Feedback on Recent Adjudicator Determinations Presentation to PLA Quarterly Session June 2006 Lizzie...

Feedback on Recent Adjudicator Determinations

Presentation to PLA Quarterly Session June 2006

Feedback on Recent Adjudicator Determinations

Presentation to PLA Quarterly Session June 2006

Lizzie Vambe Legal Services Alexander

Forbes

Determinations

ABT v Nedcor Defined Contribution Provident Fund/Nedbank Group Ltd/OM

Webber v Willow Ridge Primary School/Hollard Umbrella Provident Fund

MES v ART Medical Equipment Pension Fund/MG Thabois/Francis Thabois

Pelser v SA Eagle Pension Fund/SA Eagle Insurance Company ltd

ABT v Nedcor

The facts: Complainant was employed by Nedcor

from November 2001 to September 2004 Instruction when left to join new

employer was that benefit be transferred to the new employer fund

Total withdrawal benefit was R173 887.41 transferred to new fund on 7 January 2005 including interest of R 2 143.26

Complained to the ADJ that Fund and administrator failed to transfer his benefit timeously

ABT vs. Nedcor

The facts: Complainant contending that the Fund did not

transfer his benefit within a reasonable period. Administrator’s response/Administrator stating

that rules silent regarding “the time within which a benefit was to be paid to a member” and further that receipt of claim form does not constitute a demand for payment by the Fund and administrator by a certain time.

Administrator stating that 4 to 6 weeks ordinarily reasonable, however Fund experiencing increased number of exits – therefore 12 to 18 weeks was in the circumstances “reasonable”.

ABT vs. NEDCOR

Fund’s response: Employer retrenching therefore large

number of exits. Processing period revised. Paid interest on the benefit in terms of

its rules-(late payment interest) Fund practice to disinvest and hold in a

bank account to minimise risk of benefit reducing during the benefit processing period.

ABT vs. NEDCOR

DeterminationCiting the case of Tek v Lorentz Adjudicator held that: Fund authorised to disinvest in terms of its rules. He could not accept the wide powers given to the Fund

and administrator with regard to determination of the rate at which interest would be paid as it was arbitrary and open to abuse.

The rule read:“In the event of any benefit payable to a member or beneficiary in terms of these rules being late, interest shall be paid by the Fund at such rate as the Board of Trustees in agreement with the administrator may decide from time to time. Any such interest shall be included in the Member’s accumulated credit.”

ABT vs. NEDCOR

Determination continued: That rules of a Fund always subject to the provisions

of the Pension Funds Act. Section 13A(5) provides:

“When a person who, for any reason except a reason contemplated in section 14, 28 or 29, has ceased to be a member of a fund (in this subsection called the first fund), is in terms of the rules of another fund admitted as a member of the other fund and allowed to transfer to that other fund any benefit or any right o any benefit to which such person had become entitled in terms of the rules of the first fund, the first fund shall, within 60 days of the date of such person’s written request to it, or, if applicable, within any longer period determined by the registrar on application by the first fund, transfer that benefit or right to the other fund. The transfer shall be subject to deductions in terms of section 37D and to the rules of the first fund”.

Therefore that the Fund and Administrator had to transfer the complainant’s benefit within 60 days failing which interest in accordance with Section 13A(7)(c) was payable.

ABT vs. NEDCOR

Determination continued: In view of fact that instruction to transfer was

given on 28 September 2004, the latest by when benefit had to be transferred was 29 November 2004.

Benefit only transferred on 7 January 2005 therefore interest at the higher Usury Act rate payable from 30 November 2004.

Fund ordered to pay interest at the Usury Act rate less late payment interest already paid.Amounts not exceeding R10 000 – 20%Amounts exceeding R10 000 – 17% per annum

ABT vs. NEDCOR

Comment Section 13A of the Pension Funds Act requires

transfer within 60 days. Outside of 60 days Fund must get an extension

– failure to do so attracts penal rate of interest. Transfers covered are

(i) transfer to new employer fund(ii) transfer to Retirement Annuity(iii) transfer to Preservation Fund

does not include payments on liquidation and section 14 transfers or transfers to annuities on retirement

Webber vs Willow Ridge Primary School and Hollard Umbrella Provident Fund

The facts: Complainant was a member of the fund

from 1 March 2000 to 30 April 2002. Commenced making inquiries about his

withdrawal benefit in 2005. In September 2005 sent a letter to

Employer requesting necessary documentation to be signed to no avail.

Crux of the complaint was the delay by the Fund in paying his withdrawal benefit.

Webber vs. Willow Ridge Primary School and Hollard Umbrella Provident Fund

No response received from employer

Administrator’s response:

Confirming that the benefit was in the Fund stated:

No signed withdrawal form from employer. That only became aware of withdrawal

when received the ADJ complaint.


DeterminationCiting Tek Corporation v Lorentz, the Adjudicator held that:

Employer owes various duties to the Fund“The trustees of the fund owe a fiduciary duty to the fund and to its members and other beneficiaries (Section 2(a) and (b) of the Financial Institutions Investment of Funds) Act 39 of 1984 and rule 18.1.4). The employer is not similarly burdened but owes at least a duty of good faith to the fund and its members and beneficiaries (cf Imperial Group Pension Trust Ltd v Imperial Tobacco Ltd [1991] 2 All ER 597 (ch) at 604g-606j).”


S37D not applicable here. Employer had abused its powers by not

signing the withdrawal form. Fund did not protect the Complainant’s

interests – Fund done nothing-should have picked up withdrawal from contribution schedules and demanded withdrawal form from employer.


Relief: Fund ordered to accept withdrawal

form signed by the Complainant only. Fund to calculate and pay the benefit

to Complainant. Employer to pay interest at prescribed

rate of15.5% from 30 May 2002 to date of payment


Comment:

Additional penalties and interest on late payment of tax to SARS in the future

SARS not currently enforcing such a practice

Liability always vests with the Fund Incentive for Funds to actively police

timeous payment of benefits to exiting members

MES vs Art Medical Equipment Pension Fund/Liberty Life/M Thobois/F Thobois

The facts: The Art Medical Equipment Pension Fund is now

liquidated. Preliminary determination handed down in 2001. Complainant ‘s husband passed away in December

1998. M Thobois (3rd Resp) was the sole trustee on the

Fund. All benefits on the Fund were secured by a policy of

insurance held with Liberty which was underwriter and administrator.

Rules provided for payment of an insured death benefit of 3 x annual salary of member’s fund credit.

Crux of the complaint was payment of the insured portion as uninsured portion was paid out by liquidator

MES vs. Art Medical Equipment Pension Fund/Liberty Life/M Thobois/F Thobois

The facts:

Due to non-payment of premiums Liberty Life had not accepted liability for payment of the insured death benefit.

Policy had lapsed before member’s death due to non-payment of premiums.

Liberty Life therefore not liable for payment of the death benefit.


Third Respondent’s arguments: That liability was to the liquidated fund and not

to the Complainant. Unfair and untenable procedure – 6 years after

complaint is made and period from 22 March preliminary ruling

Adjudicator stating that service of complaint to administrator sufficient.

In any event the liquidator confirmed that complaint forwarded to 3rd and 4th respondents.

Poor health-prevented him from filing a detailed response-the ADJ did not buy that either.


The merits in response

That participating employer facing financial difficulties – ADJ pointing out that did not submit scheme under section 18 of the PFA.

Had relied on intermediary for advice (wanted intermediary joined as respondent).

Failure to obtain signature for cheques from co-director and shareholder.


Determination:In handing down his determination the ADJ looked at the duties of Trustees.

Duties embodied in fund rules, legislation and common law (Mostert NO v Old Mutual).

Current case – policy document as well as was an insured fund.

Payment of premiums was a trustee duty –premiums payable within 7 days after the end of the month for which payable.

Duty to direct, control and to pay contributions Sections 7C, 7D(d) of PFA


Section 13A – failure incurs interest at 15,5% per annum (Prescribed Rate) also a criminal offence.

The Financial Institutions (Investment of Funds) Act 39 of 1984 also imposes duties on trustees.

3rd Respondent was the “official of the fund”

The Complainant as widow had suffered financial loss due to failure of 3rd Respondent to pay contributions.

The Complainant was liable to be compensated.


Comment:

Ability of complainants to recover from Trustees

If payment not forthcoming have to go through enforcement procedure

Pelser vs SA Eagle Pension Fund/SA Eagle Insurance Company Limited

Case not so recent-unreported-2005 Divorce orders enforcement always

problematic. Payment of tax on pension interest. Whether Fund entitled to deduct tax

from complainant’s portion (pension interest)

Pelser vs. SA Eagle Pension Fund/SA Eagle Insurance Company Limited

Facts: Complainant married to Mr W J van

Rensburg-the fund member. Divorced in 2001 – Divorce order providing for among

other things payment of pension interest -50%.

Provided that benefit payable to her on date of payment to fund member


Member resigned in February 2002. Complainant requested payment of her

portion in December 2002. In 2003 Fund advised that member

benefit transferred to preservation fund. Complainant eventually accepted R50

000 from member by way of a personal cheque.

Her total portion amounted to just over R 74 000.


Complaint In terms of para 2B of the 2nd Schedule

to the ITA not liable for tax. That there must be an agreement with

the member for deduction of tax in the divorce order.

The responseThat no agreement required – member entitled to recover from non-member spouse


Issues for determination: Whether transfer to preservation fund

constituted “payment” to member Whether Complainant was liable for tax

on her portion Whether in terms of para 2B an

agreement for recovery of tax needed to be included in the divorce order

Whether the Complainant was entitled to interest


Determination Transfer constituted “payment” – payment vs

mode of payment. Referring to Income Tax Special Court case NO

10404 (1998: 1 JTLR 13) -non-member spouse owner of pension interest portion allocated at divorce-”accrue in respect of”and not “accrue to.”

Para 2B inserted for tax collection convenience. Fund not entitled to deduct tax and liable to pay

full benefit to Complainant. No agreement required in the divorce order

between member and non-member spouse for recovery of tax.


Determination

Para 2B does not stipulate the manner in which tax can be recovered

Fund ordered to pay her the portion deducted plus interest at 15.5%

Interest at 15.5% on the R50 000 In the absence of rule or contract

interest payable on “mora debitoris” principles


Comment:

Liability vests with the transferring fund and not with the preservation fund

Benefit already transferred to another fund

ADJ imputed a time by when tax directive should have been applied for

Cost to Fund to pay to non-member spouse

Thank you

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