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(June-2004) Complaints Tribunal court out
The reach of the Superannuation Complaints Tribunal and the relative positions of actuaries and superannuation fund trustees has been clarified by a recent Federal Court decision.
The Federal Court in early May effectively overturned a decision of the SCT because it found that the Tribunal had acted beyond its powers in seeking to join an actuary to the proceedings and had also erred with respect to determining that an actuarial surplus can effectively be deemed part of plan property.
The case revolved around complaints by three members of the Boeing Superannuation Plan who were made redundant as a result of a company reorganisation and who disputed the calculation of their pay-out from the superannuation plan.
The three complainants argued that they were receiving a “resignation benefit” rather than “the equitable share of the defined benefits plan”.
This was based on the plan rule that states: “If the member is leaving the service as a result of retrenchment or reorganisation of the company, the amount payable under this rule shall be the amount calculated by an actuary as being the member’s equitable share of the plan if the member remained in the service.”
Their complaint was last year upheld by the SCT on the basis of the actuary having used an inappropriate methodology which included the plan surplus.
The SCT’s decision stated: “It is clear that the ‘surplus’ is money held on account of the trustee as the result of income earned from investments. Accordingly, it is incorporated within the defined meaning of ‘plan’. It follows that in the calculation of a member’s ‘equitable share of the plan’ that the surplus should, by definition, be included. It is clear that the actuary did not include the surplus, ie. the actuary did not correctly inform herself of the definition to be applied.
“It follows from the above that the decision of the trustee in its operation to the complainant is not fair or reasonable in the circumstances. To correct that situation, the surplus should have been included in the calculation of the complainant’s benefit upon the reorganisation occurring. It is unfair to the complainant that the surplus was not included in the calculation of his benefit upon the reorganisation occurring. That calculation should be made by dividing the total assets and then extrapolating the share of the surplus owing to the complainant.”
However, the Federal Court overturned the SCT decision with Justice Spender stating that the Tribunal’s conclusion that because the “surplus” is part of the plan property, it necessarily followed that the calculation of “the member’s equitable share of the plan if the member remained in the service” should include a share of the surplus.
“In my judgment, in so concluding, the Tribunal erred,” Justice Spender says. “In my opinion, on its proper construction, r 7.4 indicates that a departing member should receive what is ‘equitable’, having regard to the member’s potential future benefits had the member remained in the service.”
He says the so-called surplus is not a defined amount, but is the notional amount which the actuary calculates exceeds so much of the plan property as is presently required to ensure that the plan will return to members the future benefits defined in the trust deed.
“In my opinion, the amounts the complainants would have received had they remained in the service until age 55 and then received a benefit upon retirement, would not have included any part of any ‘actuarial surplus’ at any particular time,” the judge says.
“The contrary interpretation which the tribunal adopted has the effect of discriminating in favour of departing members, because remaining members would not receive any share of the surplus when they received their defined benefits,” he says.
AUTHOR
Mike Taylor
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