Edition: Sep - Nov 2014
Editorials

ADJUDICATOR

Strong-arm tactics won’t work

Administrators who might think of bullying fund trustees had better think again. Fair warning is provided.

Lukhaimane

Lukhaimane...negative view

Aon SA has been stung by a determination of the Pension Funds Adjudicator. Finding in favour of the tiny Alfred Teves Retirement Fund (ATRF), Muvhango Lukhaimane has held that Aon committed an “act of manipulation” by a settlement offer “not made in good faith”.

The settlement proposed by Aon, before the complaint was brought to the Adjudicator, was to compensate ATRF for losses caused by Aon having disinvested monies from certain fund portfolios without the trustees’ authority. Overriding a settlement offer that had been made without prejudice, the Adjudicator ordered Aon to pay the fund R925 000 plus annual interest at 15,5% from September 2012 so that ATRF would be in the same position it would have occupied had Aon not wrongfully disinvested the fund’s assets.

Lukhaimane stated: “This tribunal views (Aon’s) attempt to manipulate (ATRF) to accede to its offer in a negative light as it is contrary to the powers and duties of the administrator in terms of s13B(5) of the Pension Funds Act. Thus, ATRF has a right to be protected against negligence which is enforceable against (Aon) and can also reserve its rights to future claims against (Aon).”

Aon had admitted the loss – the difference between interest earned on monies deposited in a bank account and the value of the portfolios had the assets remained invested where they were – but refused to make a reimbursement until the ATRF board met two conditions.

One was to agree that Aon rebuild the fund’s administration records from 2005-06 at a proposed cost of R460 000. Being a 40-member fund, ATRF considered this amount excessive. The other condition was that ATRF waive all further potential claims.

ATRF’s position was that it would not accept a settlement that would result in prejudice to its members. Aon’s position was, in effect, that the rebuild had to be completed for the fund’s records to be trusted. While awaiting the trustees’ approval for the rebuild, aspects of administration -- financials, benefit payments and statutory valuations -- all stalled.

Aon told the Adjudicator that it had made ATRF aware of the R925 000 computation in November 2012 but that the fund had decided to appoint an independent third party (Cadiant Partners) to, amongst other things, independently verify the accuracy of the computation. It submitted that no communication was received from ATRF or Cadiant as to whether it agreed with the computation until the complaint had been lodged with the Adjudicator.

Further, said Aon, due to the length of time that had expired between November 2012 (when the computation was communicated) and March 2014 (when the complaint was lodged), it was unreasonable to expect that it be held liable for interest lost over this period.  It had no control over the mandate that ATRF had provided to Cadiant and believed that ATRF was accountable for any interest lost over this period.

ATRF countered that the only settlement offer made to it by Aon, regarding the damages caused, was “without prejudice” on May 15 2014. This offer had to be “held in abeyance” pending the return to SA of Aon’s Mark Jones.

Contrary to the allegation that ATRF had not responded, it produced a response to Jones. It also enclosed Jones’ response to concerns that the settlement proposal did not include an offer to pay fund returns for the period between calculation of the agreed loss and the payment being made. It was indicated that, on May 16 2014, Jones stated (again without prejudice) that “he might be able to do something on the interest if he had confirmation that this is the only claim the (ATRF) board would raise”.

The fund was not prepared to accept a settlement where Aon refused to pay the amount of damages between the date of calculation and date of the offer, almost 18 months later. It also denied that the board had appointed an independent third party to conduct its own valuation and verify the rebuild of member records. Moreover, contrary to the Aon allegation that ATRF did not indicate its agreement with the computation until the complaint was lodged with the Adjudicator, ATRF attached correspondence demanding payment of the R925 000 plus fund returns.

Aon, the Adjudicator held, had no authority to disinvest ATRF’s assets without instructions from the board to do so. This was explicit in the administration agreement between Aon and the fund. In having acted without ATRF’s authority, Lukhaimane ruled, Aon had “acted contrary to the provisions of the administration agreement which amounts to a breach of contract”. It was a “wrongful act”.

  • Virgilio da Silva of Cadiant Partners -- the third-party consultant to ATRF with himself as the valuator -- says that Cadiant included the rebuild of member accounts as part of the fund’s statutory valuations for 2009 and 2012. Total cost to the fund for each of the two outstanding valuations (which had to be done in any event) was R55 000 + vat plus R40 000 for work on the period prior to 2006.