Withholding a pension benefit from a member as a result of a breach of an employment contract is unlawful, says the Pension Fund Adjudicator. Picture: 123RF/DOUW DE JAGER
Withholding a pension benefit from a member as a result of a breach of an employment contract is unlawful, says the Pension Fund Adjudicator. Picture: 123RF/DOUW DE JAGER

Trustees of retirement funds need to be cautious when dealing with employers who withhold the retirement benefits of employees who, on resignation or dismal, get accused of stealing from or defrauding their employer.

The office of the Pension Funds Adjudicator (PFA) has seen a number of these cases and in almost all, funds have failed to balance the competing interests of the employer and the member, Naheem Essop, a senior legal adviser at the PFA, said in a recent webinar hosted by the Institute of Retirement Funds.

“I foresee, in times of financial crisis, you probably will have a spike in workplace theft and fraud, so withholding of benefits becomes an important issue.

“Funds must balance competing interests. We don’t see that taking place. Most times, funds tell us the employer has opened a criminal case and that they’re keeping an eye on it. But you can’t balance competing interests without hearing from the member. Consider the prejudice that will be suffered by the member vs the prejudice that will be suffered by the employer if the benefit is paid out,” he says.

If funds don’t do this they will be doing employers and members a disservice and leave the PFA no choice but to overturn the fund’s decision, he says.

The PFA announced this week that it had issued two determinations against the Oasis Crescent Retirement Fund, ordering it to stop withholding benefits due to members.

Adjudicator Muvhango Lukhaimane said her office had received several complaints about the fund and had referred two determinations to the Financial Sector Conduct Authority for it to investigate the fund’s conduct.

Lukhaimane said her office had alerted the fund to the fact that withholding a benefit as a result of a breach of an employment contract was unlawful, but the fund had continued to withhold the benefits.

The adjudicator said this “wilful non-compliance” required the regulator’s intervention to ensure that members were not prejudiced by the fund’s failure to adhere to the Pension Funds Act.

In both the cases in which the adjudicator made a ruling, the members were employed by Oasis Group Holdings. In the first case, the member was employed for just short of four years until she resigned in September 2018.

She elected to transfer her withdrawal benefit to Old Mutual, but despite several follow ups, the Oasis Crescent Retirement Fund failed to transfer her pension savings, the adjudicator said.

Her fund credit in March 2018 was R39,300.

The fund told the adjudicator that it was notified by the employer that it intended to institute legal proceedings against the member for damages that her misconduct and dishonest acts had caused. Her withdrawal benefit had therefore been put on hold.

The employer told the adjudicator it had sufficient grounds for a successful claim for damages against the member, arising from the breach of her employment contract.

It alleged that the claim for costs incurred in remedying the member’s misconduct for dishonest acts in absconding from work amounted to R53,729.

Oasis Crescent Retirement Solutions, the administrator of the fund, told the adjudicator that the Pension Funds Act provides for a deduction from a pension benefit for amounts owed to an employer for damages caused by a member through theft, dishonesty, fraud or misconduct.  

In her determination, Lukhaimane said a retirement fund may deduct any amount a member owes his or her employer for damage caused as a result of theft, dishonesty, fraud or misconduct, but only if the member has admitted the liability to the employer in writing or a court judgment had been obtained against the member.

However, in this case, the alleged absconding that led to a breach of her employment contract did not fall within the misconduct provided for in the act, she said. It was therefore unlawful for the fund to withhold her benefit, she said in her ruling.

“A fund must satisfy itself that wilful and dishonest conduct did occur and that damages have resulted in consequence thereof. Unless there is strict compliance with the requirements for withholding a benefit, the deduction is not allowed,” Lukhaimane said.

The adjudicator said it was a concern that the fund took a passive role and failed to request reasons for the withholding of the benefit from the employer.

In a second similar case, the member resigned after five months at the end of June 2016 and was not paid his withdrawal benefit. He had not signed an admission of liability and no judgment was issued against him. He was, however, served with a summons, which reflected that he owed the company R118,945 in respect of recruitment costs.

The fund told the adjudicator that the employer notified it that a summons had been issued against the member and it had therefore put the member’s withdrawal benefit on hold.

The employer told the adjudicator it had incurred recruitment costs amounting to R188,100 when hiring the member.

His employment contract stated that if the member left before a certain period, the costs incurred would be recovered on a pro-rata basis, depending on how long he had worked. The pro-rated amount totalled R148,912, but the company recovered R29,966 and the outstanding amount was R118,945, Oasis told the adjudicator.

In her determination, Lukhaimane said a member’s failure to comply with the term of his employment contract to reimburse the recruitment expenses his employer incurred, did not fall within the ambit of misconduct provided for in the Pension Funds Act.

As a result, any withholding of his benefit on these grounds was unlawful, she said.

The adjudicator ordered the fund to pay both former members their withdrawal benefits plus late payment interest.

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