Edition: Sept - Nov 2013
Where the buck stops. The damage to trustees’ pockets is worse when the funds’ indemnity insurance won’t pay.
Given the magnitude of recompense originally determined – about R20m curiously to be paid in effect by the IF umbrella funds to themselves – a bunch of appeals against the ruling of the Pension Funds Adjudicator was to be expected (TT Dec ’12-Feb ’13). Indeed there was, variously joined by about 30 employers participating in the umbrellas.
To shorten a long story, in February the South Gauteng High Court basically set aside the determination and ordered that it be sent back to the Adjudicator for the employers as complainants to pursue relief “against only the former trustees (of the two umbrella funds) for breach of their statutory and fiduciary duties”. The order implies that these former trustees could each be personally liable for almost R5m.
Further submissions were made and, in July, the tribunal ordered that the former trustees pay up. Those held to be jointly and severally liable are Gail le Grellier, Renier Botha, David Lepar and Carel Smith. They “did not manage the IF Funds properly and, as a result, caused financial loss to the funds and ultimately to the members,” said the tribunal.
The R20m represents the approximate cost, on instructions from the then trustees, of rebuilding the funds’ database. But from this R20m payable by them is deducted the R1m that Tony Kamionsky, owner of Dynamique SA Consultants & Actuaries which initially administered the funds, had paid the funds in an out-of-court settlement for alleged maladministration. Still outstanding is a civil claim pending against Aon, which had taken over the administration from Dynamique, where presumably a damages award would lighten the trustees’ burden.
The issue before the tribunal was whether the funds’ previous board had acted properly in terms of the funds’ rules and Pension Funds Act in using members’ fund credits to pay for the cost of the rebuild exercise. The complainants could only succeed by showing that the trustees had not acted in accordance with the rules (as approved under the Act).
Although the rules’ definition of ad hoc expenses allows the trustees to deduct from members’ fund credits such expenses as audit fees and levies to service providers, trustees do not have an unlimited power to use members’ credits for payment of any cost resulting from their negligent conduct. It also does not cover costs arising from maladministration of the funds that resulted in the members suffering an unwarranted loss on their fund credits, the tribunal stated.
Kamionsky . . . maladministration or
The facts indicate that the decision of the former trustees to use 2,5% of the credits to pay for the rebuild was a result of the funds’ maladministration, it added: “The members were financially prejudiced in that their fund credits would be lesser than they would have been had the former trustees managed the funds properly. The other prejudicial factor is that the funds are not able to compute and pay correct benefits to members upon their exit due to incorrect data.”
For its part, Aon had bought the books of Dynamique without having conducted a proper due diligence. Consequently, it inherited the administrative problems from Dynamique. However, the tribunal pointed out, “the ultimate responsibility rests with the board of trustees”. This includes the duty “to ensure that proper records essential for efficient administration of the funds are kept”.
The complainants had asserted that, although the board is entitled to delegate its functions to administrators, it remains responsible for the actions of service providers that the trustees had appointed as agents. The delegation of duties does not amount to a transfer of the board’s oversight function; nor does it amount to an abdication of responsibilities entrusted to the board.
What are the chances of the rebuild costs being fully recovered? If the complainants are right, there is no assurance that these expenses will be met from the funds’ professional indemnity insurance. Unfortunately for the trustees, they’d certainly be right if Kamionsky is correct in his assertion that premiums hadn’t been paid (see box). That itself is cause for accountability.
Which left the bill with the former trustees for full repayment by early August. Fund members should hope that their pockets are sufficiently deep.