Issue: June - Aug 2013
Bring on member committees
They have a critical role, particularly in workplace communication, as smaller funds consolidate. Sponsors and employers should encourage memcos. Actually, there’s no obvious reason that they shouldn’t be a legal requirement.
For all the virtues and advantages of umbrella funds, a defect is in participating employers taking them as a convenient means to duck from responsibility to employees. Were they to do so, as many seem to think, there can be little oversight of the umbrellas’ management boards (to keep them honest) and minimal two-way communication (in that trustees at the upper level are remote from members at the workplace level).
The essential intermediary level is member committees (TT March-May). So strong is the case for them that their inclusion as a statutory requirement under the Pension Funds Act is worth consideration. Those who serve on such memcos wouldn’t need the paraphernalia expected of trustees – fiduciary obligations, ‘fit and proper’ qualifications, specialist skills and experience – that weigh down the ordinary employer wanting to do the best for its workforce.
Clearly defined duties, that bridge the gap which supposedly doesn’t exist with standalone funds, will suffice. Each participating employer should be required to have its own memco with equal employer/employee representation, just as the Act requires for non-umbrellas and for much the same reasons. They have to do with empowerment, or minimising the loss of it.
Typically, unlike standalones, fund members have no say in the composition of the umbrella’s management board. Instead, the sponsor (itself housed within a service provider) will appoint this board. The trustees who comprise it are selected for their particular skills, and a majority are ostensibly independent of the sponsor (i.e. not employees of the sponsor).
Some umbrellas do have an election component. For a board of say six trustees, three might be appointed by the sponsor and three elected by the member representatives from a sponsor-selected panel of suitably qualified industry professionals. That’s how it works at Sanlam, for one.
The board then has specialist sub-committees – investments, administration, complaints and so on – with the principal officer managing day-to-day operations and governance. Administration is undertaken by the sponsor’s employee-benefits division. Participating employers comprise a “joint forum” to facilitate consultation and decision-making.
By way of another example, there’s Evergreen in the Old Mutual stable. It advises employers and employees to use a member-committee structure “to ensure adequate interaction” with the fund, offering guidelines for setting up a memco and drafting a constitution.
It also suggests the functions of a memco and the duties of its members. These would typically be to:
Evergreen further proposes: “Unless the (umbrella) fund rules state otherwise, the member committee will have no power over the management board and may not make any decisions that will in any way bind the management board.”
Should the fund rules state otherwise? If so, to state what? It’s for participating employers to mull. Umbrellas are still a work in progress, and it’s for participating employers to be participants. Not abdicators.