A recent judgment by the High Court in Pretoria has confirmed that retirement funds are distinct from the employer and its employees, as well as bargaining councils. The trustees are responsible for the affairs of a fund, and third parties cannot intrude into their powers, Cliffe Dekker Hofmeyr (CDH) said.
The South African Local Government Bargaining Council (SALGBC), the South African Local Government Association (Salga), the Independent Municipal and Allied Trade Union (Imatu), and the South African Municipal Workers Union (Samwu) entered a collective agreement (CA) in September 2021.
A full bench of the High Court declared unlawful and set aside the CA because it undermined the statutory obligations of the Municipal Workers Retirement Fund (MWRF).
The CA affected 250 000 employees and thousands of other retirees.
The purpose of the CA was, among other things, to establish a uniform approach to the provision of retirement fund benefits to employees in the local government sector.
The MWRF took issue with the CA on the basis that it was not within the domain of the SALGBC, Salga, Imatu and Samwu because it sought to impose conditions for the continued operation of the retirement funds by “coercive force” and disregarded the autonomy of the affected funds and the obligations of the trustees.
The “coercive force” was the creation of an accreditation process for funds under the terms of the CA and member transfer provisions that were non-existent. The CA provided that a fund had to be accredited under the agreement to receive member contributions.
The court considered whether the accreditation terms set out in the CA were binding on the funds and whether their implementation would impinge upon the discretion of the funds’ trustees. Another consideration was whether the effect of the CA could result in one or more or all the funds in the sector being regarded as financially unviable.
Inconsistent with the PFA
Judge Anthony Millar, with judges Elmarie van der Schyff and Mandla Mbongwe concurring, found that the CA was prejudicial to the independence of the board of trustees, and the proposed rule changes were inconsistent with the Pension Funds Act (PFA).
The specific rule changes that would be effected if accreditation were sought, together with the fact that the CA permits its accreditation committee to change rules and compel the adoption of those new rules, would subvert the entire regulatory and directory regime of the PFA by imposing a parallel supervisory regime under the auspices of the respondents, Judge Millar said.
“The entire construction of the accreditation regime is inimical to the separation of identity and interests between employers and the pension funds and fundamentally amounts to a rule-based intrusion on the statutorily protected independence of the trustees of pension funds.”
The argument of the respondents that the payment of the retirement fund contributions during the currency of employment of contributing employees brought the subject matter of the CA within the ambit of a collective agreement was not sustainable, Judge Millar said.
Their argument was predicated on the contention that retirement payments are “deferred emoluments”, but he said this was not the case. The retirement payment that is ultimately received is an aggregation of employee and employer contributions, plus net investment growth over the period during which the employee contributed.
The entitlement to a pension bears no relation to the actual amount of work done for services rendered historically or contributions by or on behalf of any employee and thus cannot be characterised as the payment of a deferred emolument.
The terms of the CA “stray impermissibly” beyond the scope of a collective agreement as provided for in the Labour Relations Act – beyond any matter of “mutual interest” extant during the employment relationship between the employee members and their employers.
“The very terms upon which accreditation is to be granted requires the applicants to acquiesce to rule changes. If these changes were to be registered, it would have the effect of divesting a board of its independence and imperilling management by limiting the ability to properly plan for any long-term investment, beyond the time periods which the amended rules would grant to employee members to make an election to transfer to a different fund from time to time,” Judge Millar said.
The High Court reviewed and set aside the CA, except for one clause. The SALGBC, Salga, Imatu and Samwu were ordered to pay the MWRF’s costs.
Commentary
CDH said the judgment confirms what has long been held in South African law, that retirement funds are and remain separate and distinct entities from the employer and their employees. In addition, the rules of a retirement fund provide the guiding principles upon which its trustees are required to operate.
A CA that seeks to deal with retirement funds must be concluded with reference not only to employment laws but also the PFA.
Furthermore, bargaining councils may not intrude into the workings of a fund where this would interfere with or corrode the protections entrenched by the PFA, CDH said.
