Retirement funds can’t use current contributions to offset arrear payments
A retirement fund cannot use current member and employer contributions to make good on arrear contributions, particularly when the money is attributed to members other than those who made the contributions.
This is the basis of yet another determination by Pension Funds Adjudicator Muvhango Lukhaimane involving the much-troubled Private Security Sector Provident Fund (PSSPF).
Following on from the determination, the Financial Services Board (FSB) has warned it will take action against funds and their administrators who use current contributions indiscriminately to make up for contributions not paid over by employers to retirement funds.
In terms of the Pension Funds Act, all contributions – from both employer and employee – must be paid over to the fund not later than seven days after the end of the month for which they were payable.
An employer must submit a schedule to a fund indicating on behalf of which members it has submitted money, naming the members and the amounts allocated.
Lukhaimane warned in her determination that retirement fund trustees could be ordered in their personal capacities to make good to adversely affected members and former members.
Jurgen Boyd, acting FSB deputy executive in charge of retirement funds, says the FSB does not approve of any practice that attempts to allocate a retirement fund member’s current contributions towards an employer’s arrears contributions that may have accumulated over time and for which the current member may not be responsible.
He says the practice would amount to a contravention of the Pension Funds Act by a fund and its administrator, requiring regulatory action.
Boyd says that in terms of the Act the minimum benefit payable to a member of a defined contribution fund, such as the PSSPF, is the member’s minimum individual reserve at the date of exit. The Act provides a formula for calculating the amount, which “specifically provides inter alia for the inclusion of all the member’s contributions and employer’s contributions received by the fund for a member.
“If a fund does not allocate a member’s contributions to his or her individual account, it would be acting contrary to the minimum benefit provisions of the Act,” Boyd says.
He says following Lukhaimane’s determination, the FSB has taken the matter up with the PSSPF and the fund’s administrator, Absa Consultants and Actuaries, “to determine the nature and extent of any non-compliance. The appropriate regulatory action will follow this engagement.”
The determination followed a complaint by an employee of a participating employer in the PSSPF, Mjayeli Security Services. The employee, MI Moloantoa, did not receive his benefit when he left his job.
During his employment, from September 1, 2011 to November 30, 2012, Moloantoa and his employer each paid R2 560 in contributions to the fund.
Lukhaimane says in her determination that it appears that the fund administrator’s membership data system is set up in a manner to prevent the upload of current provident fund contributions for any given month if the employer is in arrears for the preceding months or years. To circumvent this, Absa uses current contributions to offset the arrears in order to bring the employer up to date.
Lukhaimane says that with the high staff turnover in the private security industry, this practice is almost always to the prejudice of the new members, because their contributions are being allocated to older members, many of whom then leave the industry taking with them the contributions of newer members.
As happened in this case, the newer member may not even be registered by the administrator of the fund, and when the member leaves no benefit is then payable.
Lukhaimane says: “This practice flies in the face of the very idea of retirement funding. It is a gross violation of the Pension Funds Act and the rules of the fund, and must be strongly discouraged.”
She told the PSSPF trustees that they were obliged in terms of the law to prevent what appears to be a case of “expediency trumping the law”.
She says: “The duties of a board shall be to take all reasonable steps to ensure that contributions are paid timeously to the fund in accordance with this Act.”
Lukhaimane ordered the fund to place Moloantoa in the position he would have been in had his employer regularly paid all the contributions due to the fund and the money been credited to him.