Section 7A of the Pension Funds Act (PFA) requires a retirement fund to have a board of trustees with a minimum of four members. But can a fund’s rules allow for an indeterminate number of trustees?
Not according to the FSCA, which refused to register an amendment to the rules of the Textile Open Provident Fund because it did not stipulate the exact number of trustees.
The proposed amendment was the following:
“12.1.1 Subject to the provisions of the Act and of these Rules, the sole responsibility for the management of the Fund shall be vested in the Trustees. The board of trustees shall comprise at least 4 trustees, appointed and elected to office in accordance with the provisions of Rule 12.2.1 and Rule 12.3.2. The board of trustees are responsible to perform that obligation and duties as set out in the Act and in these Rules.
[…]
12.2.1 The employers may appoint the same number of trustees as are elected by the members in terms of Rule 12.3.2 or may appoint fewer trustees than are elected by the members in terms of that Rule and may also appoint alternate employers’ trustees. Any alternate employers’ trustee may replace an employer’s trustee who is temporarily unable to act in that capacity
[…]
12.3.1 The members shall elect a minimum of two trustees and may also elect alternate members’ trustees. Any alternate members’ trustee may replace a member’s trustee who is temporarily unable to act in that capacity.
12.3.2 The term of office of the members’ trustees is 4 years, and at the end of this period they shall cease to hold office but shall be eligible for re-election. An election shall take place in accordance with the following procedures:
(a) The members shall be asked to nominate candidates for election to the board of trustees as members’ trustees;
(b) Each nominee must accept his nomination in writing;
(c) If the number of nominations equals the number of vacancies, no voting shall take place and the candidates so nominated shall be the members’ trustees;
(d) If the number of nominations exceeds the number of vacancies, the members will then elect, by secret ballot, the members’ trustees from among the nominees who have accepted the nomination;
(e) The nominees who receive the highest number of votes will become the members’ trustees, and the nominees receiving the next highest number of votes (if any) shall become the alternate members’ trustees.”
In its letter declining to register the amendment, the FSCA said section 7A(1A) of the PFA implies that the rules must state the exact number of trustees. If the actual composition of the board is not stipulated, it will not be possible to determine whether the board is properly constituted at any given time, and there cannot be a vacant seat where the actual number of seats is not known.
Why the Tribunal agreed with the FSCA
The Textile Open Provident Fund brought an application before the Tribunal, seeking to have the Authority’s decision reconsidered.
The fund contended that the rule was not inconsistent with section 7A of the PFA. It argued that the Act does not require a fund’s rules to stipulate the maximum number of trustees – only that there should be a minimum of four.
But the Tribunal did not accept the fund’s argument.
It said section 7A(2) requires the rules to provide for the constitution of the board. Thus, the rules must provide for the specific number of board members because the number of board members constitute the board.
The Tribunal’s second difficulty with the fund’s argument was that the number of and/or the formula for appointing additional trustees to the board was decided outside of the rules and was determined by extrinsic factors and an external decision-making process. In the FST’s view, this violated section 7A(2), because the rules must provide for the full composition of the board.
Third, unless the rules stipulate the total number of trustees, the FST said it would be difficult to determine the number of vacancies, which, in turn, would impact the quorum requirement. Overall, this would also result in a lack of certainty and transparency in the rules.
The Tribunal said a fund has the discretion to determine the number of trustees on its board, but this discretion is ultimately subject to and constrained by the provisions of the PFA.
“On a proper construction of section 7A, it is implicit that a fund must stipulate the number of trustees on the board. Absent this, there can be no proper determination of the vacancies on the board, [the] full complement of the board, as well as the quorum of the board. It will be difficult to determine – and indeed may be fertile grounds for a dispute – as to the voting rights of members and the breaking of deadlocks,” the FST said.
The Tribunal said the FSCA’s decision not to approve and register the amendment was sound, and it dismissed the reconsideration application.
