Super fund trustees are mostly aware of the fundamental importance of the trust deed as the central document regulating their fund and the rights of its members. A trust deed is a legal document, and is backed up by a large and complex body of statute and common law. Most trustees are not, however, lawyers (I am not suggesting they should be, and even lawyers are by no means infallible). It is therefore understandable that trustees may become confused or uncertain about the exact nature and scope of their duties under the trust deed.
A dispute arises, concerning their own or another fund. The matter goes to court. The court looks at the trust deed, and interprets it in a way that is perhaps surprising to the trustees, and is different from the way they have viewed and administered the fund. The question may be asked: which do trustees follow — their trust deed, or a different rule, which the court appears to have laid down?
The short answer is this: a validly drawn and executed trust deed properly regulates the fund and the rights of its members, and trustees must abide by it and give effect to its provisions.
The court, for its part, is merely trying to get at the true meaning of the trust deed and to see that it is implemented properly. Even the court may be wrong — that is why we have appeal courts. But until a court’s decision is shown to be wrong on appeal, its view of a particular trust deed is the ‘correct’ view, and must be followed by trustees.
So it all comes back to the trust deed itself. Trustees simply must be familiar with the terms of their trust deed, and must administer, or oversee the administration of, their fund according to its terms.
It seems that some trustees, even those of larger funds, are still not fully aware of this paramount duty. A recent Federal court case, on appeal from the Superannuation Complaints Tribunal, showed a disturbing level of ignorance on the part of the administrative staff of a large fund (with assets of over $148 million) about the terms of their own trust deed and insurance policy. This extended to such basic matters like when and how a person became a member of the fund and obtained insurance cover.
The fund’s trust deed plainly stated that a person would become a member when nominated by the “participating employer” or if required by the trustee, when applying for membership. The fund had a group life insurance policy that provided for automatic acceptance of members for basic cover, on nomination by the fund.
There was a dispute about whether a death benefit was payable to the estate of a person who had died shortly after joining her employer. A few days after her death, the employer paid contributions on behalf of its employees for the previous month, including a contribution for the now deceased employee. Under the deed, this was enough to constitute a nomination for membership.
However, in a letter to the deceased’s personal representative, a member services officer denied that she had insurance cover. This letter, according to the court, was “riddled with mistakes”. In particular, the writer asserted that insurance cover required an application by the member. There was, however, no such requirement in either the trust deed or the insurance policy. This letter, with its errors, was confirmed by a later letter from the fund’s member services supervisor. Even when the matter went to court, it was clear from their evidence that the fund’s administrators were thoroughly confused about their own documents. They spoke of “provisional members”, whereas the trust deed made it clear that a person either was a member or was not. They said that a person could become a member only by lodging an application form, but the trust deed was plain that an employer could nominate its employee for membership and they said that members had to apply for insurance cover, although under the policy basic death cover was automatically provided to all members.
The judge’s concluding remarks are worth quoting:
“It is a matter of concern to me that a company entrusted with funds of this order should have exhibited such confusion about its members’ rights, and should have issued such inaccurate documents, as the evidence shows [the fund] to have done. Plainly, there is a need to ensure better training of employees of regulated funds.”
The judge also said that it was a matter of concern that “it was possible for [the fund] to operate under a trust deed that did not ensure death benefit cover from the date of commencement of the employee’s employment but, rather, depended upon two separate acts of nomination, either of which could be delayed without the employee’s knowledge. Under a system like that enshrined in this deed, employees of inefficient or dishonest employers are at considerable risk. There would seem to be a compelling case for making whatever legislative amendments are necessary to ensure all regulated funds provide full cover to all employees as from the date of commencement of their employment, regardless of any omission by the employer or trustee.”
— Brian Egan is a freelance commentator on superannuation, tax and corporations law matters, and a principal of Sirius Information Services.
