Multi-employer funds and the risk of unpaid contributions.

The column ‘legal snippets’ article deals with unpaid employer contributions and how they affect the member’s benefit. How unpaid contributions jeopardise a member’s benefits is relevant to multi-employer funds. Such funds face risk in the case of delinquent employers if their rules do not consider unpaid contributions.

In the case reported below, the Adjudicator instructed the fund to pay the fund credit immediately, as well as the outstanding employer contributions once received. The Adjudicator did not address the situation of the employer failing to pay the unpaid contributions. It implies that the fund would not pay the outstanding contributions if it did not receive them.

The rules of most occupational funds, as the Adjudicator also insinuates in this case, provide that the main portion of the member’s benefit would always comprise his fund credit. The definition of fund credit would primarily determine that it will consist of the ‘retirement portion’ of the employer’s contributions, the member’s contributions and the interest allocated. In most cases, contributions are a function of the member’s ‘pensionable’ salary.

As long as the member is employed, he will earn a pensionable salary, and the fund must build up the fund credit independently of whether the contributions were paid. The fund credit should, thus, comprise all contributions payable under the rules. The benefit, therefore, cannot be reduced by outstanding contributions, as underscored by section 37A of the PFA. In the reported case, the Adjudicator did not enter the details addressed in this article. With the information, I suggest that the determination is incorrect unless the Adjudicator knew that the definition of fund credit excludes unpaid contributions without referring to it in her determination.

In the case of an umbrella retirement fund comprising unrelated employers, the fund faces the risk of paying the fund credit without receiving all prescribed contributions. Such umbrella funds must ascertain that their rules define the fund credit as comprising only contributions received (rather than receivable) plus interest. I believe a rule that reduces the fund credit by unpaid contributions would contravene section 37A and be null and void.

An umbrella fund comprising multiple employers within one group of companies is mostly not exposed to the above risk as the holding company would stand for a delinquent group company. However, where this is not the case, the fund’s rules should also ensure that the fund credit is built up only with contributions received (rather than receivable).