A company is entitled to reduce its contribution to a pension fund that is in surplus where the accrued benefits to members of the scheme will be unaffected, the Labour Court has determined.

Penn Racquet Sports, the Mullingar-based tennis ball manufacturer claimed that it was legally entitled to take a "contribution holiday" from its company/union defined pension scheme, in 1997. The scheme was originally set up in 1980.

Total funding at the time was 13.4 per cent, split 50:50 between the parties. In 1989 it was agreed that the employees contribution would be reduced to 4.7 per cent, with the company making up the balance.

Following talks in 1997, the union (SIPTU) believed that its members' contribution would be reduced to 3.7 per cent. That contribution remained at 4.7 per cent, however, and the dispute was ultimately referred to the Labour Court.

SIPTU, in its submission to the Court, said that Penn was "part of the multinational company, Gen. Corp. at present". However, this could change shortly, as the company had announced that its polymer division was for sale. In the circumstances, said the union, "the company's decision to take a contribution holiday is akin to asset stripping".

If there was a surplus in the scheme as the company maintained, SIPTU argued, "the benefits should be for everyone, not just for the employer". It had become obvious by 1990 that there was over-subsidising - employees had been contributing 6.7 per cent (50 per cent of the total) from 1980 to 1989.

Penn management's action was in breach of the spirit of recent national wage agreements which sought to ensure that employees had an adequate pension scheme on retirement, the union concluded.

The pension fund had "developed a short-term surplus" since it began in 1980, the company conceded, for two reasons. First, the investment fund had performed well and secondly, some 67 members had left the scheme since its inception. "Sixty-three of these opted to reclaim their own pension contributions, but the company's contribution had remained in the fund." Penn felt it was entitled to a short-term reduction in contribution because of these two factors, it said, and sought to reassure the court.

"The company intends to support the pension scheme agreed with the union. Its action in making reduced contributions in the last few years has not affected this commitment."

The union wanted "all the benefits of a defined benefit scheme", but it was the company which carried all the risks, Penn argued. The facility to make short-term reduced contributions was fully permitted under the pension legislation - and represented no risk to the employees.

The court's deputy chairman, Mr Kevin Duffy, in considering the submissions, said it was clear that the rules of the scheme placed exclusive responsibility on the company for maintaining the fund's solvency - and the employees' contribution was fixed, regardless of how the fund performed.

In the circumstances, he said, the court accepted that the company was entitled to reduce its contribution because of the surplus, as the accrued benefits would be unaffected. Penn employs around 160 workers, 130 of whom were involved in the claim.