Such claims are permitted by our law, but they must meet strict requirements before the fund trustees may permit such a deduction.
The general rule – set out in terms of section 37A of the Pension Funds Act – is that no benefit of a member may be reduced, transferred, ceded or pledged by a fund other than as provided for in the Act. For the same reason, a member in debt may also not pledge, transfer or cede their retirement benefit to satisfy that debt.
Section 37D of the Pension Funds Act does permits certain deductions from a member’s retirement fund benefit. These are:
- Amounts due in respect of housing loans, granted by the fund/employer or for which the fund/employer agreed to stand surety;
- Pension interests awarded to former spouses on divorce;
- Maintenance claims awarded against the member and the fund;
- Damages due to an employer caused by a member’s misconduct;
- Amounts specifically approved by the Registrar.
When an employer claims for damages, it often pulls the fund administrator into the dispute between the employer and the member. The fund administrator cannot however be the arbitrator in such disputes, or exercise their discretion. Our Courts and the Pension Funds Adjudicator apply the provisions of section 37D of the Pension Funds Act very strictly, so they are obligated to do the same.
- The claim against the member must be in respect of damages suffered by the employer as a result of the member’s misconduct. Misconduct must include an element of dishonesty by the member – mere negligence by the member will not suffice. This is according to the decision of the High Court. In Moodley v Scottburgh/Umzinto North Local Transitional Council 2000 (4) SA 524 (D) the Court, in dealing with the meaning of misconduct used in section37D(b)(ii) of the Act, held that: “I am of the view that the common denominator of the specific words is dishonesty – they are species of the same genus, that is dishonesty, and it consequently follows that the meaning of the general word ‘misconduct’ must be inferred from that of the specific words, which means that misconduct used in this section must be interpreted to include dishonest conduct, or at least an element of dishonesty.”
- Proof of the member’s liability to the employer must be provided to the fund. This can be in the form of a written acknowledgement of liability by the member: the member acknowledges that they owe compensation to the employer for damages suffered by the employer due to their dishonest behaviour, as well as the amount due. It can also be in the form of judgement obtained against the member by the employer. In Multimatics (Pty) Ltd v Corporate Selection Umbrella Retirement Fund No 2 & Others the member had signed an acknowledgement of liability, but subsequently stated that she had signed the form under duress. The Adjudicator stated that in law, he who relies on a contract (agreement) must prove that it exists and that the onus therefore rests on the employer to show that the member had signed the admission freely and voluntarily.
- It must be noted that a criminal judgement against the member is not an order for compensation to be paid to the employer by the member. It is merely a criminal conviction by the State for a crime committed by the member. In order for the employer to satisfy the requirement that damages are due to the employer, the employer should apply for a compensation order, in terms of section 300 of the Criminal Procedure Act, for its claim to be satisfied by the fund. In S Ndumiso v Auto Workers Provident Fund and Ascension Trading CC t/a Ascension Motors the Adjudicator found that even though the member had been convicted for theft of the employer’s money, the employer had not obtained a compensation order and that the fund was therefore not permitted to deduct the loss suffered by the employer from the member’s benefit. The fund was ordered to pay the full withdrawal benefit to the member.
Observations from the 21st Annual Conference of the Pension Lawyers Association
There are still many incidents of abuse of the protection afforded to employers in section 37D(1)(b)(ii) of the Act. Trustees must not lose sight of the fact that the decision to withhold a benefit rests with them and not the employer. It is therefore very important that trustees receive the correct information and apply their minds to the request they receive from the employer. Furthermore, the trustees must monitor the progress of the investigation and/or court proceedings in respect of the alleged damages suffered by the employer.
There is no set time limit within which to request the trustees to withhold a benefit, however it is reasonable that it be done shortly after the termination of the member’s employment. Trustees and employers must note that a CCMA or Labour Court ruling is not sufficient grounds to withhold a benefit.
The trustees have a duty to consider the rights of both the employer and the member. This means that where the employer is the cause of undue delays in finalising the investigation and/or the litigation, the trustees must review this behaviour objectively and consider the rights of the member. This includes protecting the benefit from adverse market conditions i.e. disinvesting the benefit and holding it in the fund’s bank account.
Trustees are reminded of the fact that “misconduct” has to have an element of intent, it is not enough for the employer to show the member did not comply with a policy or procedure. The employer must show that the member acted intentionally in a certain situation. Lastly, trustees must not forget the ranking order of claims (namely maintenance orders and divorce orders).
