PARTNERS at KPMG are facing pay cuts after the big Four accounting firm lost a crucial court case over its £88 million pension deficit.
The development comes after the House of Lords’ refusal to hear KPMG’s appeal against a ruling that company’s partners were liable for the shortfall. The 560 partners each earned £552,000 under a profit-share agreement last year.
Eddie Donaldson, head of human resources for KPMG, said: “It will be charged against our profit and loss account, so there will be less profit share to distribute to partners.”
KPMG has set aside £28 million to cover the deficit and, according to regulations, has a decade to clear the shortfall.
In the firm’s annual report for 2005, the pension fund is worth £321 million and has a deficit of £88 million, which is equal to about a quarter of KPMG’s profits last year.
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The court case was sparked by a dispute with a number of former partners who faced a cut in retirement benefits. The scheme’s members wanted KPMG to guarantee that anyone with 25 years’ service would receive the benefits that they were promised when the pension plan shut in March 2000.
The accountant had argued that the pension was a defined contributions scheme, which meant that its members were liable for the deficit.
However, both the High Court and Court of Appeal ruled that it was a final-salary scheme.