Delegation by trustees 2

Pension schemes have become so complex that in many cases it is not feasible for trustees to make all of the decisions which are their responsibility under the scheme documentation. It is normal and even necessary for them to delegate some of their decision making powers to other people.

However, delegation is not as simple as it might seem, in fact doing it correctly is quite an art form and there are many things which trustees need to watch out for. The basic rules to remember are:

• the trustees must have a power to delegate in their trust deed and any delegation must be made in accordance with the provisions in the trust deed;
• the terms of the delegation must be made clear and both trustees and delegate must clearly understand its scope and who has responsibility for what; and
• the delegate should report his or her activities back to the trustees at regular intervals who need to monitor and review them to be sure that they are happy with what is being done and the delegate is acting properly.

The perils and pitfalls of delegation were outlined in the case of (1998) which was an appeal concerning the Barnardos Scheme from a determination of the Pensions Ombudsman (F00948). The case concerned the distribution of a lump sum death in service benefit. The trustees' discretion to decide who the payment went to had been delegated to two trustees in circumstances where there were "no difficulties in establishing the rightful beneficiary...". Two trustees made a decision who the benefit should be paid to which was subsequently noted at a trustees' meeting. A compliant was made that the lump sum had been improperly distributed.

The Ombudsman supported the view that the use of the delegated authority was "inappropriate" since the two trustees were "faced with two conflicting claims". In other words, because with hindsight there were difficulties in establishing who should receive the benefit, the decision was not within the scope of the delegation.

This determination led to many schemes reviewing the terms of their delegated discretions, in particular where delegates were empowered to act in "" or "" cases. Questions were raised about who determines whether something is "" and what happens where a "" case subsequently turns out to be anything but. Solutions were found which either delegated the discretion in all cases or which clearly left the determination of the meaning of conditions such as "straightforward" to the delegate.

Fortunately, the Court also helped with this problem on appeal. Jacobs J. said that all a clause of this kind should be interpreted to mean was that it must be "fairly plain" to the delegate what should be done. So delegations will be construed according to their ordinary and reasonable meaning. However, it is still important to make sure that they are properly and carefully documented and that ambiguities are avoided where possible.

The Ombudsman was also not convinced that a minute of something agreed at a trustees' meeting amounted to an effective delegation. The Court dismissed this suggestion, but the Ombudsman's point does illustrate the importance of having a document which clearly sets out the terms of a delegation and the relevant provisions of the trust deed and which it is apparent that both parties have seen.

There will always be cases where it is not clear whether or not a delegate has acted within the scope of their authority. In these cases, it is always open to the trustees to ratify the delegate's actions, this overcomes any procedural defects and allows the decision to be treated as valid from the date of which it was originally made.

This is clearly a useful device, but what amounts to a valid ratification? This question was also looked at in the Barnardos case. The Ombudsman held that it was not enough for trustees to note a decision of a delegate, they had a duty to put their own minds to the question and reconsider what had been decided. However, Jacobs J, held on appeal that this was overly technical, it was clear "that the trustees knew exactly what had been done and why" and for them "to let it pass by noting what had happened... amounts to clear concurrence in what had happened" and the decision had therefore been validly ratified.

This illustrates the need not only for trustees to have in place a means to monitor their delegates' activities, but for this procedure and the steps taken to comply with it to be clearly documented.