Sakkie Hurd, Independent Trustee and Principal Officer

The forward-looking component of the fund’s closing plan is a multi-faceted one, with many inter-linked and inter-dependent components. The starting point of the plan is the decision to move to an umbrella arrangement and begins well before the actual date of the transfer and commencement of payment of contributions to the transferee fund. The transfer to an umbrella fund can be made so much more smooth by the compilation and management of a detailed plan that projects the milestones and deliverables of five key elements to the point where the fund submits an application to cancel the fund’s registration at the FSCA.

The first key element is a plan to maintain the integrity and composition of the Board to the date of application for cancellation.  Board members should not be oblivious of their responsibilities in terms of Section 7 of the Act as the Board is the accountable party for the process. This plan would typically include measures for the Board to remain constituted as required by the rules of the fund. The simple option of inserting a rule that the Board in place at the date of transfer remains the Board until the funds registration is cancelled is only the starting point, and must include detail on what alternative plans are put in place to deal with vacancies that may occur in the process. The time frame for the Board to remain in place will be dependent on a multitude of factors that have to be considered and will differ from fund to fund. This portion of the plan must also provide for the ongoing appointment and functioning of a Principal Officer and how the Board will function (including meetings with detailed minutes and resolutions) during this period. Boards would be well advised to consult their rules and act accordingly where the employer ceases to participate in the fund due to transfer to another fund.

The second key element to be considered is how the fund will fund its expenses from date of participation in the umbrella when contributions (from which the operations of the fund are funded) cease. Fund expenses do not disappear on the effective date of transfer. This item will have to be carefully evaluated, budgeted for and measures put in place to fund unexpected delays and contingencies. The Board will also have to review and restructure its service level agreements with service providers, not least the administrator.

The third key element to consider is the position of members, including former members, deferred retirees, preserved members and unclaimed benefits. Specific plans will have to be put into place to reconcile fund membership to reach a point where all former members (meaning those who have not been transferred to the umbrella fund) have been accounted for a dealt with in terms of the rules of the fund. All too often the reality is that when the Board becomes dysfunctional and has to be replaced there are still members with unclaimed benefits (including unpaid surplus benefits), and other categories (including as stated before outsourced pensioners) that have not been dealt with. The Board must also deal with all outstanding death claims and any queries emanating from the Office of the Pension Funds Adjudicator.

The fourth key element to consider is that of compiling and submitting all required statutory requirements up to and including the compilation and submission of an application to cancel the registration of the fund. The exact nature and detail will be dependent on the funds specific position, but will include statutory valuations (or maintenance of valuation exemption), annual financial statements, reconciliations of the transfer)s), updated the fund’s IPS, managing an ongoing ALM, SARB reporting, maintenance of Pension Fund Trustee Liability Insurance to past the date of the submission of the application to cancel the registration of the fund and cancellation or withdrawal of service provider contracts.

The fifth key element of the plan is to have a holistic view of the plan and includes those elements which have been identified that do not easily ‘fit’ into the four elements listed above. This element will also list the key time-lines and deliverables along with then milestones to be achieved as well as the monitoring plan. This element will also record the contingency planning of the board in dealing with unexpected delays that may influence any of the key elements. As a final comment, when well planned and managed the whole process can and should be finalised within 12 to 15 months, and there are examples and cases where this has been achieved.

A final word on the consequences of a lack of planning and execution is that the fund becomes dysfunctional and is not managed in accordance with the Pension Funds Act and the rules of the fund. This then requires of the FSCA to intervene as provided for in Section 26(2) of the Act, and appoint a board. The appointment of such a board is only the beginning, and the lack of any plan simply means that this board has to compile and execute the plan which the Board should have done. Trustees must take cognisance that by not planning in detail, and putting these plans into practice to deal with all these matters they expose themselves to future litigation which may be in their personal capacity.

Ed’s note: This is the third of three articles written by Sakkie Hurd on the process of closing a fund. You can find the other two on EBnet by clicking on the + posts under his name below the article.

This article is not intended as advice, nor should it be construed to be such.

ENDS