Retirement fund surpluses continue to court controversy

Retirement fund surpluses and the manner in which they were distributed to past and present members remains a burning issue among the country’s pension administrators.

Indeed, all relevant stakeholders were regularly dealing with surplus disputes, errors and unclaimed benefits, Graham Damant, a partner at corporate law firm Bowman Gilfillan, told delegates to a retirement benefits seminar in Johannesburg last week.

“A common problem,” he said, ”has been the difficulties encountered in tracing former members. Tracking them down is one thing; knowing how to deal with those amounts in the books of the fund, another.”

Damant said that the fund was obliged to do the calculation reflecting such outstanding payments to former members, which must be included in the scheme. The fund had the discretion to place the relevant amounts in a contingency account. This suggests that they may or may not be paid and could be released back to the Fund. However “Fund administrators must be aware that Regulation 35(4) deems that the funds accruing to untraceable former members may not be released unless paid or transferred to the Guardians Fund or Unclaimed Benefits Fund.

“Most significantly, Regulation 35(4) overrides the Board’s discretion and overrides prescription.”

Tracing former members and pigeonholing the funds that had accrued to them correctly was but one of several more problems, among them:

• incorrect calculations of the surpluses;
• former members had either not been included in the surplus calculations or had not been excluded, depending on the circumstances of the case;
• the contingency account had not been sufficient to meet claims; and
• funds had not been happy to hold untraced members’ benefits.

In cases where the surplus had been incorrectly calculated, it had been necessary to resubmit the scheme.

“Having said that, however, the Registrar may not overturn the original scheme in the absence of an application to court. At the same time,” Damant advised, “it is worth noting that such applications to Court are generally successful.”

He said that former members who had been overpaid out of a fund’s surplus should (obviously) repay the excess to the fund. Since the excess payment had been effected on the advice of the valuator, the fund could arguably recover the excess from the valuator if it was unable to recover from the former member and if the valuator had been negligent in the calculation of the surplus.

Damant warned that issues arising from fund surpluses were far from clear-cut. Grey areas included views that:

• former members did not have individual – but only class or group – claims;
• Regulation 35(4) was ultra vires and invalid;
• as it was ultra vires the regulation could be ignored; and
• the fund, when providing for future claims, could hold less than the full value of the claim.