Keeping bosses' hands off pensions
It's tough to police companies' theft of workers' savings — but not impossible
The theft of employees' retirement fund contributions to bankroll businesses is rife in South Africa, to the detriment of thousands of workers who are often oblivious to the crime that threatens their income security in later years.
The problem - which is keeping the financial sector regulator awake at night - has also overburdened and infuriated the pension funds adjudicator and has many pension lawyers hot under the collar.
But workers are the biggest losers - their anger and frustration bubbling over in incidents like one recently when 40 retrenched OR Tambo International Airport security guards held staff at Reshebile Aviation and Protection Services hostage, demanding that a reported R1.2-million in arrears contributions be paid.
Despite legislative changes more than four years ago making it a criminal offence for employers to withhold contributions they are obliged to pay, successful prosecutions are rare.
No security for these guards
Many security guards who are members of the Private Sector Security Provident Fund have been victims of employers who steal contributions deducted from their wages and they have lodged thousands of complaints with the pension funds adjudicator over the years.
For the year to March, the adjudicator's office received 2,693 new complaints about this fund. It finalised 1,928 of these of which 782 dealt with withdrawal benefits, adjudicator Muvhango Lukhaimane says.
Lukhaimane says security guards working for Reshebile Aviation and Protection Services at OR Tambo airport, who are reportedly owed R1.2-million in contributions outstanding since July, recently laid 55 complaints.
The amended legislation also gives retirement funds the duty to hold company executives liable in their personal capacities for outstanding contributions and exposes them to a potential fine of up to R10-million or a jail term of 10 years.
But Muvhango Lukhaimane, the adjudicator, struggles to issue determinations that can assist funds to go after company bosses because the trustees haven't identified company representatives who are liable for paying contributions over to funds. Only when she has names can she order these individuals to pay back the money, and if employers or their senior officials refuse to comply, the sheriff can be sent to knock on their doors.
At least one legal firm, however, is making progress. Johannesburg firm Soonder Incorporated has used threats of criminal prosecution and personal liability of directors or executives to recover some R600-million over four years for members of five different funds, says pension lawyer Anesh Soonder.
Lukhaimane says the problem of unpaid contributions is more pressing than that of unclaimed benefits as the amounts involved for individual members are greater.
While the majority of the beneficiaries of unclaimed money in retirement funds or unclaimed benefits funds are owed small amounts from R200 to R2,000, many employers have failed to pay monthly contributions for years, she says.
The affected employees are often blissfully unaware that their employer is deducting money from their pay and using it to settle the company debts or for directors' drawings. Lukhaimane says members only realise when they resign and the fund is unable to pay the withdrawal benefit because contributions are outstanding.
She says this problem creates 80% of the work in her office.
The adjudicator says that complaints to her office from members - last year the office received 7,500 - do not reveal the full extent of the problem. If two employees from a company with 100 employees lodge complaints, contributions for the other 98 employees have most likely also not been paid.
Soonder says his firm has more than 1,000 cases that it is in the process of reporting to the police.
No employers have yet been summoned before the enforcement committee
He says there are some 1,650 active retirement funds and if employers are failing to pay in a conservatively estimated 10% of funds, that is 165 funds that are affected.
Lukhaimane says the biggest offenders are employers in the security, road freight, auto, contract cleaning, metal and hairdressing industries that are governed by bargaining council agreements that oblige them to contribute to umbrella funds serving these sectors.
But umbrella funds sponsored by large financial institutions serving many small to medium funds are not immune. Typically, however, commercial umbrella funds will terminate the membership of an employer group when contributions are outstanding for more than a few months.
The Financial Sector Conduct Authority, formerly the Financial Services Board, has the authority to take those contravening the laws it regulates to its enforcement committee, but no errant employers have yet been summoned before the committee.
Olano Makhubela, the deputy executive in charge of retirement funds at the FSCA, says its legal advice is that the Pension Funds Act does not give the regulator the power to take employers to the enforcement committee.
He admits that unpaid contributions is one of three retirement fund issues that keep him awake at night - trustees who don't govern funds well and the unclaimed benefits issue being the other two.
He says trustees have to protect members and the newly promulgated Financial Sector Regulation Act does give the FSCA extended powers to put pressure on trustees to pursue employers using the mechanisms provided in the Pension Funds Act.
When this fails, he says, retirement fund members should approach the adjudicator because she has the power to order an employer to honour its commitments and her orders are enforceable by a court of law.
But Lukhaimane says the FSCA isn't doing enough to compel trustees to comply with regulations by identifying company executives responsible for contributions and reporting outstanding contributions.
She says if employers knew that someone was watching them, they would be more likely to comply with their obligations.
80% of the pension funds adjudicator's case load is complaints about withdrawal or death benefits arising from unpaid contributions
She is also of the view that the criminal provisions in the Pension Funds Act are ineffective because they were put in place without ensuring the police had the capacity to enforce them. And on the FSCA's plans to work with the police and publish a guide for funds on how to report these cases, Lukhaimane says complaints reveal a failure to follow through on such efforts.
Lawyers at this year's Pension Lawyers Association conference related tales of cases reported to the police that had come to naught or where they had been advised that the case would come before court only in three years.
However, Soonder says he has had some success, especially in KwaZulu-Natal, after providing training for senior police officials on the criminal offence under the Pension Funds Act. He says when employers get a visit from the police, they quickly find the money to pay arrears contributions.
Ducking and weaving to dodge obligations
Many pension lawyers are frustrated because their efforts to recover outstanding retirement fund contributions from employers are either thwarted or ratchet up legal costs that members must foot.
Lawyers advising pension funds who attended this year's Pension Lawyers Association conference related tales of employers who threatened to liquidate the company if the fund pursued the employer for outstanding contributions. Or they only pay contributions when action is taken and then immediately renege on obligations for subsequent contributions that are due.
Rebecca Jansch, a partner at Shepstone Wylie, says some employers liquidated their companies to avoid paying outstanding contributions, only to start up again soon after under a new company name.
She says there is no provision in the Pension Funds Act for funds to negotiate payment plans with employers who genuinely are experiencing financial difficulty.
A consultant at a retirement fund administrator, who does not want to be named, says the legal costs for recovering R15-million of contributions outstanding by one employer were running at more than R300,000, and taking further legal action would incur even greater costs. The employer, however, has no assets to attach, she says.
Jansch says errant employers typically do not submit a schedule of contributions to the fund so that the fund knows which employees are still on the company's books, and what contributions are outstanding in respect of the employees who are.
This means funds need to go to court with an application to force the employer to send it the schedule and then the fund must submit a second application to court asking for the claim to be enforced.
This can involve high costs for the fund, she says.
Anesh Soonder, an attorney with Soonder Incorporated, says outstanding contributions can quickly escalate because the Pension Funds Act provides for punitive interest - at a rate that is a multiple of the repo rate - on this money. This can exacerbate an employer's financial problems.
But he says there are also employers who can but don't pay and he has had some successes bringing criminal cases against them and holding company directors and executives civilly liable in their personal capacities.
Independent Johannesburg-based advocate Hannine Drake shared with delegates at the conference how some municipal funds had forced municipalities to pay contributions in arrears by obtaining an order against the employer and sending the sheriff to attach municipal assets - including a town hall and a mayor's car.
Drake said the enforceable regulation that obliges trustees to inform members that their contributions have not been paid into the fund is underapplied. She said the Financial Sector Conduct Authority was of the view that it is not enough for funds to send members an SMS.
Members should be sent a letter explaining all the implications of the employer's failure to pay contributions on fund values and on any risk cover offered to members.