What the FSCA and retirement funds are doing to tackle arrears

The Financial Sector Conduct Authority and retirement funds have adopted a multi-pronged approach to address the non-payment of contributions by employers.

The Authority last week released its latest list of employers that were in arrears with their contributions at the end of March, as reported by funds. The FSCA said its “naming and shaming” of delinquent employers is an important tool for holding them accountable to their employees and holding funds accountable to their members.

Read: 50% surge in employers in arrears with retirement contributions

Commissioner Unathi Kamlana told a media briefing last week that the Authority “will continue to use every tool at our disposal, including transparency through these publications, to protect members’ interests and strengthen the integrity of the retirement system”.

There have been “very good movement and improvements” over a relatively short period, and “it can only get better in the next 12 to 18 months”, Kamlana said.

“I’m very hopeful that in the next sort of 18 to 24 months, we will be talking about a completely different story in terms of employers appreciating their legal and fiduciary duties, and trustees themselves also appreciating the personal risk. If people care about their names, they will not want to be associated with employers or funds where you have this issue of arrear contributions not being addressed.”

Kamlana said arrear contributions are not only an issue for the affected fund members but are “also a test of regulatory effectiveness”.

The FSCA does not have “a perfect toolkit”, because until the Conduct of Financial Institutions Bill is enacted, it does not have jurisdiction over employers. However, it will deploy the tools it does have and will work with external entities to address the problem.

In this regard, the Authority has been collaborating with National Treasury, the Office of the Auditor-General, the South African Revenue Service (SARS), and law enforcement agencies, including the South African Police Service (SAPS) and the Directorate for Priority Crime Investigation (DPCI, or Hawks).

“Through our collaboration with law enforcement agencies, particularly SAPS, we have already seen a number of arrests being made in certain municipalities, a development we very much welcome.

“We remain committed to working with law enforcement where required, and with all other stakeholders to ensure that those responsible are held fully accountable and face the full might of the law,” Kamlana said.

Treasury intervention

Keabetswe Tsuene, a specialist analyst in the Retirement Fund Conduct Supervision department, provided details on the arrears that have been recovered through the FSCA’s requesting the intervention of National Treasury.

Treasury withheld equitable shares from delinquent municipalities in March and July this year. The equitable share is the guaranteed, formula-based portion of nationally collected revenue that municipalities receive to ensure they can deliver basic services and operate sustainably, regardless of their revenue-raising capacity.

In March, Treasury withheld equitable shares from all municipalities that owed contributions, while in July, this was restricted to municipalities that owed more than R2 million. This process involves Treasury notifying municipalities, withholding the amount owed, and releasing it upon proof of payment to third parties, including retirement funds.

Engagements between Treasury and various municipalities, along with withholding the March tranche, resulted in one fund recovering R39m owed by various municipalities. The second withholding in July enabled the recovery of about R50m.

“Treasury’s intervention has greatly assisted us, particularly in the case of municipalities with long-standing arrears,” Tsuene said.

One of the issues to emerge from the initial withholding was municipalities and funds providing conflicting information over how much was owed. In some cases, it was found that the municipality was not in arrears, but it had not provided the fund with up-to-date membership data, so the fund was unaware that some members were no longer employees.

Despite these measures, the amount owed by municipalities has increased from R1.4 billion last year to R1.5bn this year, because they are unable to keep up with their current contributions and late-payment interest, Tsuene said.

The Authority has engaged with the Department of Employment and Labour to discuss amendments to the Basic Conditions of Employment Act. The amendments seek to grant the Labour Court, the Commission for Conciliation, Mediation and Arbitration, and bargaining councils the power to order employers to pay their outstanding contributions, including interest. They will also grant labour inspectors the power to monitor the payment of contributions, Tsuene said.

The FSCA has referred just under 1 200 employers to SARS for possible contraventions of the Income Tax Act.

Opening cases with SAPS

Trustees have a duty to ensure that contributions are received timeously, and if that does not occur, they must take reasonable steps to recover the money due. Conduct Standard 1 of 2022 requires trustees to report non-compliant employers to SAPS, and the fund must also take action to try to recover the money from the employer or employer’s directors.

The FSCA has had engagements with the National Prosecuting Authority and the DPCI. The Authority prepared a briefing note with a list of cases opened by retirement funds at various police stations and asked the DPCI to make contraventions of section 13A of the Pension Funds Act a priority. The FSCA is waiting for feedback on the status of these cases.

According to the latest statistics, there are 1 010 instances where employers have been reported to SAPS. Tsuene said this seems like a low number in the context of the reported 15 521 non-compliant employers at the end of March, but it is a significant increase from the 130 cases reported at the end of December 2023.

Arrests in connection with unpaid contributions have been made in five municipalities in the Northern Cape. The Authority is not aware of any prosecutions.

Deputy Commissioner Astrid Ludin acknowledged that trustees have struggled to register cases against employers at police stations where the SAPS do not take their complaints seriously. This is why the Authority has briefed the DPCI, and more engagements will be held.

“But we’re seeing that tide turning now […] We’re seeing a much more concerted effort. We’re seeing more collaboration,” Ludin said.

Zareena Camroodien, the head of the Fund Governance and Trustee Conduct department, urged funds to report difficulties with opening cases at SAPS to the FSCA, which will take up the matter to the DPCI.

Corlia Buitendag, the head of the Retirement Fund Conduct Supervision department, said the FSCA plans to act against trustees who cannot prove that they have initiated recoveries or legal action against non-compliant employers. The Authority had not done so because it did not have the resources, but it now has a dedicated team to assist with that type of regulatory action, she said.

Legal action by funds

The statistics show 8 320 instances of funds taking legal action against employers. Notably, the Motor Industry Provident Fund and the Auto Workers Provident Fund accounted for 5 329 of the legal actions taken.

Legal action can include enforcing a determination issued by the Office of the Pension Funds Adjudicator (OPFA) by obtaining a court order. It can also include entering an Acknowledge of Debt (AOD) with an employer and then approaching the courts to make the AOD an order of court.

Tsuene said there are cases where employers have been held personally for unpaid contributions.

In January this year, the High Court in Bloemfontein ordered the Mafube Local Municipality, four municipal officers, and the administrator appointed to sort out the municipality’s finances more than R14 million, plus interest, to the Municipal Workers’ Retirement Fund. The Court forwarded the judgment to the Director of Public Prosecutions in the Free State for further investigation. Tsuene said the officials have lodged an appeal.

Read: Retirement fund secures R14m order against municipality and its officers

Also in January, the High Court in Cape Town found two directors personally liable for contributions owed to the Engineering Industries Pension Fund and the Metal Industries Provident Fund.

Read: Directors found liable for unpaid retirement contributions

The latest statistics show 486 cases where employers and funds arranged to settle the arrears. Tsuene said this figure is likely an under-count, because some funds would have classified settlement arrangements as part of their legal action.

Other measures by funds

The statistics show 3 466 cases where employers are terminated or liquidated. Tsuene said this number needs further interrogation, because some funds report that an employer is liquidated when they check its registration number on the Companies and Intellectual Property Commission’s website, while others report the liquidation of an employer in the fund. She said that in time, the FSCA will be able to ascertain which one applies when a fund reports a liquidation or termination.

Regarding funds that are covered by a bargaining council, funds have referred 2 341 instances to bargaining councils’ dispute resolution processes to try to recoup the arrears.

Funds can lodge complaints with the OPFA against non-compliant employers – and 246 such complaints have been brought.

Tsuene drew attention to the 441 instances where the two motor industry provident funds listed defaulting employers with credit bureau Experian, which will affect their ability to access credit. She said this demonstrates that funds are thinking of alternative avenues that will get an employer to the negotiating table and force it to settle its arrears.