MF Global Holdings, the failed U.S. securities brokerage, is
on its way to extinction under a court-supervised liquidation,
but members of the firms U.K. pension fund will be made
largely whole, thanks to a recent buyout agreement with a
The trustees of the MF Global U.K. Pension Fund have struck
an annuity-type deal with London-based Pension Insurance Corp.
(PIC) to guarantee benefits to the funds 35 members.
The pension fund had £25 million ($40.4 million) in
assets and £60 million in liabilities when the company
filed for bankruptcy protection in 2011. Under the deal,
settled on October 15, KPMG, the court-appointed administrator
of MF Global U.K., is contributing funds that will enable PIC
to guarantee £52 million in liabilities. The parties said
the value of the insurance would be broadly equivalent to the
benefits MF Global had promised before it collapsed.
The deal is unusual but not unprecedented. The Pension
Protection Fund, established by the U.K.s 2004 Pensions
Act, guarantees 90 percent of pension benefits of failed
companies but caps annual benefits at £31,380 per person.
For financial companies with high salaries and pension
benefits, arranging an annuity with an insurer can offer a more
generous benefit to plan participants.
The MF Global arrangement follows a precedent set in 2009 by
another victim of the credit crisis, the Dunfermline Building
Society. Pension fund trustees of the Dunfermline,
Scotlandbased mortgage lender secured pension protection
through a buyout with an insurer. KPMG and Richard Heis, who is
a partner at the firm and joint special administrator for MF
Global U.K., also worked on the Dunfermline deal.
The benefits of the buyout deal are partly a question
of cost, said Wayne Segers, pensions director at KPMG,
who worked on the deal. The longer a settlement takes to
reach for the pension scheme of a company in administration,
the greater the fees, leaving less money available for meeting
the pension liabilities.
Moreover, the administrators ability to meet the
liabilities through the bankrupt businesss remaining
assets was reduced by a July 2013 U.K. Supreme Court ruling
that downgraded pension liabilities of failed companies, saying
they could not be ranked above claims of other unsecured
Linton Bloomberg, of counsel in the London office of New
Yorkheadquartered law firm Weil, Gotshal & Manges,
who worked on the case, said the agreements success
may encourage other estates to try to reach a settlement
using the same mechanism.