Vol. 434 Cape Town 17 August 2001 No.
STAATSKOERANT, 17 AUGUSTUS 2001 No.
I, TREVOR ANDREW MANUEL, MP, Minister of Finance, intend amending the Pension Fund Regulations made in terms of section 36(1)of the Pension Funds Act, 1956 (Act No 24 of 1956), as set forth in the schedule hereto.
Interested persons and institutions are invited to submit written representations on the proposed amendment by no later than 6 September 2001.
Tel: (012) 31 5-5161 e-mail: Chris. MalanBtreasury.gav.
Exposure Draft-Regulations required in terms of section 158(3) of the Pension Funds Act, 1956 (Act No. 24 of 1956).
Retrospective review shou!d not place undue strain on the retirement funding system.
The retrospective review of benefits paid to former members should not place undue strain on the retirement funding system. By this, we mean that only existing actuarial surplus should be apportioned, unless it can be demonstrated that the employer has utilised actuarial surplus previously in an improper manner, in which case a deficit may be created to a maximum of the present value of such surplus utilised improperly for the benefit of the employer.
Benefit improvements for decision makers to a level not enjoyed by the. other members.
Additional pension to selected members in lieu of the employer's obligation to subsidise medical costs after retirement.
Recognition of prior pensionable service for selected members or members transferred into the fucd, in either case without payment into the fund of the cost of this past sewice.
The employer may not be required to pay into the fund more than the deficit created during the apportionment of surplus to former members and pensioners, with a maximum of E.
How far back should the board of a fund go in looking at past transfers, conversions and retrenchments?
The board must look at all transfers, retrenchments and conversions from 1 January 1980onwards. If this is not done, the conversions from employer sponsored defined benefit funds to negotiated defined contribution funds will not be included.
There are escape clauses if the board satisfies the registrar, after taking steps to try to construct the data or advertise for potential beneficiaries, that it is impossible to obtain sufficient data to enable calculation. Advertisement at the employer and in the area of employment will only be required in the case of large transfers, retrenchments or conversions (ie. more than the higher of 50 members and 10% of the members at the end of the previous financial year) where the data is not available.
Which transfers, conversions and retrenchments should be included?
All significant transfers, conversions and retrenchments should be reviewed.
"Significant" means at least 10% of the membership at the start of fhe year must have been affected by the transfer, conversion or retrenchment, provided that at least 50 members were affected. Otherwise, for example, in a fund of 20 members, the retrenchment of 2 employees would cause review.
How much should the former members get?
The accrued actuarial liability multiplied by the ratio of the fair value of the assets to the actuarial value of the assets (being the fair value of the assets in the fund reserved in respect of the transferring members prior to the transfer).
The former members should get this as a prior charge against surplus.
The remaining surplus should then be apportioned by the board on an equitable basis amongst stakeholders.
Once this has been done, the balance of the actuarial surplus can be shared between active members, former members and the employer in any way that seems equitable to the board. The requirement that members be told of the apportionment, and have an opportunity to object, will cause an effective negotiation of this sharing between active members and the employer.
What does the board of a fund do if the top up in paragraph (4) puts the fund into a deficit situation?
If there is not sufficient surplus in the fund, after adjustment by E in line with paragraph (1) above, to allow the top up in paragraph (4), then the top up must be proportioned down.
A formula approach is provided both for small and large funds which will automatically be deemed to be equitable, if used. This will reduce the cost of the exercise.
STAATSKOERANT, AUGUSTUS 2001 22575 17 No.
The board may not exclude transfers out ifthe employee concerned is still employed, even though other former members who are no longer employed are excluded because of a lack of data. This will prevent a paucity of data in respect of former employees denying participation to current employees who no longer belong to the fund.
A newsubregulationis added to clarify what the trustees should do if the funding position has changed significantly over the period of the exercise.
Exposure Draft-Regulations required in terms of section 158(3) of the Pension Funds Act, 1956 (Act No.
Matters, envisaged in section 158(3) of the Pension Funds Act, 1956, to be considered by the board of a fund in apportioning accrued actuarial surplus following the date of commencement of the Pension Funds Second Amendment Act, 2001.
Provided, further, that the board may not exclude existing employees who were former members of the fund from participation.
E represents the present value at the surplus apportionment date of surplus utilised for the benefit of the employer during the period of the analysis, where such utilisation may not have been approved if the board STAATSKOERANT,17AUGUSTUS 2001 NO.
Of the fund had been constituted in terms of section 7A, and the board had been directed that the utilisation Of Surplus should be negotiated between the stakeholders and was not automatically at the disposition of the employer.
the value of any contribution holiday enjoyed by the employer after the commencement date of the Act.
Provided that the actuary may use the information contained in the statutory valuation reports as a basis for his or her calculations rather than attempting to calculate these numbers from source data.
In all cases not covered under subregulation (4), the board of the fund shall then apportion surplus in terms of section 15B(3)(c) and (d) in such a way that former members should get at least Q1 = A x K, pensioners and deferred pensioners should get at least Q3 = D x K, where A, D andK represent the terms defined in subregulation (2), and the balance of the surplus (namely F + E -Ql -Q3),where F and E are defined in subregulation (2), should be split in an equitable manner between the active members, who receive an amount described as Q2, and the employer who will receive F + E -Q1 -Q2 -Q3 by transfer into the employer surplus account. Such apportionment shall be conducted by the board in the exercise of their fiduciary duties towards all stakeholders.
Where the conditions set out in paragraph (a) are satisfied, the fund may elect to distribute actuarial surplus between members, former members and the employer as set out in this subregulation, in which case subregulations (2) and (3) shall not apply.
The actuarial surplus is less than one (1) million Rand at the surplus apportionment date, the financial history of the fund does not reveal a significant change in the financial position following the transfer out, or retrenchment, of members in the past, and the employer has not utilised a significant amount of surplus in the past. In this context, "significant" shall mean an amount with a value at the surplus apportionment date of one million Rand or more.
Such amount should be deducted from the actuarial surplus apportioned to members and distributed to former members (identified in terms of subregulation (1)) aswill increase the benefit paid to former members to the lower of the amount obtained by applying the formula as at the date of commencement of the Pension Funds Second Amendment Act, 2001, as described in sections 14A and 15K (or some reasonable approximation of this), and the accrued actuarial liability multiplied by the ratio of the fair value of the assets to the actuarial value of the assets, where values of assets and liabilities are determined using the method and assumptions set out in the statutory actuarial valuation coincident with, or immediately prior to, the event.
Such amounts should be accumulated to the calculation date using the investment return earned by the fund.
Pensions and deferred pensions should be increased to the minimum level defined in the Act.
In total the former member, pensioner and deferred pensioner amounts due shall be referred to as "modified" benefits. If there is insufficient actuarial surplus to achieve this increase to "modified benefits", a\\"modified benefits" shall be proportionately reduced to equal the amount of actuarial surplus available.
The residual actuarial surplus will be split in proportion to the accumulated value of the contributions by membersand theemployer, respectively, less expenses, where contributions are rolled up to the calculation date using by the fund, nett of expenses which should reasonably the investment return earned be deducted from the investmentreturn(such asthe expenses of investment management and any retirement fund tax). This will give rise to an employer portion and a member portion of actuarial surplus. The employer portionwill be credited to the employer surplus account. The member portion will be further apportioned as set out in paragraph (d).
the balance of the surplus, namelyF -Q1 -Q2 -Q3,should be creditedto the employer surplus account.
Where there has been a material changein the funding ratio (that is the ratio of the actuarial value of the assets to the valueof the accrued liabilities) over the period of the analysis, the boardof the fund should considerthe financial position of the fund at the effective dateof each significant transfer or retrenchment exercise, perform a distribution as noted above, and then accumulate the amounts forward by the at the investment return earned fund, recording the distribution that they deem appropriate for each such significant transfer or retrenchment exercise. This may better inform the board as to the equity of any past distribution of surplus, transfers or retrenchment exercises, relative to the financial position of the fund at the time of such exercises.
Q1, Q2 and Q3 as determined in subregulation (3)amongst the appropriate stakeholder group.
Where former membersto whom the board apportions some share of the surplus cannot be traced, the share of surplus apportionedto such former members shall be treated in the same manner as any unclaimed benefits are treated in the fund.