Dawson International has entered administration after directors and trustees failed to agree on a solution to the plug the firm's scheme deficit.
The luxury textile producer had been struggling to fund the scheme, which reported a deficit of £12.9m on an accounting basis in December, but has a shortfall in excess of £50m on an actuarial basis.
After the workforce shrunk from 1,200 to 200 following disposals, including the Pringles knitwear brand, the scheme was left with just 60 active members and more than 3,500 deferred and pensioner members.
Earlier this summer, the company had its attempt to offload the scheme into the Pension Protection Fund rejected, after negotiations with the fund and The Pensions Regulator (PP Online, 20 July).
This prompted warnings that Dawson was heading for insolvency and it announced yesterday that KPMG had been appointed as administrators to the company together with its UK trading subsidiary and holding company.
A spokesman for the regulator said agreeing to offload a scheme to the PPF was only appropriate under exceptional circumstances where it would achieve a significantly better outcome for the lifeboat fund than an insolvency.
"The standard administration process exists to realise value for creditors and maintain viable business operations," he said.
PPF executive director for financial risk Martin Clarke said: "We do not enter such arrangements lightly and only agree them if a number of stringent tests are met. Unfortunately, in this case the offers made to take on the pension scheme, given the size of the deficit in the scheme, were inadequate."
Clarke said the fund applied clear and consistent principles, taking into account the likely impact such a transaction would have on scheme members and the cost to other PPF levy payers.
He said the fund would work with the administrators to make sure that the interests of members were best represented.
Barnett Waddingham consultant Malcolm McLean (pictured) predicted Dawson would not be the last firm to be driven into administration by spiralling pension costs.
"The financial significance of a final salary scheme means employers need to be more proactive in managing their pension scheme liabilities. They should establish a clear strategy to de-risk the scheme over time.
"The Dawson International case has shown how deficits can quickly grow out of control particularly where the sponsoring employer is shrinking."
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