Fund can delay paying benefit while criminal charges are investigated

A retirement fund is entitled to delay paying out a withdrawal benefit pending the outcome of a criminal case into whether a member’s former employer suffered damages as a result of the member committing fraud, theft, dishonesty or misconduct. However, the fund cannot exercise this right unreasonably or indefinitely.

This principle was highlighted by Muvhango Lukhaimane, the Pension Funds Adjudicator (PFA), in a determination handed down recently.

“Mr IT”, a member of the Sanlam Umbrella Provident Fund, complained to the adjudicator that the fund refused to pay his withdrawal benefit after he resigned from CTS Logistics on October 31, 2011. Shortly after he resigned, a case of fraud and theft was opened against him and several other employees. However, Mr IT said the case was withdrawn in 2015.

In its response to the complaint, Sanlam Life Insurance, which administers the fund, said the matter has not been dismissed. It said that, because the matter is complex, it has taken time for the case to start. Sanlam presented the PFA’s office with an email – dated January 19 this year – from the National Prosecuting Authority stating that it has “every intention” to continue with Mr IT’s prosecution.

In its submission to the PFA’s office, the provident fund said that, shortly before Mr IT resigned, CTS informed the fund that it had become aware that Mr IT had allegedly defrauded the company of R4 million. CTS laid a charge against him. CTS asked the provident fund to withhold Mr IT’s withdrawal benefit in terms of section 37D of the Pension Funds Act. This section empowers a retirement fund to deduct from a member’s benefit any amount representing the damages suffered by his or her employer because of dishonesty, theft, fraud or misconduct. (This provision was echoed in the rules of the provident fund.) However, section 37D attaches a condition to withholding a member’s benefit: either the employee must have admitted liability in writing or a judgment must have been obtained in a court of law.

Mr IT had neither admitted liability nor had a judgment been obtained against him, and Lukhaimane said the outcome of the complaint depended on whether it was nevertheless lawful for CTS to withhold the benefit.

In her determination, she says there is nothing in the fund’s conduct to suggest that it is acting outside the scope of its powers in section 37D by withholding Mr IT’s benefit pending the finalisation of the criminal case against him.

She says there is no indication that the fund or its administrator is unduly delaying the finalisation of the prosecution. Lukhaimane quoted from a determination handed down by the PFA in 2000 ( Sayed-Essop v Non-Ferrous Metal Works Pension Fund and Another), in which it was held that, where the delay in prosecuting the member is not the fund’s or the employer’s fault, it was not unreasonable to withhold the benefits for two years.

“Therefore, the withholding of the complainant’s benefit is not unreasonable, considering that the matter is complex and the complainant has requested time to make his representations.”

The adjudicator added that the power to withhold must be exercised reasonably and not indefinitely, and the fund has a responsibility to monitor the matter to ensure that Mr IT is not prejudiced.

Lukhaimane dismissed the complaint.