"This use of multi-employer schemes leads to a need for greater care in allocating the liability for funding defined benefits, particularly in the event of the insolvency of one of the sponsors. Fund segregation is usually important in reducing such problems. Fund segregation means holding the pension scheme’s investments separate from the company, usually overseen by trustees. " Can anyone please explain why in the event of an insolvency of a single sponsor a greater care is required in allocating the liabilities of for the defined benefit commitments of other sponsors, and what problem fund segregation can reduce and how? please help.
I'm not sure but doesn't it just mean that if you've got lots of employers all contributing to and using the same pension scheme and then one of them gets into trouble, you need to be able to separate out the liabilities relating to that particular employer. If that employer goes insolvent and can't afford any more contributions, it should really only be the members relating to that particular employer that should suffer. Hence having clear allocation of liabilities between the various employers / sponsors helps with this. And keeping the investments separate from the companies involved also helps to reduce any potential issues when someone goes insolvent - keeps the pension fund assets safe from being dipped into to cover other debts?
