Staff Pension Fund. Staff Association. Swaziland Employee Benefits Consultants

Transcription

1 CASENO: RFA/M/12/2012 In the Complaint Between: Busie Alexia Dlamini Complainant And Municipal Council of Manzini Staff Pension Fund Municipal Council of Manzini 1 st Respondent 2 nd Respondent Municipal Council of Manzini Staff Association Swaziland Employee Benefits Consultants 3 rd Respondent 4 th Respondent STATEMENT OF DETERMINATION OF COMPLAINT SUBMITTED IN TERMS OF SECTION 43(3) OF THE RETIREMENT FUNDS ACT NO. 5/2005 (THE ACT) 1. INTRODUCTION 1.1. The Complainant is an employee of the 2 nd Respondent, the Municipal Council of Manzini (hereafter the Council ) and a member of the 1 st Respondent, the Municipal Council of Manzini Staff Pension Fund (hereafter the Fund ) by virtue of her employment with the Council. Cited as 3 rd Respondent is the Municipal Council of Manzini Staff Association (the Council s staff representative (hereafter the Association ) and, the 4 th Respondent is Swaziland Employee Benefits Consultants who are the Fund Administrators (the Administrator ) The complaint concerns a claim for payment of the Fund shortfall and interest thereto to Fund members. This complaint arose from a matter dating back to 2004 with the decision taken by the Fund Trustees to convert the Fund, then a

2 Defined Benefit fund ( DB fund ) to a Defined Contribution ( DC fund ). At the time of the conversion the Fund had a deficit of about E2.6 million. This effectively led to the members of the Fund transferring to the DC Fund with 70% of their actuarial reserve. In a letter dated 26 April 2011 addressed to the Complainant, the Administrator conveyed the Council s commitment to pay the 30% shortfall in stages, with priority given to exiting members of the Fund. The letter signed by the General Manager reads thus: You may be aware that during the 2004 conversion of the Fund from a Defined Benefit Fund (DB Fund) to a Defined Contributory Fund (DC Fund) the actuarial valuation report highlighted that the fund was in a deficit position. The Municipal Council of Manzini was unable to fund the deficit and it was decided then that all members would transfer with 70% of the actuarial reserve to the DC fund and the 30% shortfall would be settled at a later stage. The Municipal Council of Manzini has committed to pay over the 30% shortfall in stages, with the priority given to exiting members. Please note that the amount due to you is as follows: Actuarial Reserve Value - 151, Transferred - 106,39.60 Amount due - 45, Please note that the amount due would be added to your current fund credit once received from the Council. We hope you will find the above in order, should you need any further clarity, please do not hesitate to contact the Principal Officer of the Fund... (Emphasis added) 1.3. It transpired early in the proceedings that the Council settled the shortfall with the Fund before the complaint was filed with this office. The Complainant concedes this but insists that the amount of the shortfall should attract interest and that the members should be paid their respective individual shortfalls plus the interest, directly. 2. BACKGROUND TO THE COMPLAINT 2.1. The Fund, formerly, Manzini Town Council Pension Fund was established on the 1 March In February 1993 it became the Manzini City Council Pension Fund, and in September 2000 the name changed to Manzini City Council Staff Pension Fund. It was all these years a defined benefit fund to which only the employer contributed. The Fund transformed into the current Municipal Council of Manzini Staff Pension Fund on the 1 April 2004 at which date it changed the funding method to a defined contributory fund, to which both members and the employer contribute The Fund converted from a DB to a DC Fund on the 1 April 2004 despite an actuarial valuation shortfall in the Fund. The employer Council (2 nd Respondent) was to pay off the deficit at a later stage. According to Actuarial Valuation Report of September 2004 by Alexander Forbes (the

3 Administrator), the deficit would be amortised over a period of three years (from 2004). An exposition on how the deficit came about is contained in a report presented to the House of Senate by the Minister for Housing and Urban Development apparently around The report, an attachment to the Complaint and acknowledged by the Fund, highlights the financial burden that the Council was saddled with as the sole contributor to staff benefits including pension fund contributions, which led to the 2004 conversion of the Fund. The report reflects among other issues the causes of the deficit in the fund, such as the mismatches in assets and liabilities, poor investment returns, etc. Another important part of the report relates to Council s liability for the E2.6million shortfall in respect of all the then fund members, in particular the long serving individual members transfer from DB to DC fund with 70% of their actuarial values The Council paid the shortfall to the Fund in 5 lump sums according to the documents submitted, as follows: Date Amount E Cheque No. # 31/12/ , /10/ , /10/ , /11/ , Jan , Total amount 2 675, In terms of the new DC fund rules both the employer and employees each contributes 11% of the employee s salary. Being a DC fund means that there are no predetermined benefits payable. Instead a member is entitled to his/her contributions and the employer s share of contributions together with investment returns thereon. Furthermore members alone, bear the risk in the event of poor market performance. 3. THE COMPLAINT

4 3.1. The Complaint was lodged with this Tribunal on 20 March The Complainant is unhappy about what she terms mismanagement of our pension fund which leads to a sour relationship with the chairman of the Trustees. She feels that the Trustees are not properly discharging their duties towards them as members of the Fund. She further alleges that there is only one pension fund yet there are two beneficiary accounts resulting in reduced interest accrued. She wants Council to pay interest on the shortfall that was remitted to the Fund; that interest on the shortfall be paid directly to members; and that the Fund pay members their respective individual shortfalls directly. The complainant also seeks an order that the Staff Association (3 rd Respondent) be allowed to represent members at their future meetings with the trustees, stating that the Association is in a better position to articulate the issues and to represent hers and fellow members interests While conceding the fund s response that the shortfall has since been paid by Council, the Complainant highlights that the payment came about as a result of pressure and persistence of members. The Complainant nonetheless, believes that the shortfall should have accumulated interest and that Council cannot pay the amount owing as if it was owed only on the last day of the employer depositing it. In making her point the Complainant further states that It does not make sense that the shortfall could have been deposited when the employer afforded thus jeopardizing our financial position if no interest has been accrued. (Emphasis added) 4. THE RESPONSE/DEFENCE 4.1. This Tribunal received no response or submissions from the 3 rd respondent (the Council) throughout the inquiry. This is despite that the Adjudicator sent the complaint to the Chief Executive Officer and requested a response from the Council. All subsequent correspondence and submissions exchanged during the investigation were similarly copied and served on the Council A response submitted by the 3 rd respondent (the Staff Association) is on the letterheads of Swaziland City Council Staff Association, signed by the Secretary General and dated 7 June The letter acknowledges and supports Complainant s quest for the Association s representation of its members at the meetings of the Fund and the members The 4 th respondent (the Administrator) by letter of 31 May 2012 first requested extension of time within which to respond by the 8 th June 2012, which was granted. Subsequent to that no response or representations were submitted. The Fund advised the Adjudicator by letter of 14 June that its response was a joint venture with the Administrator. Nonetheless, all communication exchanged during the investigation continued to be served on the Administrator as well.

5 4.4. In its response, the Fund states that the shortfall due from Council amounting to Two Million Seven Hundred and Fifteen Thousand, Six Hundred and Two Emalangeni and twenty cents (E2 715,602.30) was fully paid to the Fund. Payment vouchers filed by the Fund show about five instalments paid between 31 December 2010 and the 31 January 2012 inclusive. The total amount per the vouchers adds up to E2 675,584.17, thus E less. There is no explanation offered for this apparent shortfall on the shortfall payment The Fund disputes Complainant s claim that the Fund should pay members respective shortfalls directly or immediately. It argues that the Fund will pay each member his/her full benefit upon retirement or withdrawal from the Fund and not earlier. The Fund refers to the minutes of fund members meeting of the 14 June 2011 held with the trustees and the Administrator on, among other items, the update on the 2004 shortfall. The Fund states that the trustees and the Administrator clearly explained to members the position regarding the demand for direct payment to the latter. Relevant parts of paragraph 7i. and ii of the Fund s submission dated 13 June 2012 on this issue read as follows:...the very essence of the pension fund is that it is paid out to members on retirement or separation with the employer [reference to attached minutes]...furthermore Council (the employer) was obliged to pay the shortfall back into Fund, not individual members...the shortfall has been paid by the employer into the Fund The Fund denies Complainant s allegation that it has two beneficiary accounts. Regarding the claim made to Council to pay interest on the shortfall, the Fund declares it does not understand what it means that interest on the shortfall be paid directly to members. Sought for further comment by this Tribunal on Complainant s query and claim that the shortfall owed by Council should be subject to interest from 2004, the Fund first requested extension of time to seek legal advice, and subsequently submitted this brief comment: The shortfall payment into the Fund was without interest. Council based the payment on the 2004 Actuarial Valuation Report, being the last such report before the liquidation of the defined benefit type fund. (Emphasis added) 4.7. The Fund denies Complainant s allegations of mismanagement of the Fund, trustees unfaithfulness and suggestions that the board of trustees chairman s position is somewhat compromised, asserting that the chairman was elected in accordance with the Fund rules. The Fund refutes the need for the Association to represent fund members at future trustee meetings with Fund members, highlighting that, in any event two of the elected trustees were elected by the Staff Association The Fund acknowledges the ministerial report to the house of Senate (referred to at 2.2 above) as capturing the correct information on the Fund and how its deficit position and underfunding arose.

6 No oral hearing was deemed necessary for this matter, accordingly the determination is based on documents and written submissions by the parties. 5. DETERMINATION AND REASONS THEREOF 5.1. Relief sought by the Complainant may be itemised as follows: 1) The amount of E2.6 million shortfall owed by Council (already paid to the Fund) is subject to interest and therefore Council must pay the interest from 2004 to the final date of payment. 2) The Fund pays the affected fund members their respective individual 30% shortfalls plus interest within the 2012/2013 financial year. That interest be paid directly to members. 3) The trustees are at fault for mismanagement/maladministration of the Fund. 4) The Municipal Council of Manzini Staff Association (3 rd Respondent) should be allowed to represent the members at future meetings of the affected Fund members and trustees. Complaint under the Act 5.2. Section 2 of the Act defines a complaint as follows: Complaint means a complaint of a complainant relating to the administration of a fund, the investment of its assets or the interpretation and application of its rules, and alleging - (a) that a decision of the fund or any person purportedly taken in terms of the rules was in excess of the powers of that fund or person, or an improper exercise of its powers; (b) that the interest of the complainant has or will be prejudiced as a result of the administration of the fund by any person, whether by act or omission; (c) that a dispute of fact or law has arisen between the fund or any person and the (d) complainant; or that an employer who participates in the fund has not fulfilled its duties in terms of the rules of the fund; but shall not include a complaint which does not relate to a specific complaint. (Emphasis supplied) 5.3. The present complaint relates to categories of a complaint listed in paragraphs (a) (d) of the definition. The Complainant as a fund member is a complainant as envisaged by Section 2. The next enquiry is whether the complaint has been substantiated and if so, what appropriate order(s), if any, that the Tribunal may make. Interest on E2.6million shortfall 5.4. A determination under this claim involves unravelling and consideration of issues including: the basis for the interest claim, if any; the applicable interest rate; the period for which it is applicable and the distribution of such interest The facts placed before this Tribunal indicate no reference to interest on the shortfall at the time of conversion. It is not stated whether the pay-off would be

7 free of interest or not. Fund members affected by the shortfall tasked the trustees to ask Council for performance interest on the shortfall. This appears in the minutes of the 14 June 2011, referred to earlier. There is no indication of a follow up to this request. Interest charged on a debt depends on the circumstances of each case. Interest is at times referred to a fee paid to lender for the privilege of borrowing money. It is charged by lender for the loss of his/her money for a period of time. Interest may commonly be claimed under an express contractual term that also specifies a rate at which it accrues on the debt. A claim for late payment interest arising from breach of a contract serves to compensate the claimant for loss attributed to late payment of the debt In a case that came before the South African Pension Funds Adjudicator (PFA) the question related to the liability of a fund to pay interest on a benefit. The Adjudicator noted that the only basis on which the fund could be held liable for interest in that particular case would be, among others, on the principle of unjust enrichment, provided the requirements of mora debitoris are met (delay without lawful excuse of performance of a contractual duty). It was noted further that a claim for interest may be based on damages for maladministration of the fund by the fund or its administrators (Rix v Pension Fund of the Performing Arts Council and Another [2002] 10 BPLR 3982 (PFA). In the present complaint, Council had an obligation to fund the shortfall following conversion of the Fund in April According to the Actuarial Valuation Report it was envisaged that this would happen over a three year period. However the last payment was made after eight years from conversion date (1 April 2004 January 2012) Council s neglect to settle its debt with the Fund due to departure of key personnel from the former, cited as the major reason for the delay can hardly be a lawful excuse to exonerate the debtor from the interest claimed. According to the Minister s report the issue was almost forgotten until 2010 when the matter was discovered, (see pages 7-8 Minister s report to Senate). However, the interest claimed in the instant case is not for punitive purposes. Rather, complainant s claim is premised on the loss of investment earnings on the shortfall. These funds ought to have been invested for the growth of members pension benefits. The nature of the DC Fund whereby benefits received by members or their dependants comprise contributions plus returns earned on investment of those contributions clearly makes an important case for interest to accrue on any portion of such funds that is held up for a prolonged time as is in this case. Interest on the shortfall is required to compensate the Fund and its stakeholders on lost earnings that would otherwise have accrued to those funds Section 56 of the Act confers on the Adjudicator the power to order payment of interest on an amount awarded. In the present case there is no need to

8 award payment of the shortfall to the Fund as it had already been paid at the time of lodging this Complaint. In Sempra Metals Limited v. Commissioners of Inland Revenue and another [2007] UKHL 34 the House of Lords held that: Those who default on a contractual obligation to pay money are not possessed of some special immunity in respect of losses caused thereby But subject to satisfying the usual damages criteria, in principle these losses are recoverable as damages for breach of contract it is always open to a claimant to plead and prove his actual interest losses caused by late payment of a debt (Emphasis added) The employer (Council) has not defended the claim made against it to pay interest, suggesting that it is not disputing the claim. The next relevant inquiry is the rate and the period to which interest applies. If a contract provides for interest on an amount due, then interest is claimed and awarded at the contract rate, failing which interest is at the standard rate awarded by the courts, or any other fair rate, having regard to the custom and practice of a particular trade or industry concerned In the present case it is fair for the interest payable by the Council to match the rate of interest earned by the Fund on its investments over the relevant period the money was owed. This constitutes the actual loss to the Fund incurred from the inability to invest the funds comprising the shortfall for the period they remained unpaid by Council. In the absence of information on such earnings, interest due should be at the current rate set by statute and awarded by the court on judgment debts. The current rate of default interest applied by the High Court is 9% per annum. It follows that the interest must be paid in respect of the full period from when the DC fund commenced with the deficit on the 1 April 2004 up to the date of payment of the last instalment. Payment of shortfall and interest directly to members The claim for direct or cash payment to members is, to large extent, sufficiently addressed by the Fund. The shortfall was a debt owed to the Fund even though it impacted on members benefits. Retirement funds are legal entities, with a personality separate from that of its members and any other stakeholders Legal authorities support the position that members demands to the fund are limited to what is due to them, not more. In other words, members of funds have no rights to assets of the fund. This question was dealt with in the South African case, Kransdorff v Sentrachem Pension Fund & another [1999] 9 BPLR 55 (PFA), where it was stated at 67 in relation to defined benefit funds: [I]t would be a great pity to undermine such a proven and valuable instrument by misplaced and, at times, irrationally zealous claims of entitlement to fund assets by members who have limited understanding of the financing of the scheme. Members are entitled to defined benefits. They have no right, in the ordinary course of events, to the assets of an ongoing scheme. This general proposition is qualified in two exceptional

9 circumstances governed by the Pension Funds Act: winding up of the fund [Emphasis added] The same principle applies equally to members rights in relation to the assets of DC funds. Those assets belong to the funds and all that their members are entitled to are the benefits provided for in terms of the fund rules. The South African Supreme Court of Appeal stated in an appeal case, Tek Corporation Provident Fund and 10 Others v Roy Spencer Lorenz (Case No: 490/97) at paragraph, 15:...The fund is a legal persona and owns its assets in the fullest sense of owns. The shortfall and any interest owing on it therefore belong to the Fund. Members are entitled to their benefits as detailed in the fund rules. Therefore the Complainant or any fund member may not seek payment of the Fund assets to herself or any of the members except where payment is due in terms of the rules. Rule states as follows on trustees powers and discretion in dealing with fund s assets: The Trustees shall have full power to receive, administer and apply the moneys of the Fund and in their absolute discretion to invest, or otherwise deal with the moneys of the Fund in such manner as they may from time to time determine... [Emphasis added] The Trustees therefore have the sole discretion on how the Fund monies are applied or utilised, within the precincts of the law. This state of affairs serves to ensure safety, security and continuity for the Fund Having stated the above, it is noted that the Fund or the Administrator, on behalf of the Fund, advised the Complainant in a letter (quoted at 1.2 above), that her fund credit had a 30% shortfall amounting to E45, The letter further advised the complainant that the shortfall will be added to her fund credit as soon as it is received from the Council Neither the Fund nor the Administrator state why the Fund will not deliver on the undertaking to add the individual shortfall to the member s fund credit. The Fund merely states that the complainant will receive her benefits upon separation from the Fund without addressing the issue of topping up her fund credit per the promise made in The Fund and the Administrator adopted this stand at the meeting of the 14 June It is the view of this Tribunal that in the absence of any suggestion of a hazard, the Fund and the Administrator should demonstrate transparency and inspire confidence of the affected member by fulfilling the promise made by the 26 April 2011 letter to the complainant. Moreover, it is well within the powers and discretion possessed by the Fund to make and fulfil the promise made to the complainant. Maladministration of the fund

10 5.17. This component of the complaint falls within paragraphs Section 2 (b) and (d) quoted above at paragraph 5.2. Some of the key duties and obligations of boards of funds are captured in the following passage from Section 10 of the Act: The board shall ensure that the interest of members is protected at all times by: (a) acting with due diligence and skill; (b) avoiding conflict of interest; and (c) acting impartially Complainants may take action to protect their rights or interests in anticipation of prejudice emanating from actions or omissions of the fund trustees. It is sufficient if the Complainant can point to a real or potential prejudice that she may suffer if the maladministration continues. It was stated in Clark v Cape Joint Retirement Fund [2000] 10 BPLR 1076 (PFA) that: [T]o ground a cause of action in terms of the definition of a complaint in the Pension Funds Act, it is necessary for the complainant to show that he has sustained or may sustain prejudice in consequence of the maladministration of the fund [Emphasis added] The Complainant alleges that she has sustained prejudice as a result of the trustees stated failures in relation to the recovery of the shortfall in the form of reduced benefits in the event of her withdrawal from the Fund. Allegations advanced in respect of the Fund s maladministration include Council s inordinate delay to fund the shortfall. The Complainant asserts that the payment came about as a result of pressure and persistence of members, accusing the trustees of taking sides with the Council to the members detriment. Facts speak for themselves on this issue, at least to the extent of the Minister s report on how payment of the shortfall remained unattended to for years. While Council could afford to ignore the debt the same is not to be expected of the Fund whose trustees primary role is to act diligently to protect the interest of members. The trustees have a duty, among others, to ensure sustainability of the Fund through protection of its assets. This requires the board to take all reasonable steps to ensure, inter alia, that the fund is, or will within a reasonable period of time become, and will for the foreseeable future remain financially sound. Maintenance of the financial soundness of the fund is one of the principal objectives of the Act. The Fund has not advanced any facts in defence on this aspect of the complaint except for a bare denial A similar dereliction of the trustees duty is observed with respect to interest charge on the E2.6 million shortfall. The Fund is non-committal at best on the issue of interest even when prompted for comment by this Tribunal. The members request to the Trustees at the 14 June 2011 meeting to pursue performance interest from Council was ostensibly of no consequence This Tribunal is persuaded from the foregoing facts that the trustees failed in their responsibilities with regard to the cited issues, and this amounted to maladministration of the Fund as alleged.

11 Member s representation at their meetings with trustees Even though the Staff Association is willing and conceding to the complaint, the Tribunal is disinclined to burden the Fund with an obligation to allow members representation by the Association for unspecified future meetings with the members. The Fund points out that the Complainant is represented through her staff association s elected representative(s) who sit on the board of trustees. This is not the kind of a representative that the Complaint is referring to. The trustee representatives have a broader mandate than just the shortfall issue which affects only a certain section of fund membership. Besides the meetings envisaged for this complaint are between the members and the trustees. As demonstrated by this complaint case, the two sit at opposite ends on the shortfall issue. It is therefore illogical to suggest that the complainant or any fund members affected by the shortfall are well represented by their elected trustees on the issue. The Tribunal therefore cautions and encourages the Fund to be flexible and considerate when requests for exclusive representations are made on a case by case basis. For instance representation by the Union is important where issues for discussion are complex or technical and may be beyond the full grasp of individual members. The Tribunal may not interfere in advance with the Fund s decision on representations at its meetings with members. This is an issue best attended to by the board of trustees or its chairman, who must exercise the powers judiciously It is noteworthy that this complaint is lodged by the Complainant alone. Although it could have been, but it is not a class action involving the other members affected by the shortfall. Despite the apparent fact that her plight applies to the others, they were not cited as parties to the complaint nor was any mandate shown to the Tribunal for her to represent them. Consequently the findings and the order issued in favour of the Complainant for credit of her fund credit bind the 1 st and 4 th Respondents in respect of her. The other affected members would have to lodge their complaints, individually or jointly to obtain relief. However, this technicality does not hinder the 1 st and 4 th Respondents from implementing the order in respect of all affected members. This would pre-empt another similar legal action against the Respondents. Findings 1) Interest is due and payable by Municipal Council of Manzini on the Two Million Seven Hundred and Fifteen Thousand, Six Hundred and Two Emalangeni and twenty cents (E2 715,602.30) shortfall for the entire period that it was owed until the last payment date. 2) Direct & cash payment to members: The shortfall of E2 715, plus interest thereon constitutes a debt and an asset of

12 the Fund, and as such it was properly paid to the Fund. As a general rule members of the Fund or their beneficiaries are only entitled to benefits on their separation from the Fund in terms of the governing rules. Therefore neither the shortfall amount nor interest thereon is payable to individual members except upon the occurrence of the event set by the rules. 3) Payment to fund credits: The Fund, through its Administrator undertook to pay the complainant her 30 % shortfall into her existing fund credit as soon as it is received from Council. This decision is within the powers of the Fund and is consistent with fairness to the Complainant. No grounds were advanced by the 1 st and 4 th Respondents why this undertaking should not be honoured. 4) Maladministration: Failure by the trustees to ensure timely recovery of the shortfall from Council and failure to ensure payment of interest on the shortfall amount to maladministration. 5) Representation by staff association: The claim for an order for representation of the complainant and others by the Staff Association at future meetings with the trustees is not sustainable. Nonetheless the fund or its chairman is expected to treat requests for representation with due care and consideration. The order It is ordered as follows: 1) That Municipal Council of Manzini pays interest on the shortfall of Emalangeni Two Million Seven Hundred and Fifteen Thousand, Six Hundred and Two and twenty cents (E2 715,602.20) to the Municipal Council of Manzini Staff Pension Fund. (a) Such interest shall be reckoned from the 1 April 2004 to the last date on which the shortfall was paid. (b) The rate of interest to be paid by the Council on the shortfall shall be equivalent to the interest rate per annum earned by the Fund on its investments for the period referred to above at 1) (a). In the absence of readily available information on the rate of such earnings, then at the rate of 9% per annum. 2) The Fund and the Administrator are ordered to compute (with actuarial assistance, if necessary) the shortfall in respect of the Complainant, including interest thereon and to credit same, to her fund credit. The Fund and the Administrator may carry out this part of the order any time within six weeks from the date of service of this determination on either of them. Upon expiry of

13 the six weeks from the said date of service the order shall from then, be executable with immediate effect. 3) The Fund and the Administrator are at liberty to execute the order made in 2) above in respect of all members of the Fund affected by the shortfall who were not parties to this complaint. THUS DONE AT MBABANE ON THIS 23 rd Day of April DORIS TSHABALALA Insurance and Retirement Funds Adjudicator To: BUSIE ALEXIA DLAMINI Complainant P.O. Box 418 MANZINI Received copy hereof on this the..day of Signature Full name AND TO: MUNICIPAL COUNCIL OF MANZINI STAFF PENSION FUND 1 st Respondent P.O. Box 3159 MBABANE Received copy hereof on this the..day of Signature Full name AND TO: MUNICIPAL COUNCIL OF MANZINI 2 nd Respondent P.O. Box 418 MANZINI Received copy hereof on this the..day of Signature Full name

14 Section 55 filing: REGISTRAR HIGH COURT OF SWAZILAND P. O. Box 18 MBABANE (Hand delivery) Received copy hereof this day of Signature Full name