Trustees who planned to change the rules of a provident fund to prevent members from withdrawing their benefits when they resigned, have been taken to task by the Pension Funds Adjudicator, who ordered them to pay a former member his withdrawal benefit.
In his latest ruling, Vuyani Ngalwana, the adjudicator, has again re-iterated that the rules of a retirement fund are king and must be applied.
In a number of cases last year, the adjudicator found against retirement annuity funds that were applying penalties on members who stopped or reduced their contributions to the funds, because their rules did not provide for such penalties.
In this case, the trustees attempted to apply a new rule that had not yet been approved - and might never be approved.
In January 2000, the trustees of the Bel-Essex Provident Fund passed a resolution stating that, with effect from March 2000, no withdrawal benefits would be paid to members who resigned from Bel-Essex Admin Holdings, unless the member was leaving the company as a result of ill-health.
The trustees needed to amend the fund's rules to give effect to the resolution, and in order to change the rules, they needed the Registrar of Pension Funds at the Financial Services Board (FSB) to approve the rule change. The registrar did not, how-ever, approve the trustees' application to amend the rules of the fund, on the grounds that the rule amendment contravened section 14(a) of the Pension Funds Act.
Section 14(a) of the Act states that every pension fund must pay a minimum benefit that is defined in the Act.
The trustees planned to appeal the registrar's decision and instructed their brokers to do so, but Ngalwana found that the FSB's appeal board had not received a proper notice of appeal. He said nothing of any substance has been done by the aggrieved party to prosecute its appeal at the appeal board of the FSB.
Refused to pay
In the meantime, Hendrik Meiring, an executive at Bel-Essex Admin Holdings, resigned and left the employ of the company on February 28, 2000. The fund refused to pay Meiring his withdrawal benefit.
On behalf of the fund, Sanlam Life, the administrator of the fund, directed Ngalwana to the resolution passed by the trustees.
Ngalwana said Sanlam Life also pointed out that Meiring had signed a document, which purportedly signalled his assent to the proposed amendment to the fund's rules.
Sanlam said although the rule change had not been approved by the Registrar of Pension Funds, the matter had been appealed and asked that Ngalwana hold the matter in abeyance pending a decision by the FSB's appeal board.
But Ngalwana said that because the amendment has not yet been approved, the unamended rules apply, and the unamended rules state that Meiring is entitled to a withdrawal benefit.
The rules of the fund state that withdrawal benefits must be paid immediately or within a maximum period of six months after a member leaves the fund.
Ngalwana said four years have elapsed since Meiring withdrew from the fund, and the non-payment of his benefit has caused him financial prejudice. To expect the complainant to wait indefinitely for the payment of his withdrawal benefit is not reasonable in the circumstances.
Ngalwana therefore ordered the Bel-Essex Provident Fund to calculate Meiring's withdrawal benefit at the date he left the fund in February 2002 and to pay him the benefit plus interest at 15 percent a year from that date until the payment is made.
Furthermore, the adjudicator said, the conduct of the board of management is to be severely deprecated.
Notwithstanding two rulings from the Supreme Court of Appeal that the rules of the fund are king and only come into effect once they have been approved and registered by the registrar, the board in blatant disregard of these rulings and several determinations by this tribunal, simply decided that it would not apply the registered rules of the fund.
Registrar must approve rules
Naleen Jeram, the deputy adjudicator, says trustees of funds must apply the registered rules of the fund and cannot apply a proposed unregistered rule, even if such a rule amendment has been ratified by the trustees and submitted to the Registrar of Pension Funds with a request that it operates retrospectively.
The rule only comes into effect once the registrar has approved and registered the rule. In terms of section 12 of the Act, the registrar must be satisfied that certain criteria have been met before he can approve the amendment.
Where a rule has been amended, trustees of the fund have a duty to inform all members of the rule amendment(s). It is critically important for all members to, firstly, have a copy of the rules of the fund and, secondly, always ensure that the correct rule has been applied to the fund assets, in particular, in the computation of benefits, Jeram says.
Furthermore, where the trustees propose to apply an amended rule, members must check that the rule has been approved by the registrar. The date of registration represents the date on which the rule comes into effect, Jeram says.
How to contact the adjudicator
Website: www.pfa.org.za
Vuyani Ngalwana, the Pension Funds Adjudicator, has offices in Cape Town and Johannesburg. If you live in the Eastern Cape, Free State, KwaZulu-Natal, Northern Cape or Western Cape, you should submit your complaint to the Cape Town office. If you live in any other province, you should direct your complaint to the Johannesburg office.
To contact the Cape Town office:
Post: PO Box 23005, Claremont, 7735
To contact the Johannesburg office:
Post: PO Box 651826, Benmore, 2010
Telephone: (011) 884 8454
Fax: (011) 884 1144
Email: [email protected]