Issue: June/August 09


Notes covering some topical legal issues relevant to trustees


City of Johannesburg vs National Fund for Municipal Workers, Registrar of Pension Funds & Others

The fund rules provided that any amendment to the rules, which affected the employer’s liabilities, required the employer’s agreement. The fund trustees had passed a resolution to amend the rules without obtaining the consent of the employer and the amendment was registered by the Financial Services Board.

The rule amendment related to the cessation of participation of an employer in the fund. The previous rule provided that, if the employer decided to withdraw its participation in the fund, the withdrawal was subject to negotiation between the employer and the trustees. The amended rule stated that an employer may cease to participate in the fund subject to negotiations with and approval of the trustees.

The employer applied to the High Court for the amendment to be declared null and void, and for the old rule to be reinstated as the employer’s consent had not been obtained.

The court held that the rule amendment was invalid. The trustees had failed to comply with the rule requirement that the employer had to be consulted when a rule, which affected the employer’s liabilities, was to be amended. Further, the fact that the three employer-appointed trustees did not object to the resolution did not constitute compliance with the rules. As the employer’s consent was never obtained, the rule amendment was null and void.

This judgment underlines the principle that trustees do not represent any specific constituency when doing fund business. Their duty is to the fund and its members.

The court also said it would be unreasonable if the matter were referred back to the FSB Appeal Board as it would result in the employer incurring large costs.

Both the fund and the FSB had objected to the court’s jurisdiction to review the decision of the FSB to register the rule amendment. They relied on the Promotion of Administrative Justice Act. It says that the court may not hear a case until all internal remedies have been exhausted.

Referring the matter back to the Appeal Board, the court found, would unnecessarily prolong the operation of the invalid rule amendment. Accordingly, the court exercised its discretion and allowed the application to proceed even though the employer had not first referred the matter to the Appeal Board.

We are aware that funds seeking to overturn their approved-surplus schemes have also gone straight to the High Court, rather than via the Appeal Board. The Board can take up to two years to finalise a case, whereas the High Court can be much quicker.

Wentworth vs GG Umbrella Provident Fund

The complainant had requested information relating to his benefits. Despite repeated requests, the fund, the administrators and his previous employer had failed to provide these statements to him.

The Adjudicator said that members had to be given regular information regarding their benefits because it helps them make informed decisions. She held that, where the rules provided for the furnishing of benefit statements, those should be followed. Where the fund did not have a rule, circular PF 86 (issued by the FSB) provided for statements to be issued annually.

She then took guidance from the US and UK legislation which, she held, SA funds should follow in that the statements contain a variety of details including benefits due and their basis of calculation; total accrued benefit and earliest date of benefit vesting; explanation of any permitted disparity applied in determining accrued benefits; explanation of how the benefit is calculated and the investment risk involved; details of contributions by member and employer, and deductions made from benefits.

This indicated the minimum information.

Language, if possible in the member’s own tongue, should be understandable. There was a duty to disclose accurate information to a member where that member was facing a major decision about his or her pension. Should the information not be accurate, she noted, the member would have a damages claim against the fund or its administrator.

The Adjudicator ordered the fund provide benefit statements to its members every six months. This not in line with industry practice.

As the Adjudicator has said that her determinations set a precedent, the FSB has been approached to consider whether circular PF 86 needs to be amended.