A few years ago the Actuarial Society of South Africa held a seminar on the responsibilities of a pension trustee.
At the end of the seminar, when asked who would still be comfortable to take on the role of a pension trustee, not a single hand went up, demonstrating the weighty responsibility that trustees carry, says Magda Wierzycka, CEO of African Harvest Fund Managers.
After a ruling earlier this week by the Pension Funds Adjudicator (PFA), that same seminar would probably have ended with attendees rushing for the door.
While the PFA has been making rumblings about trustees being personally liable for losses incurred as a result of breach of duties, this was the first case where the legislation was enforced. The ruling held a trustee personally liable for a death benefit payable in terms of the fund’s rules.
According to the PFA the complainant’s late husband was a member of the Art Medical Equipment Pension Fund (now liquidated), which included a death benefit. The complainant’s husband passed away in 1998, whereupon she made enquiries about the death benefits payable to her as beneficiary. She was advised that since the fund’s sole trustee, who was also the MD of the participating employer, had failed to pay over contributions deducted from members’ salaries for six months the policy of insurance with Liberty Life had lapsed prior to her husband’s death and she would, therefore, not receive the insured portion.
The adjudicator ruled that, as the trustee had failed to act with due care and diligence, he was personally liable to the complainant for her loss. While this is an extreme case, and one of criminal proportions, the affect on trustees will be enormous.
Wierzycka says the ruling is long overdue and will bring home the seriousness of the role of trustees.
“So far trustees have assumed their roles glibly without fully understanding their fiduciary responsibilities,” she says.
These responsibilities mean that trustees are personally responsible for ensuring that a fund is managed properly from both administrative and performance points of view. “Trustees need to understand that this is not to be taken lightly and that it is a serious position for which they need to be properly trained,” Wierzycka says.
But what do you do if you are a trustee of a fund and you find that members’ rights have been breached? According to deputy PFA adjudicator Naleen Jeram the procedures that trustees must follow and the various duties and obligations placed on trustees are set out in the rules of the fund and various pieces of legislation, including the Pension Funds Act. The trustee would be required to report the non-payment of contributions to the registrar of pension funds among other steps.
The trustee on behalf of the fund can also sue the employer for recovery of contributions. Jeram says that in this case the issue is the fact that the trustee took no action.
Jeram says that within seven days of non-compliance the trustee should take the issue up with the employer and proceed taking recovery steps immediately.
In this case there was also only one trustee of the fund which also highlights the importance of the role and composition of the trustee board.
Jeram says that trustees need to understand from this ruling that if as a trustee you breach your duties as set out in the law and the member or beneficiary suffers a loss as a result, you can be held personally liable.