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The future of Reader's Digest magazine in the UK – and the fate of its 135 employees – has been plunged into doubt after a deal to bail out its pension fund fell through.
The magazine's US parent company, Reader's Digest Association (RDA), said UK regulators had not approved a rescue plan to resolve "a longstanding and significant unfunded liability within its UK pension scheme".
"In light of this unusual and unexpected development, RDA has
filed a motion in the US court in which it notes that unless the pension deficit issue is resolved it will no longer be able to support the UK business indefinitely and therefore the UK business may need to file for administration," the company said.
The failure to resolve the problems in its UK pension fund has temporarily delayed the US company's emergence from Chapter 11 bankruptcy, almost six months after it filed for bankruptcy protection in an attempt to reduce its debt burden.
RDA said that its UK arm had come to an agreement with the trustees of its pension plan and the Pension Protection Fund to resolve its pension fund deficit. However, this agreement required approval from the Pensions Regulator, which indicated on Thursday that it would not approve the pension application.
The proposed deal involved injecting £10.9m in cash and transferring a third of the UK business's equity to the pension fund's trustees to help to close a £125m deficit. The pension scheme would then be transferred to the Pension Protection Fund, which acts as a "lifeboat" to prevent employers defaulting on pension obligations.
Reader's Digest employs 135 people in Canary Wharf, London, and in Swindon, but the pension scheme covers some 1,600 past and present employees.
The company's pension issues are symptomatic of a wider problem across corporate Britain, as companies struggle to meet the costs of generous pension obligations while life expectancy continues to rise and the value of pension schemes comes under pressure.
RDA said the pension issue was specific to the British arm and did not involve any other subsidiary.
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