COVID-19: FSCA GIVES FINANCIALLY DISTRESSED EMPLOYERS BREATHING SPACE OVER FUND CONTRIBUTIONS
Provided these employers urgently reach agreement with the retirement funds concerned on rules to deal with the temporary suspension or postponement of payments, and submit these without delay to the Financial Sector Conduct Authority (FSCA), they will not face prosecution for non-compliance with the Pension Funds Act, 1956 (PFA).
Provision for the suspension of fund contributions for financially distressed employers that meet the conditions set, is outlined in a communication published by the FSCA hours before the national COVID-19 lockdown came into effect at midnight on 26 March 2020.
The notice is titled FSCA Communication 11 of 2020 (RF) – COVID-19: Section 13A of the Pension Funds Act, 1956 and financially distressed employers and employees – submission of urgent rule amendments (Communication).
The Communication acknowledges the financial impact of the COVID-19 global pandemic on employers and employees and that certain employers may not be in a financial position to pay their full contributions to the retirement funds they participate in, in terms of section 13A of the PFA. The Communication serves as a guidance to funds to assist employers who are financially distressed and unable to pay contributions to their respective funds.
Section 13A of the PFA places an obligation on an employer to pay any contributions which, in terms of the rules of the fund, must be deducted from the employee’s remuneration, and any contribution for which the employer is liable in terms of the fund’s rules. Fund contributions must be paid by no later than seven days after the end of the month for which such contributions are due.
Non-compliance with section 13A is a criminal offence and every director of a company ‘who is regularly involved in the management of the company’s overall financial affairs’ will be personally liable for the company’s payment of contributions and related compliance with section 13A.
Section 37(1) of the PFA provides that ‘any person’ (thereby including the employer company and individual directors) who fails to comply with or contravenes section 13A, is guilty of an offence. On conviction, such a person is liable to a fine of up to ZAR 10 million, or imprisonment for a period not exceeding 10 years, or both.
What employers and funds need to do
Employers and funds should respond immediately to the FSCA’s guidance. The FSCA has urged funds that do not have rules in place to make provision for temporary absence from work (with or without full pay), or a break in services, and/ or postponement of contributions payments and/ or reduction of pensionable service, to urgently submit relevant rule amendments to the FSCA after engagements with the employer.
The FSCA has also advised that funds must attempt to ensure that full risk benefit premiums (to the extent applicable) continue to be paid in full by participating employers in order to ensure that risk benefits (death, ill-health) will be provided.
It is important to note that funds will be required to inform affected members of their employer’s request to reduce or suspend fund contributions, as well as the proposed rule amendment to that effect (if necessary) within 30 days of receipt of the employer’s request.
Given the severe consequences in the event of non-compliance with section 13A, the Communication will no doubt be welcomed by financially distressed employers and employees, especially in circumstances where employers are considering whether to reduce salaries and/ or to cut jobs during these unprecedented times.
In addition to retirement fund benefits, employers should consider whether any other employee benefits may be impacted in the event of a reduction of salaries or temporary suspension of salaries during the COVID-19 pandemic.
Employers should also give consideration to the employment law implications of any reduction in contributions, as this may impact on employment contracts and fair practices regarding benefits.