Death benefit distribution
In the Adjudicator determination PFA/FC/00057868/2019/TD the deceased member’s spouse was identified as her dependant. The spouse was initially allocated a portion of the death benefit by the board of management of the fund. However, he passed away prior to the payment of the death benefit and the board found that since he was no longer a dependant, the benefit had to be reallocated as per FundsatWork Umbrella Pension Fund v Guarnieri (In Perspective 3 of 2019). The time at which decisions should be taken to determine who is a dependant is not at the time of death, but rather when the distribution decision is being made. They decided to allocate it to the deceased member’s children, who were nominated.
The complainant is the deceased member’s brother-in-law. He is:
- dissatisfied with this reallocation; and
- of the view that the fund was slow in finalising payment to the spouse. The complainant wanted the board to revise its decision and allocate a portion of the benefit to the spouse’s estate.
Regarding the first complaint, the Adjudicator agreed with the board that the spouse no longer qualified as dependant and that the benefit had to be reallocated. The complainant contended that the deceased’s children were not financially dependent on the deceased, but the Adjudicator reiterated that the children were nominated and that a nominee does not need to prove that he/she was financially dependent on the deceased at the time of death as the entitlement stems from the fact that such person was nominated and nothing more is required.
Regarding the second complaint that the fund was slow in its allocation, the Adjudicator held that the board has 12 months within which to trace and identify possible beneficiaries, however this was not a hard and fast rule as everything depends on whether the board has conducted a proper investigation within a reasonable time.
If the board is satisfied that it has taken all reasonable steps to trace and identify dependants, it does not have to wait for the 12 months to lapse before making payment.
There is also no duty on the board to make payment after the 12 months’ period has lapsed if it is of the opinion that there is a need for further investigation. The Adjudicator was satisfied that the board had acted rationally and had arrived at a proper and lawful decision in revising its decision and dismissed the complaint.
A death benefit cannot be allocated to a beneficiary that subsequently passes away prior to the payment of the death benefit, as such person does not qualify as a “dependant” anymore. Such allocation must be revised and reallocated amongst the surviving beneficiaries.
The board need not pay upon expiry of the 12-month period if they are of the opinion that there is no need for further investigation.
Payment of contributions by the employer and death benefits
The deceased in PFA/EC/00057188/2019/UM was a member of a retirement fund and upon his death his beneficiaries became entitled to a death benefit as set out in the rules of the fund. The rules of the fund stated that upon the death of a member, a death benefit of four times the member’s annual salary plus his/her fund credit, would be payable to the deceased’s beneficiaries. However, due to the non-payment of contributions by the employer, the premiums for the risk benefits were not up to date and only the member’s fund credit plus interest was paid to the beneficiaries of the deceased.
The deceased’s daughter, the complainant, was dissatisfied that the insured benefit wasn’t paid as well. The employer had deducted fund contributions from the deceased’s salary for several years preceding his death but did not pay the contributions to the fund.
The administrator of the fund indicated that it had several meetings with the employer regarding the payment of contributions and members were informed of the employer’s non-compliance.
The rules of the fund provide that in the event of non-payment of contributions by and in respect of any member/s for a period of more than one month, the risk benefit cover shall cease on the expiry of the one month-period during which contributions were not paid. The employer failed to pay all contributions on the deceased’s behalf and the fund cannot pay the death benefit as the risk cover lapsed.
The Adjudicator held that due to the employer’s failure to pay over contributions, it must be held accountable and be compelled to bear the cost of paying the death benefit that would have been secured by the contributions it ought to have paid on behalf of the deceased. The deceased’s beneficiaries must be placed in the position they would have been had the employer paid all the contributions. The Adjudicator ordered the employer to pay arrear contributions with late payment interest plus the risk death benefit to the fund for payment to the beneficiaries.
The complaint before the Pension Funds Adjudicator in PFA/FS/00079067/2021/YVT also concerned the non-payment of the insured portion of the risk benefit due to the employer’s failure to pay over contributions to the fund for the deceased member. In this case however, the fund amended its rules prior to the death of the member to state that risk benefits were no longer payable by the fund and the only death benefit payable from the fund was therefore the member’s fund credit. The change was communicated to members as such.
The Adjudicator held that risk benefits are only payable as specified in a fund’s rules. Neither the fund nor the employer can therefore be held liable for payment of a benefit that is no longer in the fund’s rules.
Members are only entitled to benefits as per the fund rules. Once a risk benefit is removed from the rules, members are no longer entitled to it and the fund cannot be held liable.
Funds must ensure that their rules state that in the event of non-payment of a risk benefit due to non-payment of contributions by the employer, the benefit payable by the fund will be limited to the member’s fund credit.
In the Financial Services Tribunal matter PFA12/2021, the employer brought an application for the reconsideration of the Adjudicator’s decision wherein the Adjudicator ordered the fund to release the benefit of the complainant, following the request by the employer to the fund to withhold the complainant’s benefit in terms of section 37D of the Pension Funds Act.
The complainant was dismissed by the employer and the employer informed the fund that it had instituted civil and criminal proceedings against the complainant and had requested the fund to withhold payment of the withdrawal benefit until finalisation of the legal proceedings against the complainant. However, the fund only sent a letter to the complainant requesting his views on the employer’s submissions several months later.
- Adjudicator’s original determination
The Adjudicator held that the fund took the decision to withhold the complainant’s benefit without meaningful information to enable it to exercise a proper discretion. She was also dissatisfied that the fund only communicated with the complainant several months later. She held that the fund was required to exercise a discretion and balance the competing interest of both parties.
The Adjudicator found that the fund did not exercise its discretion in accordance with its fiduciary responsibilities. The fund continued to withhold the complainant’s withdrawal benefit without supporting evidence that the employer made out a prima facie case against the complainant.
- Tribunal’s decision
The Tribunal held that the balancing of both parties’ competing interests implies that the matter should be carefully scrutinised by the fund. The fund should not merely be satisfied with what the employer places before it. The fund was not remiss in its fiduciary duties as it had been corresponding with the employer throughout and it was in the process of collating information and ensuring that it was kept abreast of the developments regarding the pending litigation against the complainant.
The Tribunal found that the employer would be prejudiced if the Adjudicator’s decision was upheld and that the prejudice that the employer would suffer should the benefit be released would far outweigh the consequences of what the complainant might suffer. Section 37D was created to protect employers from loss suffered at the hands of the employees and it would serve no purpose if employees were allowed to defraud employers, while they simply resigned and claimed their pension benefits.
It is not expected of the employer to prove fraud, theft, dishonesty, and misconduct to the fund, that is for the employer to prove in a court of law. Neither is it for the fund to make judgment about whether a case of fraud, dishonesty or theft has been proved against the employee by the employer. The fund must merely be satisfied that the employer has made out a prima facie case against the member, and that there are reasonable chances of success in the proceedings. If on the face of it the case complies with section 37D requirements and all other procedural requirements have been met, a fund may make the decision to withhold the amount relating to the damage.
The Tribunal found in favour of the employer and ordered that the matter be remitted to the Adjudicator for her reconsideration.
- Adjudicator’s reconsideration
The Adjudicator held that the opening of a criminal case cannot in and of itself constitute good grounds for the fund to withhold the benefit. She found that a significant time has lapsed and even in respect of criminal proceedings there had been no movement. The Adjudicator found that there was no good reason for the continued withholding of the complainant’s benefit and ordered the fund to pay the withdrawal benefit to the complainant.
Balancing competing interest means that the fund must carefully scrutinise the matter before it and that it should not just rubber stamp the employer’s request.
Funds are not expected to make judgments on fraud, theft, dishonesty and misconduct but must be satisfied that the employer has made a prima facie case against the member and that there are reasonable prospects of success.
A lodging of a criminal case on its own is not sufficient to withhold a benefit, civil proceedings also need to be lodged.
Can a fund be an aggrieved person before the Financial Services Tribunal?
Recently the Institute of Retirement Funds Africa held a webinar where this question was debated.
The Financial Sector Regulation Act (FSRA) provides that a person who is aggrieved by a decision may apply to the Financial Services Tribunal for reconsideration of the decision by the Tribunal. The Tribunal rules also provide that only a person who is aggrieved by a decision of a decision maker may apply to the Tribunal for a reconsideration of the decision.
The words “an aggrieved person” signify someone whose legal rights have been infringed, in other words a person who has a legal grievance.
“Decision” is defined in section 218(a) of the FSRA and means a decision by a financial sector regulator in terms of a financial sector law in relation to a specific person. Different types of decisions are made by different types of decision makers.
In the case of FundsAtWork v Ngobeni, the employer had requested the fund to withhold the member’s benefit pending the outcome of a criminal case of fraud against the member. A complaint was lodged with the Adjudicator and the fund was ordered to pay the benefit plus interest. The fund applied to the Tribunal for reconsideration of the Adjudicator’s decision. The Tribunal held that the fund is not, in respect of the withholding of the withdrawal benefits, a person aggrieved as required by section 230(1)(a) of the FSRA and therefore has no legal standing. The fund is not the agent of the employer and is not supposed to act in the interests of the employer and as far as issues between employer and member are concerned, it should act independently.
In SALA PF v Registrar of Pension Funds, it was stated that a person aggrieved must be someone against whom a decision has been pronounced which wrongfully deprived that person of something, or wrongfully affected his/her entitlement to something. It does not refer to someone who is annoyed or hurt at a decision. It must be someone wrongfully deprived of a legal right, someone with a legal grievance.
A fund is not automatically precluded, it must be able to demonstrate that the fund is someone against whom a decision has been pronounced and the decision wrongfully deprived the fund of something, or wrongfully affected the fund’s entitlement to something.
A fund that is dissatisfied by the Adjudicator’s decision must assess whether it is an aggrieved person and whether it has grounds for reconsideration. If it is, it must fully motivate the basis upon which the fund considers itself to be an aggrieved person and the grounds for reconsideration. If it is not an aggrieved person then it should not apply for a reconsideration.
Where a fund has been ordered to release a benefit withheld in terms of section 37D together with interest, the fund may qualify as an aggrieved person. The fund will however have to consider whether it has grounds for the application and if it does, those grounds must be included in the application for reconsideration.