Edition: Dec 2013 - Feb 2014
A nightmare situation reaches its peak
Adjudicator ruling to be challenged on who’s to pay for the reconstruction of funds’ databases. Trustees say that the R20m should not be from their pockets.
Still want to be a pension-fund trustee? Then read on.
There’s this longstanding saga of the defined-contribution IF umbrella pension and provident funds whose trustees are in a dispute with the Pension Funds Adjudicator. Predictably, it now goes to the High Court (TT Sept-Nov).
Gail le Grellier, Renier Botha, David Lepar and Carel Smith – all trustees when the decision was taken to rebuild the funds’ databases – are appealing against a determination by the Adjudicator that they personally pay the rebuild cost, put at R20m but perhaps considerably less. Now they’re the applicants for a court order to set aside the determination and to substitute it with an order dismissing the complaint of the funds’ participating employers.
There are certain legal points around ownership of fund assets. They go to the heart of the argument that the trustees had no right to debit the members’ credits for the rebuild. The trustees contend:
In the IF complaint, there are two relevant periods. From January 2004 to January 2008, the funds were administered by Dynam-ique. Afterwards, they were administered by Aon.
Le Grellier . . . much at stake
Other significant dates are June 2010, when the four applicants decided on Aon’s advice to do the rebuild, and a few months later when they resigned as trustees. The rebuild went up to end-January 2008, exclusively covering the Dynam-ique administration period. Le Grellier and Botha had become trustees during this period. Lepar and Smith only became trustees during the Aon period yet are being held liable for what had happened earlier.
The complaint to the Adjudicator alleges that the applicants’ decision to rebuild was an improper exercise of their powers and duties as trustees, and that the complainants (a host of participating employers) may sustain prejudice through the funds’ maladministration. There was a supplementary complaint that the applicants had been reckless and grossly negligent in authorising the rebuild exercise.
Had the trustees acted improperly, recklessly and negligently? No, they vigorously respond; they did the opposite. In their application they point out, amongst other things:
When the applicants became concerned that the records held by the IF funds might not be accurate – that some fund credits could be overstated and others understated – they were not prepared to risk the funds’ continued operation on the basis of incorrect data. Having considered alternatives, they appointed accountancy firm Deloitte to reconstruct the funds’ records.
To have operated with inaccurate records would have been unlawful. The trustees would also have breached their duties under the Act to provide members with accurate benefit statements.
The rules, say the trustees, clearly authorised and permitted them to pay for the reconstruction costs in the manner that they did. In a previous appeal, the High Court had found against the Adjudicator’s first determination that the funds should not have deducted the costs from members’ fund credits and that these amounts be re-credited. (In this matter, the appeal by the funds – rather than the trustees – was upheld.)
They further say that they had used the assets of the fund to pay for necessary and legitimate fund expenses. There’s been no evidence to support allegations of maladministration or negligence by the applicants:
It cannot seriously be disputed, they say, that under the circumstances the decision to carry out the reconstruction exercise was the only viable option. To pay a member a correct benefit, the funds must have proper records detailing the exact amount to which a member is entitled upon exit. To pay an incorrect benefit could never be in the interests of the funds or their members.
There’s no evidence to suggest that the work done by Deloitte, and the costs incurred for the rebuild, were unreasonable. And if it’s accepted that the rebuild was unavoidable – which, in light of the evidence, it must be – there’s no basis to believe that the costs would have been lower had the trustees appointed Deloitte earlier.
The outcome will be critical for all trustees, especially those having to make robust decisions when administrators fail their funds.