A body of professional trustees who would be paid to serve on the boards of company retirement funds could be developed in South Africa in line with overseas trends, Maurice Harding, chairman of the Institute of Retirement Funds' (IRF) education committee, suggests.
By December 15, 1998 all retirement funds must have properly constituted boards of management, with at least half the board members elected by members. But those whom the members choose as trustees need not be employees of the company, Harding says.
Halford McLaren, an independent consulting actuary, says modern trustees have to come to terms with new developments in retirement funds. This includes moves towards defined contribution from defined benefit funds and changes in thinking about pooling of risks, subsidies, remuneration, paternalism, constitutional rights and questions of responsibility.
Harding adds the responsibilities of trustees are onerous and employees of small companies where the amount of time and attention needed to fulfil their duties properly may be disproportionate to the size of the fund may be reluctant to take on the role.
Amendments to the Pension Funds Act in 1996 clearly spelt out the duties of trustees which include the need to avoid conflicts of interest, take into account the interests of all members of a fund and to act responsibly at all times. Trustees are not expected to have exceptional expertise but where they lack knowledge they should consult professional advisers.
Although the legislation on this issue is quite onerous, it is "best practice" for funds, David Steere, MD of Momentum Employee Benefits, says. A number of funds are implementing these principles before the legislation actually applies.
"The modern trustee needs to have an enquiring mind and needs to look beyond what is transparent," McLaren says. "When large sums of money are involved all activity must be properly motivated."
The Act does not lay down that trustees must submit to training but Harding says the kind of people who are likely to stand for election as trustees would presumably be responsible enough to realise their shortcomings and take steps to expand their knowledge.
At present trustee training is being offered by the actuarial consulting firms, specialist training companies, the Insurance Institute of South Africa and by various insurance companies but the courses are not standardised.
The IRF is drawing up certain standards for training. In the short term the problem is intimidating. It is estimated that because of legislation requiring member-elected trustees, between 30 000 and 50 000 new trustees will need basic training in the next year.
The IRF is looking at creating a national framework for trustee education, possibly leading to a qualification. But there has been some debate about whether it is necessary to set a national examination for trustees and Harding suggests this would be inappropriate for South Africa at present.
"The need is for trustees whose hearts are in the right place, not people who fill their roles on the basis of academic ability. We want to avoid elitism. The IRF's view is that as long as the courses are up to a certain standard it will create qualified trustees."
Steere agrees that "guidelines" would be more appropriate than examinations. Considering trustees are volunteers, if training were made compulsory it would deter many potential trustees from offering themselves for office. But since training is expensive it ought to be possible to stipulate that trustees serve for a minimum period of about two years.
Turnover in trustees, apathy and nervousness might inhibit employee trustees from fulfilling their responsibilities to the fund.
In such cases the fund might consider employing professional trustees, probably lawyers or accountants or subsidiary companies of the large consulting firms, Harding says.
Steere warns that employing professional trustees could be expensive. It was also important that they be truly independent, representing the interests of all the members and communicating with all of them on a regular basis.