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Oran Hall How superannuation funds operate

QUESTION: I am interested in knowing about private superannuation funds. Who owns the fund? Is the actuarial report on the fund to be shared with the contributing members and pensioners?

– Neil

FINANCIAL ADVISER: A superannuation fund is a pension plan set up by an employer to provide an income for employees when they retire. It is funded by the employer and employee, and several people and organisations play a wide range of important roles in its management to enable it to fulfil its obligations to its members.

Every superannuation fund operating in Jamaica has to be registered, approved, monitored, and supervised by the Financial Services Commission, FSC, pursuant to the Pensions (Superannuation Funds and Retirement Schemes) Act and its attendant regulations. Additionally, approved superannuation funds are required to operate within a legal framework, which includes the trust deed and rules of the fund, the Income Tax Act, and trust law.

The employer who sets up the approved superannuation fund is called the fund sponsor and is required to make contributions to it of up to 10 per cent of each employee’s annual pay on behalf the employees – who are the members of the fund. For their part, the members are required to contribute up to 10 per cent of their annual pay to the fund.

The contributions of the sponsor and members must be invested to provide the resources to pay the members a good pension during their retirement years. A professional investment manager approved by the FSC is responsible for the investment management function of the fund. A superannuation plan may have more than one investment manager, and each must satisfy and continue to satisfy certain stated criteria to maintain the status of approved investment manager.

Each fund is also required to have an administrator, generally a corporate body, which has to be approved by the FSC and must satisfy and continue to satisfy certain stated criteria to continue to function in that capacity.

Actuaries perform a role that is critical to the ability of a superannuation plan to pay a reasonable pension in perpetuity to its members when they retire through the periodic valuations that they do of the plan. They, too, must be approved by the FSC.

The trustees – all of whom must be approved by the FSC – are legally responsible for all aspects of a pension fund. Collectively, they are called the board of trustees, similar to the board of a company. Under the Pensions Act, they are accountable for any breaches and may be fined heavily where they occur.

The board of trustees includes representatives of the sponsors, members, and pensioners. A sponsor trustee is one who has been nominated and elected by the employer or person who causes the fund to be established. A member-nominated trustee is one who has been nominated and voted by the active members of the fund. The pension trustee is one who has been nominated by a pensioner or deferred pensioner of a fund and voted by the pensioners or deferred pensioners to be a trustee.

The main responsibility of the trustees is to manage the affairs of the fund. They must safeguard and protect its assets and the interest of the members by, among other things, employing the services of competent professionals such as investment managers and administrators.

As custodians of the assets of the fund, they are responsible for their safe-keeping. More than that, they hold title to the assets of the fund in trust for its members in accordance with the trust deed, the Plan Rules, and the Pensions Act and its Regulations.

The trustees are responsible for providing information to the FSC and fund members, who have the legal right to see certain documents and to receive accurate, complete and timely information on their pension plan. Some sources of information, like the Members’ Handbook and any amendments thereto; the annual report, which includes a synopsis of the actuarial report; and benefit statements are to be given to them automatically within set time frames. Others, like the trust deed and Plan Rules, are provided upon the request of the member.

The actuarial report is produced for the trustees, employer, and the regulators. It is required for the continued approval of the pension plan by the regulators. The members may be informed of the results of the actuarial valuation by the trustees at a members’ meeting or by some other means.

Although the members of the employer-sponsored pension plan are the ultimate beneficiaries of its assets, the assets are trust property. While they have no absolute right of access to the actuarial report, there are provisions for elements of its contents to be shared with the members.

Oran A. Hall, author of Understanding Investments and principal author of The Handbook of Personal Financial Planning, offers personal financial planning advice and counsel.

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