Guardians of legacy: Corporate trustees and the new landscape of retirement benefit regulation
Guardians of legacy: Corporate trustees and the new landscape of retirement benefit regulation
A corporate trustee is a corporate body whose work entails providing trustee services to pension schemes as well as institutions. As such, corporate trustees are responsible for the management and administration of pension schemes. Due to the significant role they play and the need to effectively regulate them, the Cabinet Secretary for National Treasury and Economic Planning issued the Retirement Benefits (Corporate Trustees) Regulations, 2023.
At a glance
- Corporate trustees are responsible for the management and administration of employee pension schemes. Due to the significant role they play and the need to effectively regulate them, the Cabinet Secretary for National Treasury and Economic Planning issued the Retirement Benefits (Corporate Trustees) Regulations, 2023 (Regulations).
- A corporate trustee is obligated to act in the best interests of the scheme's beneficiaries and their responsibilities include asset management, fiduciary duty, governance and benefits payments.
- The Regulations outline the registration process for corporate trustees, particularly around their responsibilities and qualifications. The Regulations further provide a comprehensive framework that ensures corporate trustees maintain a high standard of professionalism and service delivery.
Under the Act, employers are obligated to contribute to registered retirement benefits schemes on behalf of their employees. Employers, such as parastatals, also have the option of establishing their own retirement benefit schemes for the benefit of their employees.
In the Kenyan market, we have seen the creation of organisations that provide corporate trustee services to retirement schemes. A corporate trustee is a corporate body whose work entails providing trustee services to pension schemes as well as institutions. As such, corporate trustees are responsible for the management and administration of pension schemes. Due to the significant role they play and the need to effectively regulate them, the Cabinet Secretary for National Treasury and Economic Planning issued the Retirement Benefits (Corporate Trustees) Regulations, 2023 (the Regulations). In this article we briefly highlight the roles and benefits of corporate trustees, and the new requirements imposed by the Regulations. It is important that employers and employees bear these regulations in mind to ensure that any corporate trustee that is recruited to protect their pension monies is qualified and approved.
The role of corporate trustees
Corporate trustees play a pivotal role in the effective management of retirement benefits schemes. The trustee acts as a fiduciary, obligated to act in the best interests of the scheme’s beneficiaries.
The primary responsibilities of a corporate trustee include the following:
- Asset management: This involves managing the investments of the retirement benefits scheme. It entails making sound investment decisions to maximize returns while ensuring the security of the funds.
- Fiduciary duty: Trustees have a legal obligation to act in the best interests of the scheme beneficiaries. They must exercise diligence, loyalty and prudence in managing the retirement fund. This includes avoiding conflicts of interest and ensuring transparency in their actions.
- Governance: Trustees are responsible for the overall governance of the scheme. They develop policies, rules and procedures that guide the administration of the retirement benefits. Regular communication with scheme members, including providing updates on fund performance and changes, is also part of their responsibilities. Such services are handled better by corporate trustees, which minimises compliance costs and enhances the efficiency of the scheme.
- Benefit payments: When employees retire or reach the age of eligibility, trustees are responsible for processing and disbursing their retirement benefits in accordance with the scheme’s rules. This requires careful record keeping and co-ordination with relevant parties. Corporate trustees often have systems in place to aid the process of collecting and holding records of information with regards to scheme members, transactions, and investments.
Benefits of corporate trustees
- Expertise and professionalism: Corporate trustees are typically experts in managing pension and retirement schemes. They employ people that have experience in investment management, legal compliance and regulatory matters. This ensures that the retirement benefits scheme is managed professionally and in compliance with relevant laws and regulations.
- Impartiality: Corporate trustees act as independent third parties, ensuring impartiality in managing the scheme. This helps build trust among employees, as they perceive the scheme as being managed objectively and in their best interests.
- Reduced conflicts of interest: When a third-party trustee manages the retirement benefits scheme, conflicts of interest are minimised. A corporate trustee therefore makes decisions solely based on the scheme’s objectives rather than being influenced by company interests.
- Risk management: A corporate trustee brings risk management expertise to the table. They can help design investment strategies that align with the risk tolerance of employees while aiming to provide stable returns over the long term.
New developments in the regulatory landscape
The Regulations outline the registration process for corporate trustees, imparting insights into their responsibilities and qualifications. The Regulations further provide a comprehensive framework that ensures corporate trustees maintain a high standard of professionalism and service delivery.
The Regulations outline the qualification process and how the suitability of a corporate trustee is to be determined. As such, any person seeking to serve as a corporate trustee is required to apply for registration with the Retirement Benefits Authority (the Authority). The application must be accompanied by various documents, including board resolutions, the incorporation certificate, academic qualifications of top management, financial statements, and the memorandum and articles of association. These documents collectively ensure that only entities that fulfil stringent criteria become corporate trustees.
Companies that are already acting as corporate trustees need to be aware of this requirement and comply. The Regulations mandate each corporate trustee that was already in operation on the date of the commencement of the Regulations to comply with its provisions within 12 months to avoid penalties for non-compliance.
The Regulations further introduce specific conditions that a corporate trustee must meet, emphasising aspects such as incorporation under relevant laws; having a minimum capital of KES 10 million; qualified personnel, including having people who are academically and professionally qualified in matters relating to banking, insurance, law, accounting, actuarial studies, finance, economic or investment of scheme funds; having at least four Kenyan nationals in the board of directors; and having adequate professional, technical and operational capacity. These criteria aim to ensure that corporate trustees possess the necessary foundation to effectively manage trust funds and obligations.
The Regulations entrust corporate trustees with a significant burden of responsibilities, including adhering to trust laws, ensuring confidentiality with regards to all information, documentation and data obtained from a scheme, appointing qualified service providers, managing scheme funds, and prudent investment policy creation. Their duties span financial diligence, administrative precision and regular communication with stakeholders. This therefore engenders a professional approach to trust management, thereby safeguarding beneficiaries’ interests.
A corporate trustee who either breaches conditions attached to the certificate of registration, gives false or misleading information in the course of its business, fails to perform its fiduciary duties, or becomes insolvent or goes into liquidation, may be suspended by the Authority. Where the default is incapable of remedy or the corporate trustee fails to undertake remedial action within a specified period, then the Authority shall give such a corporate trustee at least 28 days to make representations as to why it should not be deregistered.
In conclusion, corporate trustees are indispensable for effective employee retirement benefits management. The recent regulatory advancements exemplified by the Regulations further underscore the significance of competence and accountability in the corporate trustee domain. As guardians of legacy, corporate trustees play a pivotal role in orchestrating the legacy’s trajectory, upholding the trust’s vision and ensuring the beneficiaries’ enduring prosperity
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