Edition: June / Aug 2017
To man the mancos
A strong case can be made for management committees,
|Damant. . . clear demarcations|
The concept of a manco arises in the context of umbrella funds. As it stands, the Pension Funds Act does not in any way recognise or deal with the concept. It recognises only the board of a fund. It imposes a series of duties and obligations on the board and its members.
The board may establish a series of sub-committees to deal with various aspects of governance. The manco is not one of the sub-committees and does not perform delegated functions on the board’s behalf. Only the board is the directing mind and will of the fund, and only it can legally bind the fund.
Mancos can be established by the rules of umbrella funds. Their powers and duties are derived only from the rules. These mancos largely do what an employer would ordinarily do in relation to the fund i.e. choose between investment portfolios made available by the board, decide whether member investment choice is to be offered, select a provider of insured benefits, supply information to the fund, act as a conduit for communication to members and monitor the performance of the fund.
With mancos, the
With mancos, the employer wouldn’t retain exclusivity over these functions. The fund rules, once made to provide for mancos, typically allow fund members the right to select at least 50% of the representatives on the manco.
But because members are included in what would usually be employer decision-making, certain of the employer rights in umbrellas will not be delegated to the manco. These would include the right to agree to amendments to the special rules, agreements to increase contributions and a decision to terminate participation in the fund. Not always clear is what employer rights are delegated and what are not. They need to be carefully set out in the fund documents and agreements.
Despite the decline in employer paternalism, this arrangement is satisfactory for many employers. They are not particularly interested in the fund and its administration, and they limit their interest to general fund performance.
So too with member apathy. It is often difficult to find members (employees) willing to take on the role of manco members. However, for other employers and employees this arrangement is unsatisfactory. They demand a far greater say in the running of the fund. This is particularly true of large employers with unionised work forces. Their members’ representatives want to be engaged with allocation of death benefits as well as investment and communication strategies.
Often the members will only agree to the closure of their standalone funds and migration to umbrella funds if they retain some form of meaningful say in the running of the fund. It is in these circumstances that the rights, duties, obligations and liabilities of the respective parties become more complex.
Careful consideration should be given to what powers are delegated by whom and what powers can be delegated; then, once delegated, what specific insurance arrangements are required to protect manco members in their decision making. Careful drafting of agreements and special rules is required.
The board remains responsible for investment strategy. If it wants to afford the manco a say, it can only do so within certain parameters. It can delegate its functions but cannot abrogate them. It has to retain a meaningful oversight role and retains ultimate accountability for investment performance.
Some funds have accommodated this by allowing the manco to appoint its own investment consultant and to determine strategy within a broad framework determined by the board. They have allowed the selection of investment managers from a list of approved managers. The inclusion of new investment managers at the request of the manco is subject to vetting and approval by the board.
So too with the allocation of death benefits. The board retains ultimate responsibility for allocation. It may allow the manco to conduct the investigation into dependents and beneficiaries, and to recommend the allocation within broad parameters approved by the board. But the board retains ultimate responsibility for final decisions.
With these more complex arrangements comes the issue of funding and insurance cover. If investment consultants are to be engaged by the manco, who will pay these costs? In some instances, the employer assumes the obligation. In others, a sub-fund expense account is established to pick up any additional costs particular to such a sub-fund. This must be accommodated within the rules.
The members of the manco are not officers of the fund. They are not usually covered by the fund’s insurance arrangements. They may, however, become personally liable for their conduct insofar as they may be found to have been negligent should a member, dependent or beneficiary suffer harm.
Or the employer might be held vicariously liable for their conduct. Accordingly, the employer needs to ensure that its insurance arrangements cover the activities of its manco members insofar as they conduct activities usually conducted by the board.
The issue of mancos’ powers and duties highlights the tension between standalone funds – where employers and employees have a meaningful say and interest in the fund and their retirement arrangements – and third-party independent funds where the only interest of the employer and employees is the selection of third-party service providers. Employers and their employees forfeit any meaningful say in exchange for the advantage of cost saving offered by umbrella funds.
Ripe for debate is whether employers and their employees should still play an active role in all aspects of their retirement arrangements. Where the mancos are given a more significant role is an attempt to reconcile these tensions.