The Financial Services Board (FSB) has moved to prevent employers from unfairly raiding pension fund surpluses by misusing an exemption in the legislation governing the distribution of the retirement fund surpluses. The exemption allows a surplus to be used to prevent retrenchments.
The FSB has told the administrators of retirement funds that before the FSB will allow a surplus to be used to prevent retrenchments, it will require the following:
- Proof that the employer and its employees' elected representatives have held negotiations over the retrenchments as required in terms of the Labour Relations Act (LRA).
- Certification by an auditor that the employer needs to retrench employees.
- Proof that full disclosure (when, where, how) was made to the fund members of:
* The fund's current financial position;
* The proposed distribution of the surplus to the employer;
* The employer's need for additional capital in order to maintain employment levels;
* The report of the fund's auditor; and
* Any information the fund's members may require to exercise their rights under the LRA.
- Proof that the fund members had a reasonable opportunity to consider the proposal for the employer to use the surplus to prevent retrenchments.
Factors influencing what would constitute "a reasonable opportunity" include the number of members of the fund, the geographical distribution of the members and the level of sophistication of the workforce.
- Proof that at least 75 percent of the fund members currently working for the employer have approved the proposal in writing.
- Proof that negotiations between the employer and employees in terms of the LRA have confirmed the need to retrench more than 10 percent of the fund's membership, as at the end of the previous financial year, if payment is not made from the fund's surplus.