LEGAL IMPLICATIONS OF THE RESTRUCTURING OF LOCAL GOVERNMENT PENSION FUNDS

Transcription

1 LEGAL IMPLICATIONS OF THE RESTRUCTURING OF LOCAL GOVERNMENT PENSION FUNDS 1. INTRODUCTION A lot has happened in the past number of years regarding a possible restructuring of Pension Funds in local government. There have also been press reports and circulars which often did not contribute to certainty regarding what is going on. This has already led to members taking decisions which may not have been in their best interests. I will endeavour to sketch a picture of the legal implications regarding these proposals and to put it into context. The question is how can the Funds be restructured in law? 2. THE COLLECTIVE BARGAINING PROCESS We are all aware that a collective bargaining body exists in local government: SALGBC. Parties are SALGA (Employers Organisation), SAMWU and IMATU (Employee Organisations). The voting is 50% employers and 50% employee, as in any other bargaining council. Yes There can be bargaining about pension matters in a bargaining council and yes vested rights can be reduced. This is allowed for in the LRA (Labour Relations Act). However, Section 28(2) and (3) of the LRA makes it clear that this bargaining happens subject to the Pension Funds Act. If an agreement is reached, such agreement is considered to have the same power as a law in that sector. In local government, the Systems Act further determines in Section 71 that a Municipality must comply with any collective agreement which has been concluded within its mandate on behalf of local government, in a bargaining council which has been established for local government. However, we all know that the bargaining process started a number of years ago and no agreement could be reached. The proposals by the Employers

2 2 Organisation are not supported by either SAMWU or IMATU, the employee representation in the SALGBC. The proposals for accreditation and the programme as set out in the agenda are therefore set by the Employer and at this stage, it is clear that the Employer has decided to implement these proposals unilaterally, as it states in its circular that from 1 July 2005 municipalities and entities may only contribute to accredited funds. The criteria for accreditation also appears on your agenda. The chairperson will later discuss the content and impact of some of these criteria. I will also refer to a few from a legal perspective. Before we come to that, let me first refer to the Pension Funds Act. 3. PENSION FUNDS ACT All councillors and officials in local government know about legal rules determining their conduct (Systems Act), and the legal enforcement of that code. As pointed out above, the collective bargaining process on pension funds in the LRA is subject to the Pension Funds Act. Section 7C of the Pension Funds Act determines that the Management of a Fund under the Act shall: (a) take all reasonable steps to ensure that the interests of members in terms of the rules of the fund and the provisions of this Act are protected at all times, especially in the event of an amalgamation or transfer of any business contemplated in section 14, splitting of a fund, termination or reduction of contributions to a fund by an employer, increase of contributions of members and withdrawal of an employer who participates in a fund;

3 3 (b) act with due care, diligence and good faith; (c) avoid conflicts of interest; (d) act with impartiality in respect of all members and beneficiaries. This forms the legally enforceable Code of Conduct for any decision of a Fund. Therefore, even if a collective agreement is entered into, which is not the case here, a Fund must still act in the best interest of the Fund and its members in considering to amend its rules. There have been a number of cases where this was enforced against a Fund by the Courts and the Adjudicator. 4. WHAT ARE THE FACTS HERE? No agreement has been concluded in the SALGBC. If an agreement had been concluded it would have carried a lot of weight with the Fund or even the Registrar if rules had to be amended. Even if there was an agreement, the Fund must still consider the best interest of the members and the Fund before amending any rules. Your Fund has therefore, on legal advice, written to SALGA to enquire how the actions are in the interest of the members. Lacking a positive answer on that question, the Fund cannot even apply for accreditation. What makes this application for accreditation not in the interest of the Fund and its members? I will refer to only 3 from a legal perspective:

4 4 1. Termination of the Fund Criteria 3.12 reads that an accredited Fund must have a rule which allows the Fund to be terminated on notice from the Employers Organisation. This cannot legally be acceded to as it can never be regarded as in the Fund or members interests. 2. Reduction of the contribution rate from Employers Criteria 5.2 determine the Employer contribution to be 15% or as agreed between the recognised unions and the Employers Organisation. It is legally impossible to agree to this as, of necessity, it will not be in the members interests. (Section 7C (2) (a) of the Pension Funds Act) 3. Retrenchment benefit This is even more complex legally. In terms of a Bargaining Council Agreement which has been promulgated by the Minister of Labour, The Hon MMS Mdladlane, in Government Gazette on 18 June 2004, it was agreed that all existing retrenchment benefits be retained until 31 December The Employer signed this agreement. Yet, criteria 6.7 determine that only the credit of a member in the Fund may be paid to an employee on retrenchment. This criteria, to be implemented therefore on 1 July 2005 will clash directly in terms of the LRA and Systems Act with a legally enforceable agreement

5 5 and is therefore unlawful and cannot be complied with, even by the Funds who apply for accreditation. It is legally impossible for this Fund to comply with the accreditation criteria. 5. THE POSSIBILITY OF LEGISLATION It has also been mooted that legislation may be introduced in Parliament to deal with pension fund restructuring in local government in particular and the pension fund industry in general. If this happens, the Fund has been advised that the envisaged legislation for local government in particular may be contrary to a number of fundamental rights in the Constitution. If that is the case, such law will have to comply with s 36 of the Constitution which requires such law to be of general application and justifiable in an open and democratic society. It would serve little purpose, in my opinion, to speculate about such law. What should be borne in mind is that the pension fund benefits of members are benefits which are protected more than any other financial benefits in law and that this Fund is compelled by law to protect such interests. CONCLUSION - In view of that fact that: it has been established that the members interest on retirement is the only provision for retirement in more than 95% of people who retire in local government service;

6 6 the fact that the CJRF is one of the best, if not the best, performing funds in local government; it must be realised that members and the Fund will have to act to protect the members interest. - A concern still remains, in view of the responsibility placed on employers in recent judgments, that an employer may be held liable for the underperformance of a new fund vis-à-vis an existing fund. Clarity on this should be obtained by the employer. - The Employers Organisation s efforts to create some order into the present pension fund arrangements are supported. Bargaining about employer contributions should continue and not happen after a unilateral implementation. This may even lead to a fund being established by the Organisation. - Indications are that unilateral implementation of reduced retirement benefits have been met by severe opposition from the members which led to court actions supporting the members. - When anyone talks about retirement benefits it must be done with the utmost responsibility. Members must also not act against their own interests. The Fund has no option but to do what the Pension Funds Act compels it to do: To act in the best interests of the Fund and its members which is what will happen. Adv Jan Koekemoer Municipal Manager: Overstrand Municipality Trustee: Cape Joint Retirement Fund