An employer does not have to prove fraud, dishonesty or theft to a retirement fund, and a fund is not expected to make a judgment about whether the employer has, in fact, proved a case of fraud, dishonesty or theft against an employee. The fund must merely be satisfied that the employer has made out a prima facie case against the member, and that there are reasonable chances of success in the proceedings.
This was stated by the Financial Services Tribunal when it ordered the Pension Funds Adjudicator (PFA) to reconsider a determination that set aside the FundsAtWork Umbrella Provident Fund’s decision to withhold the withdrawal benefit of a former Tape Aids for the Blind (TAB) employee accused of fraud.
The tribunal said the timeline of events was material to the determination of the matter.
- TAB dismissed the fund member in December 2019.
- In January 2020, it told the fund to withhold the member’s benefit of R401 002 pending the finalisation of legal proceedings against him.
- On 6 March, TAB told the fund it was in the process of opening a criminal case against the member. Its attorney had been instructed to recover a yet-to-be determined amount. On 26 March, TAB told the fund that criminal charges had been laid the previous day. It advised the fund that the loss was R650 000.
- On 9 June, the fund received a complaint from the member via the PFA. On 18 June, TAB told the fund that the matter had been transferred to the Commercial Crimes Unit.
- On 3 July 2020, the fund asked the member to respond to TAB’s submissions. He did not respond, although he undertook to do so.
- During the hearing, the tribunal was told that the member’s attorney had not responded, because he had died after an illness.
‘Fund did not exercise its discretion properly’
The PFA set aside the fund’s decision because:
- The decision to withhold the withdrawal benefit was not weighed against any material facts presented to the fund. When the fund decided to withhold the benefit in January, it had no meaningful information to enable it to exercise proper discretion.
- The fund communicated with the member only in July 2020. The PFA said the fund was required to exercise its discretion and balance the competing interest of both parties. In so doing, it would have to assess the potential harm that will be suffered by the complainant if his benefit were withheld indefinitely, balanced against the potential harm to the employer.
- The fund did not exercise its discretion in accordance with its fiduciary responsibilities. The only information the fund had was that the criminal case had been opened against the complainant. Moreover, the fund continued to withhold the complainant’s withdrawal benefit without supporting evidence that the employer had made out a prima facie case against him.
‘Fund was not remiss’
In considering whether the fund had acted with due care and reasonableness, the tribunal referred to the views of the High Court in SA Metal Group (Pty) Ltd v Jeftha and those of the Supreme Court of Appeal in Highveld Steel and Vanadium Corporation v Oosthuizen.
The tribunal said a fund should not merely rubber stamp an employer’s request to withhold a member’s benefit without at least probing into the circumstances and considering the member’s financial status since leaving their employment.
However, it pointed out that:
- The fund had given the member an opportunity to respond, but he had not done so.
- The day after being instructed to withhold the member’s benefit, the fund had requested extensive information from TAB, including the rand value of the damage suffered by TAB, when it had started its investigation into the employee’s misconduct, and the progress of the legal proceedings.
- Between January and June 2020, the fund had been in “constant communication” with TAB about developments in the case against the member.
Employer’s interest
With regard to the need to balance the interest of both parties and the strength of the employer’s case, the tribunal said:
- Without the member’s response, TAB’s allegations against him remained uncontested.
- The prejudice TAB would suffer if the funds were released far outweighs the consequences of what the member might suffer.
- If the member were paid and judgment were subsequently obtained against him, TAB would find itself in an invidious position to recover the damages pertaining to the alleged fraud.
- The objective of section 37D of the Pension Funds Act is also to protect the employer from loss suffered at the hands of the employee. “It would serve no purpose if employees were allowed to defraud employers, where they simply resigned and claim their pension benefit.”
However, the tribunal also pointed out that it was “concerning” that TAB’s criminal proceedings against the member “have failed to gain momentum”, and the fund had to investigate this.
A fund cannot withhold a member’s benefit indefinitely.
The member had to be given an opportunity to refute the employer’s allegations, while allowing the trustees to consider the extent of the financial prejudice he would suffer, the tribunal said.
The tribunal upheld TAB’s application and referred the matter to the PFA for reconsideration.
