Do not blame the employer if the allocation of (the remainder of) the actuarial surplus of the pension fund may have been inequitable as between the other participants and the employer now wants to transfer his fair share from a reserve account to the employer surplus account. This is the ruling of the Supreme Court of Appeal (the SCA) in its latest judgment on the issue in Registrar of Pension Funds v ICS Pension Fund (288/09) (2010) ZASCA 63 (4 May 2010).
In this matter, a representative Board of Trustees during 1996 (prior to the introduction of the legislation governing surpluses in pension and provident funds) created a defined contribution section of its fund with a choice to members to transfer to the new section. The Board decided on the information available to allocate the actuarial surplus 34% to active members transferring to the defined contribution section, 22% to pensioners, 1% to a contingency reserve for those members who remained in the defined benefit section of the Fund and 28% for use by the employer, retaining a residual surplus of 15%.
During 2005 after the surplus legislation had come into effect, the employer applied to the Registrar to transfer the funds in its reserve account to the employer surplus account for its use. The Registrar then refused this transfer as (1) he was of the view that the Fund had not established that the allocation had been properly "negotiated between the stakeholders" as required by Section 15F(2) of the Pension Funds Act, and (2) because the allocation of the actuarial surplus had not been equitable by excluding the members who remained in the defined benefit section of the Fund. The High Court overruled the decision on appeal. The Registrar the further appealed to the SCA.
The SCA now held that the requirement to negotiate between the stakeholders an equitable distribution, essentially, means that there must not be a unilateral decision by the representative Board of the Fund to allocate actuarial surplus to an employer reserve account without taking account of the views of all interested parties. To the extent that there are differing views, an endeavour should be made to reach agreement and where there is no disagreement, no further discussions were required. The various interests were represented on the Board by the various Trustees. The SCA held that there has been no suggestion that the Representative Board was not fully informed and finding that there was no disagreement that required further discussions.
As to the second objection of the Registrar that the allocation of the surplus had not been equitable in respect of those members who choose not to transfer, the SCA held that it is clear that an allocation of actuarial surplus must be reasonable and equitable before the funds could be transferred to the employer account.
The Court also held that the equity of the apportionment as between other participants in the Scheme is immaterial to the enquiry under Section 15F as, in this case, there was no suggestion that the portion of the surplus that was allocated to the employer was more than its equitable share. Under those circumstances, it would be unfair to reopen the employer's allocation but not those of the other parties. The SCA confirmed the transfer of the credit in the reserve account in terms of Section 15F to the employer.
The judgment is of value with regard to the nature of the negotiations required and the relevant factors in considering a transfer in terms of Section 15F where the surplus was allocated before the legislation regulating actuarial surpluses was promulgated.
Faan Coetzee, Director, Employment Law