Your pension fund and employer are treading on thin ice if they are planning to use a surplus in a retirement fund to pay for the costs of a retrenchment programme, Professor John Murphy, the Pension Funds Adjudicator, says.
The Registrar of Pension Funds, pending amendments to legislation currently before Parliament, is refusing to register rule amendments which authorise repatriation of a surplus, he says.
"The registrar does so on the basis of certain legal opinions which have been furnished to him, advising that such refunds would be illegal," Murphy says.
Pension funds and employers should also take note that in Britain, it is illegal to use a retirement fund surplus to pay retrenchment benefits or meet other company employee liabilities.
Murphy was commenting on the case of Cedric Meyer, who took the mighty Iscor Pension Fund to task for unfairly discriminating against him, by giving better benefits to other retrenched employees, who left the employ of the company after he did.
The Iscor Pension Fund used part of the surplus in the fund to increase the retrenchment benefits to 3 000 employees.
But this increase was only paid to employees who resigned after Meyer, following an amendment to the fund's rules.
The result to Meyer was that he lost out on almost R600 000 in benefits.
Though Murphy found in favour of Meyer, ordering the fund to pay up, he said this did not mean that he condoned the use of a surplus for retrenchment benefits.
Similar schemes in Britain have not survived judicial scrutiny.
Pension funds and employers should proceed cautiously on the issue, Murphy says.
Concerning Meyer's complaint that he was unfairly discriminated against, Murphy says the trustees of a pension fund have a duty to act reasonably and fairly in the distribution of surpluses.
In its defence, the Iscor Pension Fund argued that it did not have the power under the amended rule to extend the same benefits to Meyer.
But, Murphy says, conduct which is discriminatory remains maladministration, whether or not the trustees of the fund had the power or discretion to extend the benefits to Meyer.
The fund also failed to justify its differential treatment of members retrenched by Iscor.
In effect, the fund distributed a significant portion of the surplus in the fund for the benefit of 3 000 retrenched employees.
These employees were able to take early retirement at full pension to the exclusion of approximately 800 other employees, who were retrenched prior to the rule being amended, but as part of the same retrenchment programme.
Murphy found the fund guilty of maladministration and ordered the fund to remove the effects of the discrimination by placing Meyer in the same position in which he would have been had he not been a victim of discrimination.
* Commenting on a separate case, Murphy says you need to take active steps to prevent your complaint from lapsing.
The Pension Funds Act limits the adjudicator to investing complaints which took place more than three years from the date on which he received a complaint.
In cases where you may be unaware of a particular event on which your complaint is based, the three years starts running from the date on which you become aware of the event, or which you ought reasonably to have become aware of the event.
If there is good reason, Murphy can investigate complaints going back more than three years.
But he would have to consider the length of the delay, the reason for the delay and the prospects of you winning your case.
Murphy points out that under the Prescription Act, correspondence is usually not enough to prevent your case from lapsing.
"At least a summons claiming the debt should be issued," he says.
Murphy was commenting on a complaint from Albert Langford who says that he did not receive the full withdrawal benefit to which he was entitled from his retirement fund, the Motor Industry Pension Fund.
Langford claims that he was retrenched, but his employer claims that he resigned voluntarily.
Different withdrawal benefits are applicable in terms of the fund.
Murphy dismissed Langford's case because almost 18 years had lapsed from the date of his first course of action.
He had limited prospects of success and he failed to issue summons against the Motor Industry Pension Fund.