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Retirement fund trustees – ways of helping with tough S37c lump-sum allocations

Retirement fund trustees – ways of helping with tough S37c lump-sum allocations

By Olefile Moea, Director: Communications, Marketing & Consulting, Fairheads Benefit Services

One of the more onerous – and responsible – tasks of the boards of trustees of retirement funds is to determine the dependents of deceased retirement fund members and use their discretion whether to pay death benefits due to minor dependents’ directly to their guardian/caregiver or to pay the money into a beneficiary fund.

Bear in mind that when a retirement member passes away, the first port of call for the family is to contact the deceased’s employer. HR will then explain the role of the retirement fund trustees who need to establish all the dependents of the deceased member, tracing them if need be.

Once the dependents have been identified, a crucial part of the trustees’ role and decision-making process is to assess the competency of the guardian or caregiver to act in the best interest of the child in their care. Above all, are they financially literate and will they use the funds for the child’s subsistence, education and medical needs?

Trustees must gather relevant information which will help them decide whether the guardian or caregiver is able to look after a lump sum benefit on behalf of the minor. Ideally, this should be in the form of an interview with the guardian or caregiver.

Information which is useful in providing the trustees with guidance can include:

  • Nature of care – parent / legal guardian / caregiver

  • Education level of guardian / caregiver

  • Employment status and stability of employment

  • Residential status and security of tenure

  • Financial position

  • Credit record (default judgements, debt review etc)

  • Assets to liabilities

  • Income to expenditure

  • Health of the guardian / caregiver

  • Signs of substance abuse, mental health issues etc

Some of this information is sensitive, and it is vital to explain why the information is needed and to be discrete and tactful in the interview. Ideally, these questions should be quantifiably weighted to obtain a probability score to help guide trustees as to whether to pay a lump sum or to use a beneficiary fund which is a well-regulated vehicle with its own board of trustees and skill in the administration and management of assets.

There are many dynamics at play in a S37C case and each one needs to be considered on its own merits. For example, a guardian or caregiver may be highly educated, but are simply not able to manage their financial affairs as evidenced by a poor credit record and default judgements.

In conclusion there are ways for retirement fund trustees to assess situations and decide how to allocate section 37C death benefits. A guardian/caregiver assessment tool as described above is simply one example.