In a landmark decision, John Murphy, the pension funds adjudicator, has ruled that employers are not automatically entitled to the substantial surpluses held by retirement funds.
The ruling, the second made by Murphy since taking office, followed a complaint from a pensioner member of the Nedcor defined benefit pension fund.
The complaint followed the restructuring of Nedcor's R2,5 billion fund into defined contribution fund options and moves to take a contribution holiday in the new fund from the accumulated surplus of the old fund.
The decision will put the brakes on many employers who are working on accessing the surpluses for their own benefit, often secretly.
Some companies are also enhancing benefits as a virtual bribe to members. What is happening is that members have to take over their employer's contributions to medical aid funds in return for higher pension benefits funded from the pension fund surplus an indirect raid on the surplus.
Murphy says that the recent Tek judgment, in which it was ruled that an employer could not automatically lay claim to a surplus, has set the precedent.
The Tek judgment is on appeal but, until and if the judgment is overturned "the trustees would be well advised to observe its prescriptions for allocating any part of the market value surplus to the employer," he says.
Murphy has also broken new ground in stating that a wide range of people will have to be taken into account when a surplus is divided up. Stake holders would include present members of a fund, past members that are still employed by the company, and those who resigned or were retrenched from the company.
The extent to which an employer is entitled to benefit from the surplus by way of a contribution holiday will be determined by how much it has over contributed beyond the amount necessary to meet liabilities.
The complaint against the Nedcor Pension Fund, a defined benefit fund, was brought by pensioner, Tom Euijen, who is a member of the the fund.
He and a group of associated pensioners, being fully aware of the worldwide trend in the pension industry to move from defined benefit funds to defined contribution funds, started negotiating with the Nedcor Pension Fund to protect their interests.
He broke off negotiations in October last year and took his complaints to Murphy.
His complaints include an argument that former fund members would gain substantially from the restructuring of the fund to his detriment as a present fund member.
Murphy agrees that the interest of the pensioners in the Nedcor Pension Fund surplus was diminished by the decision to benefit former employees.
But Murphy says the pensioners' interest in a surplus remains an expectation and not a right.
In a defined benefit fund the pensioners have no right to share in the surplus, they have only a right to a defined benefit.
By the same token, the former employees who transferred to one of the defined contribution funds had a legitimate expectation to share in the surplus.
As part of his complaint, Euijen raised the issue that the decision to benefit former members of the fund was discriminatory because it excluded former members who had subsequently been retrenched or had resigned.
Murphy says Euijen's argument that only the members of a fund are entitled to share in the surplus may lead to the undesirable practice of leaving a minority of members as the only persons with rights and expectations to share in the surplus when the fund is wound up shortly after a retrenchment exercise.
Murphy says that before a surplus is attacked the source of the surplus has to be clearly identified. This is in line with the ruling in the Tek case where it was found that the employer had not contributed to the surplus.
He did rule that the Nedcor Pension Fund must provide information on the cause of the surplus. And he ruled that the fund may not amend a rule relating to cost of living increases.
Of Euijen's six complaints against decisions of the Nedcor Fund trustees only two were upheld by Murphy.