Pension fund history twisted

TWO RECENT CASES EXTREMELY WORRYING Prohibitive cost of fighting these kinds of cases will discourage litigation.

SA has a grimy history of companies raiding their pension funds. The fear is that two recent court cases will do little to curb this. The first case, involving two pensioners against the Tongaat Hulett Pension Fund, was defeated in the Supreme Court of Appeal (SCA) on what vanquished pensioners regard as the judges’ poor understanding of the law. They were denied an opportunity for Constitutional Court (ConCourt) review.

The second case involved Rosemary Hunter, former deputy pension fund registrar at the Financial Services Board (now the Financial Services Conduct Authority), against the FSB over its attempts to deregister funds with assets owing to former employees.

She lost her case in the ConCourt, principally because the court assumed the FSB had competent people running it, and had investigated a few funds that had been deregistered through the FSB’s cancellations project.

For both cases, there are no further avenues of legal redress available. But the judges’ findings in favour of the pension fund trustees and regulator should be a cause for concern for past and current employees with claims to a share of actuarial surpluses or other assets in pension funds.

The Tongaat Hulett pensioners claimed in their court papers that the trustees were able to deceive the courts by mislabelling R1.43 billion in contingency reserves as “excess assets”, a term not found in the Pension Funds Act.

“Assets in contingency reserve accounts” – a term defined in the Act – should be shared among members when they’re no longer needed for contingent liabilities. At this point they become an actuarial surplus.

The “excess assets” referred to the actuarial surplus plus reserves. The SCA was satisfied this was clear enough and in order to ensure the fund’s continuing solvency, the employer had to carry the balance of the cost. The decision to apportion these assets as it did was, therefore, reasonable and legal, it found. But was it moral? Bruce Moor, an applicant in the case, outlines what losing the case means: of the R800 million “future actuarial surplus” in the fund at 2012 valuations, R107 million will go to members and R693 million to the company.

The pensioners argued that a proper application of the intent of the law would probably have given them a 50-50 split. The actual fund rules allow for 80% of actuarial surpluses to go to members and 20% to the company, but by applying this to “excess assets”, the employer grabbed three-quarters of the actuarial surplus.

The losers must also pay legal costs of about R680 000. The costs would have been about R500 000 higher had their lawyers not taken the last leg of the case on risk. Hunter got off with no costs awarded against her, largely because she waged her fight in public interest. But she had to carry her own litigation costs.

The prohibitive cost of fighting these cases against deep-pocketed adversaries won’t be lost on others contemplating similar legal challenges.

The losers must pay legal costs of about R680 000.