Employer, pension fund are separate legal entities
If your employer provides a retirement fund, you need to understand that your employer is a separate legal entity to the fund, and the fund is regulated by a different set of laws to the employer.
A retirement fund is managed by its board of trustees and, in most cases, an administrator. The fund's rules and Pension Funds Act (PFA) determine the scope in which the administrators, board and trustees may act in administering funds.
Whereas the relationship between an employer and an employee is regulated by the Labour Relations Act, the Basic Conditions of Employment Act and the Employment Equity Act, the relationship between the fund and the employee is regulated by the PFA and the rules of the fund.
The only legal obligation that may arise on behalf of an employer which has contractually elected to provide an employee with retirement benefits is to make payment of the required contributions on behalf of the employee to the fund, and after the employer has paid the necessary monthly contribution to the fund on behalf of the employee it has few remaining obligations to the employee.
The savings accumulated in a fund are dependent on the contributions made to the fund, which can be made by the employer, the employee or both. Upon termination of the employee's employment with the employer, the fund (and not the employer) has the legal obligation to pay out benefits that accrue to the fund member.
On termination of employment, the employer does not receive any payment from the pension fund and has no obligation to pass on or make payment to the former employee.
There is no legal obligation on an employer to administer the fund (although it must have representatives on the board of trustees). The board of trustees and the administrator are obliged to run, operate and administer the fund generally. Therefore, if an employee is not paid out his or her benefits, an employee has a right of recourse against the fund and not the employer. Ordinarily then, after the monthly contribution has been paid over to the fund, the employer steps out of the picture and has nothing more to do with the member's pension benefit.
However, employers need to be aware that section 37D of the PFA allows a registered fund to deduct and pay any pension benefit that would usually be payable to a member or their beneficiaries, to the member's employer as compensation for damages caused to the employer by virtue of the employee’s dishonest conduct while employed.
The case of Highveld Steel & Vanadium Corporation Limited v Oosthuizen (2009) confirmed that the objective of section 37D(1)(b) is to protect an employer's right to recover money that has been stolen or misappropriated by its employees.
Furthermore, the Highveld case confirmed that, where an employer wants to seek the relief allowed by section 37D of the PFA, it is entitled to require the fund to withhold payment of the member’s benefit, until a court order is obtained confirming that the damages are payable to the employer, so that the fund can satisfy the court order out of the pension benefit.
Bradley Workman-Davies is a director at Werksmans Attorneys.