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Change to section 37D deduction procedures

Deduction of damages suffered by an employer because of theft, fraud or dishonest misconduct by a member

In terms of section 37D of the Pension Funds Act, a retirement Fund’s Board of Trustees can

a deduction from a member’s benefit for damages caused to the employer due to theft, fraud or dishonest misconduct by the member, provided that the member has either admitted liability in writing or the employer has obtained judgement against the member. The Board is empowered to withhold a member’s benefit to enable the employer to obtain a judgment against the member.

In recent years, the interpretation of the law in terms of Section 37D cases has changed significantly, following court decisions such as: Highveld Steel and Vanadium Corporation Ltd v Oosthuizen, SA Metal Group (Pty) Ltd v Deon Jeftha and FundsatWork Umbrella Provident Fund v Ngobeni (See legal focus 118). The Pension Funds Adjudicator and the Financial Services Tribunal are now enforcing the revised requirements in all cases where complaints are lodged by members. As a result, Funds have adjusted their processes and procedures accordingly.

In terms of section 37D, the Fund must – with immediate effect – consider requests to withhold a member’s withdrawal benefit only if it complies with the new requirements set out below:

1. Requests for the Fund to withhold the payment of benefits in terms of section 37D must be made within one month of the members last day of service. The request should contain:

- a written motivation, in which a prima facie case against the member is made together with supporting documentation, and - proof that a copy of the request was sent to the member. 2. On receipt of a request to withhold benefits, the Fund will invite the member to:

- comment on the merits of the employer’s case, and - indicate whether special circumstances exist that the Fund should consider. The Fund will communicate its decision to the parties once it has had an opportunity to consider all the facts. Should the Fund be of the view that it is not possible to balance the competing interests of the member and the employer, it will provide the parties with a return date by which payment will be made in terms of the rules of the Fund. This will afford the parties an opportunity to take alternative action as they may deem fit. 3. Any deduction from a member’s benefit will only be allowed where:

- the member has signed an acknowledgement of liability in which the member describes how the theft, fraud, dishonesty or (dishonest) misconduct committed by them occurred, as contemplated in section 37D, and authorises the Fund to make payment to the employer; or

- the employer has obtained judgement against the member as contemplated in section 37D in terms of a civil action (a judgement by a criminal court is no longer allowed).

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