The Pensions Board has rejected proposals agreed by Aer Lingus and its unions to plug a €750 million hole in its pension scheme.

In a letter to the Trustees of the Irish Airlines Superannuation Scheme, Chief Executive Brendan Kennedy said that the outline of proposals to meet the Minimum Funding Standard for the scheme would not be an acceptable basis for a funding proposal.

Aer Lingus and the Dublin Airport Authority have confirmed that they have been made aware of the letter and have sought an immediate meeting with the pension scheme trustee.

"We understand from your presentations that it would be up to seventy years before the scheme would meet the funding standard, and it is our view that such a lengthy derogation from the obligation to meet the funding standard would not be consistent with the objectives of the Pensions Act," Mr Kennedy said in the letter.

He went on to say that the Pensions Board was "broadly happy" with the other aspects of the possible proposal, and believes that they could constitute a reasonable basis for a recovery plan, subject to detailed consideration of a formal submission in due course.

The Irish Aviation Superannuation Scheme (IASS) covers workers in Aer Lingus, the Dublin Airport Authority and the now defunct SR Technics.

Under the union/management proposals, the existing defined benefit scheme would be frozen.

The assets would be sold and long-term bonds would be purchased in the hope of generating funds to meet the pension entitlements accrued up to now.

Staff would then join a defined contribution scheme to cover future pensions. However, there would be no guarantee that the employer would meet any future shortfall in delivering expected pensions.

Aer Lingus was to contribute €110 million to kickstart the defined contribution scheme - with the DAA contributing around €65 million to a separate scheme for their staff.

However, many employees would see some reduction in their pension entitlements, and were to contribute some cost offsetting and productivity measures.

The negotiations in search of a resolution have continued for almost three years.

Previous documentation confirmed that if the scheme were wound up immediately, current employees and former employees who have not yet retired could be left with just 4% of their anticipated pensions.

Decision is 'disappointing'

A spokesperson for the Department of Transport said that the pension deficit was obviously a very important matter for the various parties, and urged them to find a satisfactory resolution as soon as possible.

SIPTU official Dermot O'Loughlin described the Pensions Board decision as disappointing.

He urged them to reconsider the decision as SIPTU believes fully paid pensions can be restored through the negotiated proposals.