PFA Ruling: Regarding a refusal by a fund to deduct an amount from a deceased’s death benefit

The Pension Funds Adjudicator has issued an important ruling in the matter of CONSOL LTD t/a CONSOL GLASS Vs MOMENTUM FUNDSATWORK UMBRELLA PROVIDENT FUND AND ANOTHER regarding a refusal by a fund to deduct a certain amount from a deceased’s death benefit and pay it to an employer in respect of fraud he allegedly committed prior to his death. This determination lays out the circumstances under which an employer can request a fund to withhold a member’s benefit in terms of section 37D(1)(b) of the Pension Funds Act (“the Act”).

The facts of the matter are briefly the following:

Facts

Mr Gravett (“the deceased”) was employed by Consol Ltd (“the complainant”) and was a member of the first respondent (“the Fund”) until he was suspended for allegedly committing fraud against the employer in the amount of R3 615 104.83. The deceased subsequently passed away prior to his disciplinary hearing.

Upon the deceased’s death, a death benefit became available for distribution to his beneficiaries. The complainant (the employer) claimed that the fund should pay it the amount of the death benefit as the deceased committed fraud against it prior to his death. The refusal of the fund to pay the complainant the amount of the deceased’s death now forms the subject matter of this complaint.

Complaint

The complainant submitted that it is entitled to receive payment of the deceased’s death benefit as he misconducted himself by unlawfully misappropriating monies from the company through a fictitious business. It indicated that a forensic audit was done and it was discovered that the fraud amounted to R3 615 104.83. It further submitted that the deceased admitted liability for the fraud during the course of the investigation. It averred that the deceased undertook to provide it with a written acknowledgement of liability in respect of the fraud. Further, it submitted an extract as proof that the deceased admitted liability for the fraud against the company. Moreover, it argued that the deceased confessed the fraud to his wife prior to his death. Therefore, the complainant indicated that the extract and the confession that the deceased made to his wife constitute an admission of liability as contemplated in section 37D(b)(ii) of the Act.

Response

The fund submitted that it can only deduct an amount from a member’s benefit in terms of section 37D(b)(ii) of the Act if a member has in writing admitted liability to the employer or a court judgment has been obtained against the member. It argued that the complainant did not seek a court judgment against the deceased prior to his death. Further, it pointed out that the admission of liability does not comply with section 37D(b)(ii)(aa) of the Act.

Further, it indicated that an admission of liability as contemplated in section 37D(b)(ii) of the Act must be a clear admittance of guilt to the employer. It stated that the alleged admission of liability does not mention the employer or there is nothing which suggests that it is for liability for fraud against the employer, and the amount of the fraud is not stated. Moreover, it argued that the admission of liability was not signed by the deceased. Therefore, the fund submitted that it cannot accede to the employer’s demand.

Determination

After considering all the evidence and the provisions of the Pension Funds Act which regulate deductions that can be made from a member’s benefit the Adjudicator held the following:

The Adjudicator held that it is common cause that the complainant (the employer) has not obtained a judgment in a court in respect of any compensation for fraud against the deceased. Held that the fund has placed the requirements of admission in writing as set out in section 37D(b)(ii)(aa) in issue.

Held that the complainant’s reliance on an extract wherein the deceased admitted liability is problematic insofar as the deceased never actually furnished it with a written acknowledgement or admission of liability prior to his death as contemplated in section 37D(b)(ii)(aa) of the Act. Held that there is no evidence which indicate that the extract was done by the deceased as it was not signed or dated. Further, it was held that it is not clear from the extract whether the deceased admitted liability to the complainant in respect of any damage by theft, dishonesty, fraud or misconduct. Further, the admission of liability does not mention the complainant or the amount of the fraud. Held further that section 37D(b)(ii) of the Pension Funds Act applies to members and employers only. In this matter there was no employer and employee relationship as the deceased passed away and the matter involve beneficiaries of the death benefit.

It was held that it is very imperative that a written acknowledgement of liability should be clear and must amount to an unequivocal admission of guilt to the employer. The written admission of liability must be signed by the member concerned. Held that the complainant failed to discharge its evidentiary burden by producing proof that the deceased admitted liability in writing to it prior to his death. Thus, it was held that a deduction of the deceased’s death benefit in these circumstances will be contrary to the provisions of section 37D(b)(ii)(aa) and section 37A of the Act.

Therefore, it was held that the refusal of the fund to pay over the deceased’s death benefit to the complainant in respect of fraud he allegedly committed prior to his death was reasonable and justifiable in light of the provisions of the section 37D(b)(ii)(aa) of the Act. As a result the complaint was dismissed.

Click here to read the full determination (PDF file 64kb)