The Board of Trustees of a retirement fund (“the Board”) is empowered to withhold a member’s benefit so as to enable the employer to obtain judgment against the member in respect of damages caused by theft or fraud on the part of the member. The Western Cape High Court has in 2019 in the matter of SA Metal Group (Pty) Ltd v Deon Jeftha and 2 Others ruled that before the Board can decide to withhold a member’s benefit, “the employer’s case, as related to the fund, must be put to the employee to afford him an opportunity to respond thereto”.
The above decision was confirmed in a recent decision of the Financial Services Tribunal (“the Tribunal”) in the matter of FundsatWork Umbrella Provident Fund v Elvis Eliah Ngobeni and Another. The Tribunal further ruled that “the mere satisfaction by the trustees of a fund that the employer has placed allegations before them which, if true, would show damages arising from dishonest conduct by the employee, would not on its own be sufficient”. The Board can only resolve to withhold a member’s benefit if they are satisfied that there is “a well-grounded apprehension of irreparable harm or loss”.
When the Board receives a request from the employer to withhold a member’s benefit so as to enable the employer to obtain judgment against the member, the Board must, in view of the above, give the member the opportunity to respond to the employer’s allegations. The Board would further have to consider all the information before them, and would only be able to withhold the member’s benefit if they are satisfied that the employer has a reasonable chance of succeeding with its claim against the member, and that the employer will suffer “irreparable harm or loss” if the benefit is not withheld.
The Tribunal has further ruled in the above matter that a deduction can only be made from a member’s benefit in the case of a civil judgment, and that a member’s benefit may accordingly only be withheld in the case of a civil action, and not in the case of a pending criminal case against the member. This is somewhat concerning because, although a mere conviction is not sufficient, the Pension Funds Adjudicator (“the Adjudicator”) has on several occasions held that a deduction can also be made from a member’s benefit if the criminal court has ordered the member to compensate the employer in terms of section 300 of the Criminal Procedure Act. It remains to be seen whether the Adjudicator will in future cases follow the same approach as the Tribunal. In the meantime the Boards of retirement funds will have to be aware of the risk that the Adjudicator may, in accordance with the Tribunal’s decision, rule that a member’s benefit may not be withheld pending a criminal case against the member.
This article provides information of a general nature and does not constitute advice in respect of a particular client