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Pensions Adjudicator rebukes CEO for disregarding fund rules

18 November 2021 The Office of the Pension Funds Adjudicator (OPFA)
Muvhango Lukhaimane

Muvhango Lukhaimane

The CEO of the Estate Agency Affairs Board has been hauled over the coals by the Pension Funds Adjudicator for disregarding the rules of a pension fund.

Muvhango Lukhaimane said the CEO saw her role as allowing her to overrule the regulations of the fund by failing to register some employees as members and paying contributions on their behalf to the fund.

Five employees of the Estate Agency Affairs Board (EAAB) did not contribute the Estate Agency Affairs Board Pension and Life Assurance Scheme (the fund) since July 2019.

The complainant, specifically the board of directors of the EAAB, submitted that, in accordance with the rules of the fund, every employee employed on a permanent basis must be registered as a member of the fund. However, it would appear that the CEO of EAAB chose not to adhere to the rules of the fund with regard to the affected employees.

The EAAB’s board of directors averred that on 1 and 2 July 2019, the affected employees were appointed by the EAAB on a permanent basis. In terms of their contracts of employment and the fund’s rules, employees were obliged to contribute to the fund.

The board of directors claimed that the CEO of the EAAB advised its human resources department that the deduction of pension fund contributions on behalf of five employees be suspended as they found it unaffordable.

Other employees who joined the employer on the same date and on the same terms and conditions, were registered as members of the fund and contributed thereto.

The complainant stated that several engagements were held between the board of the fund, the employer and the affected employees. On 14 October 2019, the Principal Officer of the fund circulated a letter to the affected employees re-affirming that they were obliged to contribute to the fund and that membership was compulsory throughout their period of employment.

Further, the complainant (board of directors of the employer) submitted that, in line with its Delegation of Authority, it assigned the executive duties of the Accounting Officer to the CEO. It stated that, in terms of clause (a) to (e) of the Public Finance Management Act, 01 of 1999, the Accounting Officer was responsible to ensure that the employer complied with any tax, levy, duty, pension and audit commitments as may be required by legislation.

The chairman of the board of directors directed a letter to the CEO on 5 May 2020, urging the CEO to resolve the fund issue and remedy the lack of deductions of contributions payable to the fund as statutorily required.

On 19 May 2020, the board of the fund submitted a memorandum on their legal view on the issue illustrating the essence of non-compliance; the source of inaction to deduct the pension contributions; the challenges in engaging the CEO; and the financial and legal implication of non-contribution to the fund.

In response, the CEO submitted a further memorandum on 20 May 2020, outlining
the financial implications of deducting contributions from the affected employees’ salaries; the lack of availability of the administrator and fund’s Principal Officer to consult the affected employees to resolve the issue relating to the contribution rates; and that alternative pension fund arrangements, through a different retirement scheme with Discovery Limited, had been put in place. It subsequently emerged that the Discovery fund offered a risk product only not retirement benefits.

The board of trustees reported the non-compliance of the employer to the Financial Sector Conduct Authority which clearly conveyed to the board that the legal position was trite: the employer was in breach and that the board of the fund was obliged to lay criminal charges against the responsible person at the employer, and if necessary, enforce compliance by an approach to the High Court for an order to that effect.

Despite requests made to the human resources department of the employer and the CEO, the fund had not received the requested breakdown or total of the contributions payable to the fund on behalf of the affected employees. The fund was accordingly hamstrung in enforcing payment of any amount due to it on behalf of the affected employees. All communication with the human resources department of the employer had been terminated by the CEO, who required that all such matters go through her office only.

In her determination, Ms Lukhaimane said the affected employees ought to have been regarded as eligible employees as there appeared to be no difference between the other employees and the affected employees, except for the fact that the latter raised an objection to membership of the fund due to affordability.

She said in terms of the rule 3.2 of the fund, it is compulsory for eligible employees to become members of the fund as a condition of employment. Thus, the affected employees ought to have been registered as members of the fund when they commenced employment.

“The evidence indicated that the affected employees were not registered as members of the fund. Thus, the employer acted in contravention of rule 3.2 of the fund.”

It was also mandatory for the employer to deduct the required contributions from their salaries and remit same to the fund on their behalf. Based on the submissions received, no contributions were remitted to the fund on behalf of the affected employees.

“Thus, this Tribunal finds that the employer owes outstanding contributions in respect of the affected employees. The employer acted in contravention of the rules of the fund and section 13A of the Act. Therefore, the employer must be ordered to pay the outstanding contributions due to the fund on behalf of the affected employees.

“However, since contributions were not deducted from their salaries, it follows that only employer contributions are due to the fund.

“The CEO’s (and thus the employer’s) lack of regard for compliance with the rules of the fund is of serious concern. It appears that the employer does not fully understand the binding force of the rules of the fund and the CEO perceives her role within the employer as including overriding the rules of the fund,” said Ms Lukhaimane.

She also said the affected employees were entitled to relief against the employer. She ordered the employer to place the affected employees in the position they would have been had the employer timeously registered them as members of the fund and paid all pension fund contributions due.

The fund was ordered to register the remainder of the affected employees as its members from 1 July 2019 when they joined the company.

The employer was ordered to submit all outstanding contribution schedules in respect of the remainder of the affected employees for the period July 2019 to date, to the fund. The employer was also ordered to pay to the fund the arrear contributions plus late payment interest.

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