Edition: April / June 2016 Edition
Editorials

SURPLUS APPORTIONMENT

Taking on the employer

Fight in Tongaat-Hulett about whether it favoured itself over the members of its pension fund.

Bruce Moor and Willem Hazewindus, both former trustees of the Tongaat-Hulett Defined Benefit Pension Fund (THPF), have launched an appeal in the KwaZulu-Natal High Court against a determination by the Pension Funds Adjudicator. In having dismissed their complaint concerning the decision by the fund’s board to allocate surplus in the THPF, she had dealt only with surplus apportionments in 2007 and 2007.

Because she had not dealt with the 2012 surplus allocation, contend the former trustees, “for this reason alone the Adjudicator’s decision falls to be set aside”. There are additional reasons, according to their heads of argument.

The 2012 surplus allocation was their main complaint as it had caused the allocation of a “large sum” (part of the fund’s conversion from defined-benefit to defined-contribution and the outsourcing of THPF pensioner members) to their erstwhile Tongaat-Hulett employer. They contend that the allocation was ultra vires the Pension Funds Act.

The essence of the dispute, described in the applicants’ heads of argument, is the manner in which actuarial surplus was distributed at end-June 2012: “Future actuarial surplus can only be distributed in terms of s15C. This was not done by the fund which purported to distribute actuarial surplus under the guise of ‘excess assets’, thereby distributing well over 20% of the actuarial surplus to the ESA in a manner prohibited by s15C.”

FROM THE ACT AT S15C

  1. The rules may determine any apportionment of actual surplus arising in the fund after the surplus apportionment date between the members surplus account and the employer surplus account;
  2. If the rules are silent on the apportionment of actuarial surplus arising after the surplus apportionment date, any apportionment shall be determined by the board taking into account the interest of all the stakeholders in the fund: provided that, notwithstanding anything to the contrary in the rules, neither the employer nor the members may veto such apportionment.

Accordingly, the allocation of ‘excess assets’ should be set aside. A new scheme, for the proper allocation of actuarial surplus in accordance with s15C, should be put in place. “Importantly, s15C is the only provision in the Act which provides for the allocation of future surplus,” it’s argued. “No other provisions provide for the allocation of any other ‘surplus’ in any manner.”

Against this, THPF actuary Howard Buck focuses on the fund rule that provides for the allocation of 20% of the ‘excess assets’ to the ESA. Because the 20% of the excess assets allocated to the ESA was less than the total actuarial surplus at the time, the allocation does not contravene s15C.

The applicants counter:

  • The Act only permits the allocation of ‘actuarial surplus’ to the ESA, and then only in accordance provisions of s15C allowing for the allocation in terms of fund rules or by the board;
  • The rule is for the allocation of ‘excess assets’, not for actuarial surplus, and therefore does not provide for the lawful allocation of funds to the ESA;
  • The board had simply implemented the rule, thus failing to act under s15C.

In any event, the correct amount of actuarial surplus had not yet been determined. Once determined, it had to be apportioned:

  • In terms of a rule that sets out the apportionment between the member surplus account and the ESA; or
  • If there is no rule, then by the board after considering the interests of all stakeholders.

The applicants allege that, through the allocation of surplus from 2007 to 2012, Tongaat-Hulett had contrived “through a systematic and well-planned strategy” to transfer surplus assets to the ESA and not to the fund members’ surplus account.

They also note that the composition of the trustee board was heavily weighted in favour of the employer. Most trustees were conflicted in that, being senior executives of Tongaat-Hulett, they’d be involved in decisions of both the company and the fund.

THE FUND RESPONDS

As TT was going to press, the TGHF heads of argument were filed. In brief:
The fund has at all times provided the applicants with detailed information about its restructuring and conversion programme, and (they) have been in possession of this information since well before the litigation was instituted.

Even if the applicants... are ultimately successful in achieving the relief they seek, there is every likelihood that they will not obtain any actual redress but will instead remain in the same position that they currently find themselves. This is because the discretion to allocate surplus remains the board's.