My column this week is a direct consequence of last week's column. The issues raised are important for anyone who is a member of a defined benefit retirement fund.
Last week's column was about the PG Group and an offer to its pensioners to transfer them off the books, so to speak. The plan is to use retirement fund assets, including part of the surplus, to buy them significantly enhanced pensions from a life assurance company.
The column has drawn hurt reaction from the PG Group's chief financial officer, Mike Read, and a more technical response from Ant Lester, managing director of Old Mutual Actuaries and Consultants, which provided the advice to PG.
The main points I made last week were that the manner in which the final offer was put to the PG pensioners was pistol-at-the-head-type language; and that I had doubts about the fact that simultaneously the PG Group was transferring its liabilities (to the pensioner medical aid) to the pension fund.
Read says he was greatly disturbed at the accusation "that the PG Group does not care about its pensioners. This was particularly hurtful as this is our centenary year and the executive team is presently travelling the country to pay tribute to, among others, our pensioners."
He says, which I accept, a process of consultation and information was held prior to the final letter that I reported on last week. The result was that 96 percent of pensioners "voted in favour of the change you consider unfair".
The problem Mr Read is that we were shown the final offer letter by a PG pensioner, who did not know if she was being sandbagged or not. To me the language in the final letter was unacceptable.
More importantly, however, is the principle of using a retirement fund surplus to meet the current and future medical aid liabilities of an employer.
At the moment the ownership and the right of an employer to withdraw a surplus is being debated with draft legislation before Parliament that will permit employers, under very stringent regulations, to withdraw the surplus effectively there will have to be a trade-off between employers and members before any withdrawal will be allowed. At the moment a surplus cannot be withdrawn to fund medical liabilities or anything else.
However, a number of companies, frightened by the ever increasing costs of medical care, have found an indirect way both to access the surplus and to get rid of the future liabilities they are likely to face on medical aid schemes.
Most companies have not funded for future medical liabilities. In other words, they have not put aside money now to meet future costs as they have done with retirement funds.
Anyway some smart actuaries and consultants to retirement funds came up with a plan.
What an employer does is offer pensioners a nice big increase in a pension (funded from the surplus) but tells them that they will also have to fund their own medical benefits out of the increase.
The trick is not to make the offer directly. This is where the PG offer appears to fall short. The final offer directly linked the medical aid commitment even though the PG pensioners had earlier been given an increase to cover the employer medical aid subsidy.
That increase also covered potential increases in tax because pre-tax funds were being used.
All this is not only my opinion but also that of André Swanepoel, the deputy chief executive at the Financial Services Board, which regulates pension funds.
"The use of any assets of a pension fund to directly pay any medical aid contributions is definitely not allowable. The purpose of a pension fund is to provide annuities or lump sum payments for members or former members upon reaching retirement."
Swanepoel approves the indirect method but says what is not acceptable is when an employer commits the pension fund to fund future increases in medical aid contributions. Such a fund would not have received tax approval by the Receiver of Revenue.
Swanepoel says he finds it difficult to see how a company "is able to walk away from its agreement with its employees by placing the obligation on the fund with regard to future increases in lieu of a once-off adjustment".
Swanepoel also warns that there could be tax consequences.
PG now says it followed the indirect route and that the wording on which my and Swanepoel's comments were based were "unfortunate".
In the interchanges that have taken place since last week's column it is clear that PG did not set out to deprive its pensioners of any rights. In fact, they could well be better off under the scheme.
Some years ago PG reached an agreement with the retirement fund members that it would increase benefits by 30 percent in return for the members agreeing that PG had the right to a certain portion of the surplus (even though PG could not and did not withdraw the portion).
Part of the "company" portion was used to fund the company subsidy for medical aid contributions while a further part of the surplus went towards the 22 percent increase in benefits which was intended to lure pensioners to make the change.
The PG case, even with the fairness in treatment, contains a number of lessons for all retirement fund members, trustees and consultants to funds to take great care at every step.