An article on the Norton Rose Fulbright website poses an interesting and challenging question to trustees in terms of their obligation as far as the distribution of death benefits is concerned.
Prior to the introduction of section 37C into the Pension Funds Act No 24 of 1956, the benefit payable as a result of the death of a member would devolve in accordance with the will or the provisions of intestate succession. The introduction of section 37C brought a statutory regime which expressly excludes freedom of testation and rather looks to the board of a fund to distribute the death benefit.
The board may only pay the dependants of a deceased (either factual or legal) or the persons recorded on the nomination form. In very specific instances a board may make payment to a deceased estate. The section requires the board to exercise its discretion in a manner which results in an equitable distribution of the death benefit. It does not provide any guidelines on how this is to be achieved. Because of this, numerous decisions are challenged by the identified beneficiaries because they are unhappy with the manner in which the board exercised in its discretion. This results in many complaints being lodged with the Pension Funds Adjudicator. Many complaints should never have arisen or could have been easily solved by a proper exercise of discretion on the part of the board, or better understanding of section 37C by the public.
The problem is that complaints arising from a proposed distribution result in the money being held back, often to the detriment of the deceased’s family. Adequate training and understanding of the obligations under section 37C would probably result in fewer complaints to the adjudicator.
Trustees have a fiduciary duty to act with due care, diligence and good faith. This duty requires a trustee to understand the framework of section 37C, its prohibitions and requirements. It is unacceptable for a board to effect a distribution of a death benefit without applying the provisions of section 37C in full. Many boards have some understanding of section 37C, that is, the trustees are aware that they have to make a distribution but no further interrogation occurs. Trustees, for instance, should know that they have a duty to investigate and identify the dependants of the deceased member and that duty goes further than simply requesting information from the surviving spouse. This was evident in the decision of the adjudicator in Zikhali vs Metal Industries Provident Fund where the adjudicator stated that the onus be firmly on the board to conduct an investigation to trace the dependants of a deceased member. Where a board fails to carry out a reasonable investigation and makes payment of the death benefit, a dependant who surfaces at a later stage is entitled to be considered as a potential recipient despite the death benefit having already being distributed. In this instance, the board needs to assess whether the person is a dependant and should have received a portion of the death benefit.
I took the trouble to study the first four modules of the Trustee Toolkit on the FSB website. The obligation for regular training is clearly outlined, as are the responsibilities of the various members of the Board.
The view expressed above, that many complaints to the Pension Funds Adjudicator “…should never have arisen or could have been easily solved by a proper exercise of discretion on the part of the board, or better understanding of section 37C by the public”, indicates that more work needs to be done in this regard.
Please click here to read the full analysis on the Norton Rose Fulbright website.
Click here to access the Zikhali determination by the Pension Funds Adjudicator referred to above.