Ducking and weaving to dodge obligations
● Many pension lawyers are frustrated because their efforts to recover outstanding retirement fund contributions from employers are either thwarted or ratchet up legal costs that members must foot.
Lawyers advising pension funds who attended this year’s Pension Lawyers Association conference related tales of employers who threatened to liquidate the company if the fund pursued the employer for outstanding contributions. Or they only pay contributions when action is taken and then immediately renege on obligations for subsequent contributions that are due.
Rebecca Jansch, a partner at Shepstone Wylie, says some employers liquidated their companies to avoid paying outstanding contributions, only to start up again soon after under a new company name.
She says there is no provision in the Pension Funds Act for funds to negotiate payment plans with employers who genuinely are experiencing financial difficulty.
A consultant at a retirement fund administrator, who does not want to be named, says the legal costs for recovering R15-million of contributions outstanding by one employer were running at more than R300 000, and taking further legal action would incur even greater costs. The employer, however, has no assets to attach, she says.
Jansch says errant employers typically do not submit a schedule of contributions to the fund so that the fund knows which employees are still on the company’s books, and what contributions are outstanding in respect of the employees who are.
This means funds need to go to court with an application to force the employer to send it the schedule and then the fund must submit a second application to court asking for the claim to be enforced.
This can involve high costs for the fund, she says.
Anesh Soonder, an attorney with Soonder Incorporated, says outstanding contributions can quickly escalate because the Pension Funds Act provides for punitive interest — at a rate that is a multiple of the repo rate — on this money. This can exacerbate an employer’s financial problems.
But he says there are also employers who can but don’t pay and he has had some successes bringing criminal cases against them and holding company directors and executives civilly liable in their personal capacities.
Independent Johannesburg-based advocate Hannine Drake shared with delegates at the conference how some municipal funds had forced municipalities to pay contributions in arrears by obtaining an order against the employer and sending the sheriff to attach municipal assets — including a town hall and a mayor’s car.
Drake said the enforceable regulation that obliges trustees to inform members that their contributions have not been paid into the fund is underapplied. She said the Financial Sector Conduct Authority was of the view that it is not enough for funds to send members an SMS.
Members should be sent a letter explaining all the implications of the employer’s failure to pay contributions on fund values and on any risk cover offered to members.