to annuity cost only if the yield on the sovereign bonds exceeds the yield on 3.25% Bund of 2010 (2042) by at least 3%. Note: there are no sovereign annuities authorised by the Pensions Board as at June Page 4 Trident Consulting June 2012

5 Appendix 2: Contingent assets This is the term used for an asset which is committed to the pension in the event of windup. It is different to employer undertakings which are promises not backed by a specific asset. The contingent asset be capable of enforcement in the following circumstances: - The commencing to wind-up - The principal employer having a received appointed over any of its assets, having an examiner appointed, going into liquidation, ceasing to carry on business - If any event occurs which permits or requires the trustees to wind-up the - The failure by any employer participating in the to pay contributions due to the within 30 days of the due date The trustees agree to accept the contingent asset. The trustees should firstly request sufficient contributions and only accept a contingent assets if the required contributions are not forthcoming. The trustees be satisfied that there is no third party interest in the contingent asset. The trustees obtain legal and financial advice to establish the value of the contingent asset and also its availability in the circumstances when it is required. The contingent assets be enforceable until terminated in accordance with its terms. A contingent asset may be replaced by direct funding or by another contingent asset. Otherwise, it may not be terminated: - Without the consent of the trustees, or - Without giving the trustees notice expiring no earlier than 3 years after the next AFC - Unless the actuary certifies that the meets the FS Where the trustees are on notice that the contingent asset will terminate, it cannot be included as an asset for FS purposes but it remain enforceable. Page 5 Trident Consulting June 2012