Marks & Spencer has come up with a unique solution to reduce its £704 million(C$1.65 billion)defined benefit(DB)pension deficit.
The U.K.-based retailer will contribute £500 million of value into the plan by establishing a partnership with the pension plan, which will hold the company’s properties.
These properties will then be leased back to Marks & Spencer and a fixed annual distribution to the plan of £50million will be made out of partnership profits for a 15-year period.
The plan will hold the £500 million partnership interest, representing the net present value of these future distributions, as part of its total investment portfolio and accordingly the deficit will be reduced by this amount.
Marks & Spencer will retain control over the properties held as part of this arrangement, including flexibility to substitute alternative properties.
The remainder of the deficit is expected to be met by investment returns on the plan’s assets.
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