The Financial Sector Conduct Authority (FSCA) recently issued two publications, regarding the payment of retirement fund contributions aimed at distressed employers and employees in light of the COVID-19 pandemic. The two communications published on the 26th and 27th of March 2020 were FSCA Communication 11 of 2020 (RF) and FSCA Press Release: FSCA issues guidance note to retirement funds industry to respond to COVID-19 risk.
These communications serve as guidance to retirement funds to support employers who are unable to pay the contributions on behalf of their employees to their retirement funds in terms of Section 13A of the Pension Funds Act, which states that contributions due to the fund in terms of the rules are payable by no later than seven days after the end of the month.
Retirement funds that have rules which make provision for temporary absence from work, a break in service (in instances where employees are not working), postponement of contribution payments and/or a reduction in pensionable service (employees who are working reduced hours), are encouraged to apply these rules to alleviate the financial difficulties of distressed employers and members. Where employers have formally requested the suspension or reduction of contributions, the Boards of funds must consider these requests in accordance with the rules. Furthermore, retirement funds have an obligation to make every effort to ensure that full risk benefit premiums continue to be paid in full in respect of the affected employees in order to guarantee that the fund risk benefits will continue to be provided.
The FSCA is urging that retirement funds that do not have similar rules or procedures to make provision for financially distressed employers and/or employees, ought to submit the applicable rule amendments to the FSCA, after engagements with the employer have taken place. The FSCA reiterates the fact that the rule amendments submitted should stick to those rules mentioned above, and emphasises that the rules are to be submitted to the FSCA with urgency after indicating the operative date for the amendments agreed to by both the retirement fund and employer.
Due to COVID- 19, retirement funds will only be given a letter and an unstamped version of the rule amendment from the FSCA. Funds will receive the stamped version of the rule amendment once business resumes as usual.
If employers are unable to pay contributions to a fund and apply to the fund for a reduction or suspension of paying contributions, the fund must inform members within 30 days. The FSCA has requested funds to keep a proper record of all affected members.
One may ask, what will be the tax implications? The FSCA consulted with SARS and concluded that SARS will not put at risk the income tax approval status of any of the affected retirement funds.
Employers need to be well informed about the above communication as it will help them to reassure their employees, that there are measures put in place to ensure that the retirement funds of the employees will still be functional even during these unstable times.
Advisors who provide advice to companies regarding their employee benefits, should stay close to these clients and ensure that where required, they are provided with the necessary information, assistance and service.
Masthead wants to ensure that advisors run a sustainable business that also safeguards the welfare of its employees and in order for a business to thrive, if they are affected, they must make an urgent rule amendment submission to the FSCA if they are financially distressed during this period.