PFA Ruling: Regarding a maladministration of the fund by the fund's administrators

The Pension Funds Adjudicator has issued a ruling in the matter of J PRETORIUS Vs ABSA SMALL ENTERPRISE PROVIDENT FUND AND ABSA CONSULTANTS & ACTUARIES (PTY) LTD regarding a maladministration of the fund by the fund's administrators which affected the benefits that became payable to the members upon withdrawal from the fund.

The facts of the matter are briefly the following:

Complaint

Mr. J Pretorius ("the complainant") is a managing member of Nivosa CC ("the employer"), a participating employer in the ABSA Small Enterprise Provident Fund ("the fund"). The complaint relates to alleged refusal of ABSA Consultants & Actuaries (Pty) Ltd ("the administrator") to rectify an alleged error made by the employer regarding the termination of a member's membership in 2002, which resulted in the non-payment of the insured death benefit to the dependants of the member after his death in August 2005.

Secondly, it relates to the alleged failure of the administrator of the fund to follow the employer's instructions to offset the money it owed to the fund in respect of arrear contributions on behalf of the deceased member against the refund due to the employer from the fund in respect of contributions deducted on behalf of members who had already exited the fund.

The complainant submitted that it had, during September 2004, instructed the administrator to rectify certain errors on the membership data that had been supplied to the administrator during July 2002. The complainant stated that it had only realized in September 2005 when it lodged a death claim on behalf of the dependants of one of its employees (Mr LE Msiza) that its September 2004 instructions has not been carried out. Further, the complainant submitted that the administrator had failed to remove two members (Messrs MP Mgayo & SB Ngwenya) who had left the fund in 2002 and 2003, respectively, from the membership list, although withdrawal forms has been submitted on their behalf. At the date of lodging this complaint, the administrator was still deducting contributions on behalf of those two members despite their having withdrawn from the fund. The complainant further stated that the administrator failed to add some members who were supposed to be included, and had also paid out the death claim on behalf of the late Mr Msiza's dependants. The complainant submitted that the administrator should set off the monies owed in respect of the contributions that should have been made on behalf of the late Mr Msiza against the erroneously deducted contributions on behalf of the two former members; and also reconcile the entire fund and correct the membership data supplied to it.

Response

The administrator acknowledged that it received information from the complainant during July 2002 wherein it was stated that the late Mr Msiza and five other employees had left the complainant's employ on 31 May 2002.

It further states that the information indicated that MP Mgayo left the complainant's employ on 28 February 2002 and that one XJ Mvala was transferred to another participating employer. However, the administrator submitted that no termination notification forms had been submitted on behalf of all eight employees. As regards the death benefit claim in respect of Mr Msiza's dependants, the administrator stated that the cover for risk benefits had lapsed as the deceased had left employment in 2002 and no contributions to the fund or the separate unapproved group scheme were subsequently received on his behalf. Further, the administrator indicated that the deceased's equitable share in the fund was paid out to his dependants on 7 February 2006.

The administrator submitted that it never received any instructions in 2004 to rectify the information that had been furnished to it in July 2002, and that the complainant continued to make contributions in accordance with the membership list that was sent in 2002. The administrator argued that the fund is prepared to accommodate the complainant by executing its September

2004 instructions retrospectively and also refund the incorrectly deducted contributions, on condition that the complainant pay arrear contributions on behalf of the late Mr Msiza from 2002 until 2005 and also submit exit instructions and proof that the two members had left its employ on the dates alleged by it. However, it pointed out that it cannot offset the allegedly incorrectly paid contributions in respect of the two members against the arrear contributions that are owed in respect of the late Mr Msiza as the two matters are not related.

Determination

After considering all the evidence and the rules of the fund the Adjudicator held the following:

With regards to the payment of death benefit to Mr Msiza's dependants, it was held that this portion of the death benefit, which consists of the deceased's member's equitable share in the fund as set out in Rule 7.1 of the fund's rules, was paid out on 7 February 2006. Held that the insured portion of the death benefit is payable, not by the fund, but by an insurer in terms of a separate and unapproved group death and disability policy.

Further, it was held that the risk cover in this regard lapsed as a result of the failure of the employer to pay contributions on behalf of this member (Mr Msiza) from 2002 to the date of death. Held that the administrator's failure to comply with the complainant's alleged September 2004 instructions to rectify the statement that the deceased has left employment in 2002 is irrelevant in that the lapse of the risk cover is attributable solely to the complainant's failure to pay contributions on the deceased's behalf between July 2002 and August 2005. Held that it is up to the deceased's beneficiaries to take steps against the complainant to claim compensation for the loss that they have suffered as a result of the lapsing of the risk cover.

Held further that the two employees ceased being members of the fund after they left service in 2002 and 2003 respectively and became entitled to receive withdrawal benefits as set out in the fund's rules. Further, it was held that contributions should not have been deducted as their membership had ceased. Held that the non-payment of their benefits was occasioned by the administrator's non-receipt of exit instructions from the complainant.

Held that two notification of termination of service forms in respect of SB Ngwenya and MP Mgayo were sent by the complainant to the administrator on 29 August 2006. Therefore, it was held that the respondents have to refund the amount of the overpayment to the complainant, together with fund interest as they continued to deduct contributions on their behalf even after their membership had terminated. Held that the complainant's claim for an order that the amount owed on arrear contributions in favour of the late Mr Msiza be offset against this amount cannot be upheld because the two claims are separate and unrelated.

The Order

* The complaint relating to the death benefit claim in respect of

the late Mr Msiza is dismissed.

* The administrator was directed to compute the amounts of the

withdrawal benefits due to Messrs SB Ngwenya and MP Mgayo as at the date of their withdrawal, together with interest thereon as determined by the trustees and to furnish the said calculation to the complainant and the said members within 7 days of the date of the determination.

* The fund was directed to, within 6 weeks of the date of the

determination, pay to the members referred to in the determination the withdrawal benefit amounts calculated by the administrator, subject to their being afforded an election between the cash benefit set out in fund's rules and the preservation benefit set in the rules.

* The fund was further ordered to calculate the amounts of the

overpaid contributions that were made by the complainant in respect of Messrs SB Ngwenya and MP Mgayo, and to pay the said amount back to the complainant, together with interest thereon as determined by the trustees in terms of the fund's rules, within 6 weeks of the date of the determination.

The full determination can be read here (pdf file 45kb)