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Retirement funds that don't report on time face penalties

Retirement funds that don't report on time face penalties

24th February 2014

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The Registrar of Pension Funds appears to regard the problem of the late submission of retirement fund actuarial reports as pervasive enough to warrant administrative sanction.

Late in January this year, the Registrar published notice of her intention to impose administrative penalties on funds that fail to submit their actuarial valuation reports on time.

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David Geral, partner at pan-African law firm Bowman Gilfillan, and manager of the firm’s pensions practice, says an actuarial valuation report is a critical yardstick of a fund’s viability.

“An independent actuary comments on the financial soundness of the fund – its ability or inability to meet its retirement funding obligations on an ongoing basis. The report must be furnished to the Registrar and each participating employer whose employees are members of the fund,” said Geral.

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He added that the failure to submit reports timeously could compromise fund members.

“Decisions about a fund’s investment strategy, its pensions increase policy, possible pensioner bonuses, possible surplus apportionments and the like are all informed by the data in that report.

“More concerning is that a common cause for longer delays is confusion about the actual assets and liabilities of the fund. A long delay in submitting a valuation report can be indicative of a poor state of affairs regarding the asset and liability management of the fund by its board.

“The valuator cannot get the necessary information, or the valuation reveals a result that the fund’s board disagrees with for factual or political reasons.”

According to Geral, actuarial valuation reports need to be submitted every three years to the Registrar and employers. However, funds usually perform them more frequently because the data is valuable for investment management.

He added that the Registrar has applied administrative penalties to incentivise compliance. He said the measures were likely to make a difference, especially in terms of precipitating earlier and more focused engagement between a concerned or confused board of trustees and the FSB.

“The concern with administrative penalties and the like is that the fund pays. This means the assets of the fund are depleted, which ultimately only affects beneficiaries. If the circumstances giving rise to the penalty demonstrate negligence or wilful maladministration, then members could bring complaints against the board and, if successful, they could achieve personal liability against the trustees, demanding them to make good the fund.”

While that could be an expensive and time consuming process, Geral said it is important that members are aware of their rights so that board members are not immune.

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