source: transnet, 20061 transnet pension fund amendment bill, 2006 select committee on labour and...

Source: Transnet, 2006 1

TRANSNET PENSION FUND AMENDMENT BILL, 2006

Select Committee on Labour and Public Enterprises, Cape Town13 February 2007


Table of Contents• Background• Rationale for Amendment Bill• Purpose of Bill• Proposals to limit impact• Principles behind the Amendments• Achieved Result• Amendments in Bill• Conclusion


Background• Previous Transnet Funds:

– Railways and Harbours Pension Fund for Black employees; and– Railways and Harbours Superannuation Fund

• These were merged into the Transnet Pension Fund established i.t.o Transnet Pension Fund Act, 1990 (“Act”) as a defined benefit fund (the employer guarantees the employee’s pension amount on retirement)

• all Transnet employees obliged to be members of the Transnet Pension Fund• Act amended in 2000 to establish two new funds:

– Transnet Second Defined Benefit Fund for Transnet pensioners, also a defined benefit fund which has been closed from 2000;

– Transnet Retirement Fund, a defined contribution fund (pensions amount on retirement depends on employees’ contributions and is not guaranteed) for all new Transnet employees from 2000


Background (cont.)• Most Transnet employees voluntarily transferred from Transnet

Pension Fund to the Transnet Retirement Fund (effective 1 Nov 2000)

• The Transnet Pension Fund is an existing fund and its members consist of all those members who are not pensioners and who did not transfer to the Transnet Retirement Fund

• The Transnet Pension Fund has been closed to new members since 2000, and now has approx. 10 000 members, including pensioners who retired after the establishment of the Transnet Second Defined Benefit Fund


Introduction

• The Transnet funds have some benefits under the Income Tax Act as paragraph (a) funds because they are established by statute

• Thus when a member leaves employment the portion of her/his lump sum benefits attributable to membership prior to 1 March 1998 may not be taxable

• Transnet’s restructuring includes the disposal of its non-core assets, including the transfer of its shares in SAA to Govt and the transfer of some of its business units (eg Metrorail) to other public entities (such as SARCC) or private sector entities (transfer of internal audit to Ernst& Young)


Impact of Transnet Restructuring• Termination of TPF membership for employees in

Transnet businesses transferring to other public entities or the private sector

• Transferring employees to join pension funds of new employers

• If the new employer’s pension fund is not a paragraph ‘a’ fund established by statute (i.a.w Income Tax Act definition), employees tax benefit for membership obtained prior 1 March 1998 vests on exit


Proposals to limit impact

• In April 2006 Transnet, DPE and Labour agreed:– to allow certain SOE employees continued membership in the

Transnet Retirement Fund (“TRF”)– to restructure the Transnet Pension Fund (“TPF”) into a multi-

employer fund to allow continued membership of specific employees

• This preserves the tax treatment of the benefits of existing fund members and ensures that no member is worse off than the status quo

• Transnet Pension Fund Act amendments (“Amendments”) are required to accommodate this agreement

• The draft Amendments have been approved by Transnet, the trustees of the three Transnet pension funds and Cabinet

• The draft Amendments are published in Government Gazette No. 29181, 1 September 2006


Principles of the Amendments• The Transnet pension fund -

– remains a closed defined benefit fund and is restructured into a multi-employer fund;

– will have stand-alone sub-funds and appropriate new governance structures

• The Transnet Retirement Fund – – remains a defined contribution fund – Allows existing members to retain their fund membership even

after transfer of the business to a new SOE employer• Transnet Second Defined Benefit Fund

– remains a closed defined benefit fund and is unchanged


Principles of the Amendments (TPF)• TPF still one legal entity• Now an independent multi-employer fund• Renamed the “Transport Pension Fund”• SOE employers (to whom Transnet businesses have been disposed

of) may join as a Principal Employers• One Sub-Fund per Principal Employer• Sub-Funds automatically consist of active members• Sale agreements determine allocation of Pensioner and Dependant

Pensioner members to Sub-Funds• The relevant liabilities, assets, rights and obligations allocated to the

Sub-Fund are determined by the Trustees, the fund valuator and actuary/ies

• Sub-Funds have clearly defined “ring-fenced” liabilities and assets• Each Principal Employer alone only guarantees its own Sub-Fund


Principles of the Amendments• Principle of separation of sub-funds (with ability to work together)• Two sets of rules

– general rules control governance, allocation of costs and statutory matters

– special rules control service, contributions and benefits• Two levels of trustees

– sub-fund boards manage all aspects of the sub-funds as determined by the special rules (incl. investment policy and administration of benefits and assets)

– Board of Trustees (“Board”) duty to control the governance of the fund as a whole and to allocate costs where necessary


Board of Trustees

Executive Committee

Audit / RiskCommittee

Investment Committee

FundAdministration

Strategic AssetManagement

Illustration – old TPF Structure


Board ofTrustees

Sub FundCommittee

ExecutiveCommittee


InvestmentCommittee

FundAdministration


Sub Fund Committee

ExecutiveCommittee


InvestmentCommittee

FundAdministration


Illustration – new TPF Structure


Principles of the Amendments (TRF)

• TRF to remain in principle a “Transnet fund”• Not a multi-employer independent fund• However, SOE employers (to whom

Transnet businesses have been disposed of) may also join as participating employers

• effectively allowing existing employees of these SOE employers to remain members of the TRF

• No new SOE employees to join TRF


Achieved result

• The benefits and tax treatment available to fund members is maintained

• On disposal, new employer will guarantee the defined benefit exposure of employees opting to remain in the TPF


Portfolio Committee Revisions

• Revisions aimed at simplifying the Bill, ensure constitutionality of the Bill and consistency with other legislation

• Committee Report states that Committee believes it was not appropriate for it to decide on whether or not new SOE employees should join the TRF

• SATAWU and SARWHU (representing the majority of Transnet workers) agreed that new SOE employees should not be included in the TRF and that this exclusion can be set out in the Bill

• UTATU and AUSA still held their views, but decided not the pursue the matter further during this legislative process.


The Amendments• To amend the Transnet Pension Funds Act, 1990, with effect from 11 November

2005 (to align with TRF and TPF rule amendments)

DEFINITIONS• to amend definitions for consistency and to insert new definitions as required

SECTION 2 (Disestablishment of old funds, establishment of TPF)• deletion of old section• replace with a “purpose” clause to assist in interpretation and understanding of the

Act

SECTION 3 (Obligations payable from revenue)• allowing for proportionate allocation of this obligation between employers, with

Ministerial oversight in case of dispute


The AmendmentsSECTION 4 (Rights and obligations of members and beneficiaries)• deletion of old section• new wording to provide for transfer of rights and obligation at the establishment of

the TPF in 1990SECTION 4A (Division of TPF into Sub-Funds)• On commencement of Amendment Act, TPF will be divided into sub-funds• establishes sub-funds from date of introduction of new Principal Employer• Sets out procedure for assignment of active members to sub-funds• assignment of Pensioners and Dependant Pensioners by way of agreement between

Seller and Purchaser• Establishes sub-fund boards and minimum requirements for the special rules which

shall govern the sub-funds as well as powers and duties of the sub-fund boards• transfer of liabilities, assets, rights and obligations determined by Board and

actuary/ies• provide for transfers between sub-funds


The AmendmentsSECTION 4A (division of TPF) cont.• Sets out powers and duties of TPF Board of Trustees, including allocating to

each sub-fund benefits, costs, losses or liabilities incurred by the TPF and attributable to each sub-fund

• Provides for general rules for the governance and management of the TPF; including the allocation of costs, administration, valuation and audits of the TPF

• deleted initial approval and publication of rules as this requirements has been met

• General Rules may be amended by the trustees with the approval of all Principal Employers or majority of Principal Employers and the Minister of Public Enterprises

• Special Rules may be amended by the sub-fund board with the approval of the applicable Principal employer

• If in the opinion of the TPF valuator an amendment may affect either to the general or the special rules may affect the financial condition of the TPF or any sub-fund, the Ministers of Public Enterprises and Finance must approval the amendment

• Both general rules and special rules are binding


The AmendmentsSECTION 4A (Division Of TPF) cont.

• If the sub-fund assets are insufficient to pay for benefits due to members, pensioners etc., the Principal Employer is liable to the TPF for payment of such benefits

• Limits employer’s liability to the TPF to liabilities attributable to members etc. assigned to that employer’s sub-fund


The AmendmentsSECTION 6 (Actuarial evaluation)• to provide trustee appointed valuators at intervals of not more than 3 years• to provide for the valuation of each Sub-Fund of the TPF as if it were a

separate entity• expands application of reporting requirements• Moves guarantee clause to Section 5(12) and Section 12

SECTION 7 (Benefits not assignable)• includes deduction from benefits of amounts to be deducted in terms of the

Maintenance Act

SECTION 8 (How pension are affected by insolvency)• expands concept of pension to a “benefit including an annuity”• clarify exclusion of benefit from insolvent estate


The AmendmentsSECTION 9 (Recovery of debts)• no material changes (at requested of TPF)

SECTION 10 (Application of benefits iro housing debts)• to allow for deductions of amounts owing to third parties (Not just employer)

who provide housing finance backed by fund guarantees• necessary to facilitate non-core disposal

SECTION 11-12• no material changes

SECTION 13 (Registration … of Pension Funds Act)


The AmendmentsSECTION 14 (Employees of Employer group)• to reflect that TPF is only for persons who were

members of the fund as at “effective date”, and who will become employed by an SOE following the disposal by Transnet of non-core assets and businesses to the SOE, which new employer, or which holding company of the new employer has become approved as a new Principal Employer

• to reflect that after the commencement of the Amendment Act, the TRF is only for Transnet employees


The AmendmentsSECTION 14A (Power to establish Pension Funds)• no material changes

SECTION 14B (Establishment of TSDBF)• TSDBF Rules may only be amended by TSDBF Board of Trustees and

approved by Transnet• If an amendment is likely to affect the financial condition of the TSDBF, it

must be approved by the Ministers of Public Enterprises and Finance• Minister of Public Enterprises may publish a notice in the Government

Gazette and determine which of the persons currently receiving a pension from Transnet must receive such pension from TSDBF and the pension cannot be less favourable than at present

SECTION 15A (Power to make regulations)• to give the Minister the power to make regulations in terms of the Act, and

provide for matters related or incidental to such matters


Conclusion

• The Amendments form part of Transnet’s restructuring, and

• protect benefits of existing TPF members affected by the restructuring by legitimising the continued membership of the fund by SOE employees

source: transnet, 20061 transnet pension fund amendment bill, 2006 select committee on labour and...

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