Edition: May/July 2018
Editorials

GOVERNANCE

Conspiracy to deceive

Pension fund mustn’t simply accept what the employer tells it. Bitter experience at the EPPF.

The contortions to grant Brian Molefe a R30,1m payout from the Eskom Pension& Provident Fund have been laid bare by the North Gauteng High Court. Its judgment reflects poorly not only on Molefe but also on the then Eskom chair and board, the then Minister of Public Enterprises and on the EPPF itself.

All were parties to a scheme that the court declared unlawful. In this salutary lesson of corporate governance gone bad, one of SA’s largest and most respected pension funds is shown to have been remiss. From the outset, it should have been glaringly evident that Molefe wasn’t eligible for the benefits that the EPPF was prepared to bestow.

Instead of arm’s length interrogation through the rigmarole, to take a view independently of the employer as a pension fund should do, the EPPF played along. Without the court’s intervention at the initiative of the Democratic Alliance, the Solidarity union federation and the Economic Freedom Fighters – strange bedfellows indeed – the EPPF would have suffered something akin to fraud.

As it was said by Justice Matojane, with two other judges concurring, the EPPF had failed to comply with the Pension Funds Act and even with its own rules. The EPPF’s explanation that it had relied on the relationship of trust it had with Eskom and was satisfied on the basis of information provided by Eskom “extends incredulity”.

There was a strong inference, the court held, that Molefe’s early-retirement agreement with Eskom was “a deliberate scheme” devised by Eskom with the involvement of Molefe to afford him pension benefits to which he wasn’t entitled. The scheme had permitted Molefe to proceed to early retirement at age 50 by buying him extra pensionable service.

On Molefe’s own version, the “mistake” he made related to his entitlement to early retirement and not to his resignation which had become effective at end- December 2016 (once he’d returned to Eskom after a brief stint as an ANC MP). The court was scathing: “An application for early retirement is a resignation. An employee cannot retire and resign. Mr Molefe’s decision to leave was not conditional in any way and had nothing to do with the early-retirement agreement. (It) had not yet been concluded when he announced that he would leave Eskom and he had no reason to believe that the board would accept his application for early retirement. If the application was refused, he would not have been entitled to return to Eskom as the employment relationship had terminated.”

Molefe’s resignation had been accepted by Lynne Brown, then the Public Enterprises Minister who represents the state shareholder and appoints the Eskom chief executive. On the day of Molefe’s resignation, Brown indicated that she accepted it. Molefe never corrected her on her misunderstanding that he’d resigned.

When it emerged that Molefe would be getting a R30,1m pension payout, Brown responded that it had no legal rationale. She requested Eskom to renegotiate a package with Molefe.

Molefe . . . gone, money and all
Molefe . . . gone, money and all

No, said the court, because it was irrational for her to approve the reinstatement of Molefe as a better value proposition to an unlawful pension proposal: “The correct approach would have been to refuse the pension payout proposal out of hand. There was no obligation on the Minister to incur the burden of an unlawful obligation on behalf of Eskom.”

Brown had been deceived about the nature of the decision being taken. She knew nothing about the payout and Ben Ngubane, then the Eskom chair, had already signed the reinstatement agreement when he sent it to her.

The allegations against Molefe, contained in the Public Protector’s report on state capture, were so serious that they were the reason for his resignation. They were “highly relevant” to Molefe’s suitability for reinstatement as Eskom group chief executive. His reinstatement was “at variance with the principle of legality and is invalid”, the court held.

It also found that Molefe was “never entitled to receive any pension benefits from (the EPPF) made in lieu of such benefits and were patently unlawful”.

Sibusiso Luthuli is no longer the Chief executive and principal officer of the EPPF. A pillar of the pensionfund establishment, he’d distinguished himself as vice chair of the Batseta board. He’d have learned a hard lesson, a lesson for the learning of all principal officers and trustees.