Ten Covenant Questions For DB Scheme Trustees

Assessment of the employer covenant (the legal obligation and financial ability of scheme employers to support their defined benefit ("DB") scheme now and in the future) underpins any discussion of DB scheme funding between the trustees of the DB scheme and the employer group. However, monitoring the employer covenant is an important trustee responsibility at all times, not just when a triennial valuation and funding discussion is underway.

This article discusses ten key questions that the trustees of a DB scheme should always be asking themselves when considering their employer covenant and any proposed corporate activity within the employer's group.

Answering these questions often becomes increasingly pressurised if the employer covenant weakens. But even a currently healthy employer covenant can weaken rapidly as a result of a wide range of factors. Notwithstanding the significant improvement in funding levels for many DB schemes as a by-product of the