Duties of Trustees

1. Duties of Trustees Pension Act, 2011 RESERVE BANK OF MALAWI

2. outline • Pension Fund • Appointment of Trustees • Licensing of trustees • Duties of trustees • Restrictions on Trustee • Key issues to note • Other issues

3. PENSION FUND • Pension Act defines a pension fund as a pension scheme that is an indefinitely continuing trust. • Trusts are generally governed by trustees. • The office of a trustee comes with fiduciary duties. • The law may prescribe additional duties over and above the traditional fiduciary duties.

4. Appointment of Trustees • For restricted funds, the equal representation rule under Section 26 of the Act will govern the appointment of trustees for a pension fund. • The employees within their fora will have to choose the trustees and same for the employer. • Sec. 29 provides that the member representatives so appointed shall be removed only by the same procedure as by which they were appointed • In need be, an independent trustee may be appointed but will not exercise voting powers. • For unrestricted funds, the trustees will be appointed under the trust deed.

5. Appointment of Trustees Cont’d • Trustee to consent to appointment in writing - section 24 • Umbrella funds and Unrestricted funds to have a single trustee-body corporate - section 25 • Restricted funds to have a group of individual trustees.

6. Licensing of Trustees • Section 16 requires that all trustees must be licensed • The trustees will be licensed in their individual capacity and not by virtue of holding a certain position or office. • The fit and proper test is one of the licensing requirements that a trustees must satisfy

7. Licensing of Trustees cont’d • The fit and proper test looks at the suitability of a person to act as a trustees and in brief examines: • Requisite experience • Qualification • Criminal record • Previous history e.g. bankruptcy or previous financial industry practice • Integrity • The licensing requirements will be issues soon

8. Duties of a Trustee Statutory Duties of the Trustee Board are to ensure that: • A separate account in its books for each member is established and maintained- Section 11 • This duty is normally delegated to fund administrators • Establish and operate Advisory Committees (AC) for the fund. • The AC has no authority beyond the Trustee except advisory • In the event of a dispute between trustee and member, failure to take advise of the AC constitutes a breach of fiduciary duty to fund members

9. Duties of a Trustee cont’d • That members of the fund are provided with fund information as soon as they become members (read with definition of fund information in section 1) • This is a statutory duty as well as an element of a duty to act in good faith on part of the pension fund. • That contributions to a DC fund are timely allocated into the members accounts • Sec. 61 and 62 makes provision that contributions should be made within 14 days • Duty to ensure that administrators’ software and proper control systems are in place to facilitate compliance with this duty

10. Duties of a Trustee…cont’d • That rules and operations of the fund are not in violation of legislation and directives. • There are many statutes that are binding on the board of trustees, including common law principles and the Constitution • That the fund is managed in accordance with its registered rules. • Section 34 makes rules of the fund binding on the fund and its members and employers. • Ensure that fund is managed in a transparent and fair manner

11. Duties of a Trustee cont’d • Duty to protect/preserve fund assets • To keep the money and other assets of the fund separate • Duty of care, skill and diligence • Same degree of care, skill and diligence as an ordinary prudent person will exercise in dealing with property of another whom the person felt morally bound to provide • Duty to formulate an investment strategy • Having regard to risk and return • To discharge its existing and prospective liabilities

12. Duties of a Trustee cont’d Statutory duties Under section 70 & 71 • Duty to investigate authenticity of nomination or revocation and currency. • Anything fund does must be permitted by fund rules. • Duty to investigate financial dependants at time of death • Where there is no nomination or nomination is invalid • Provide all parties opportunity to be heard

13. Duties of a Trustee cont’d • Duty to make equitable payments to financial dependants • Duty to hold benefits to a minor beneficiary in a separate account - trust • Benefits not part of fund assets once due • Trustee may pay parent or guardian to maintain the minor beneficiary • Payments to minor beneficiary issues • Two options of payments • Direct payment upon reaching age of majority sec 71(4)(b) • Installment payment to parent or guardian sec 71(4)(b)

14. Duties of a Trustee…cont’d If you deprive parent or guardian consider these factors: • the amount of the benefit; • the ability of the guardian to administer the moneys; • the qualifications (or lack thereof) of the guardian to administer the moneys; and • the benefit should be utilized in such a manner that it can provide for the minor until he or she attains the age of majority. • Who can be deprived of right to administer benefits for minor? • Prodigality-trait of spending extravagantly • Insolvent-bankrupt • Mental disability-mental disorder • Incapable of managing his own affairs • Best interest of the child should be primary consideration

15. Duties of a Trustee cont’d • Duty to avoid conflict of interest • A trustee must declare their interests in writing or otherwise to the board • Must exercise their powers in loyalty to the members and not to their personal interest • Duty to act impartially • The board must not unfairly discriminate against members or beneficiaries • Duty to formulate a complaints resolution mechanism • Inquiries are properly considered and dealt with within 60 days

16. Restrictions on Trustee - sec 43 • Trustee is restricted from falling under the direction of any person. • This provision is designed to ensure that a trustee is able to exercise independent discretion in his duties. • Section 43 emphasizes the need for trustee to make independent decisions • This means as a trustee you are not required to act in terms instructions from your employer or organized labor. • Exceptions to section 43 • A court ruling • Directive by the Registrar • A decision by the Appeals Committee set up section 78 of the FSA 2010

17. Restrictions of Trustee sec 45 • Trustee is prohibited from abdicating discretionary powers to another person. • Trustee can delegate discretionary power if trustee retains control of the decision making (consent from trustee required before delegatee can act) • Trustee may delegate discretionary powers if permitted by Registrar’s directives. • This provision ensures that trustees must retain discretionary powers in the management and operation of the fund. • For example discretion to pay death benefits under sec 71 can not be delegated to anyone by trustee

18. Restrictions on Trustee sec 46 • Fund rules must prohibit decisions from being made by the consent or approval of an employer only except where the decision: • Increases the benefits or rates of benefits payable • Would have effect of increasing costs to the employer • is made to comply with a directive or Appeals Committee ruling • Is Directives from the Registrar

19. Restrictions on changes to Fund Rules sec 47 • Fund rules can only be amended in following circumstances • Consent by trustee • Compliance with Directives • Amendments must be approved to be valid. • Fund rule amendment are deemed approved after 30 days, unless extended or approval is refused • Trustee must notify Registrar of any rule amendment coming into effect

20. RESTRICTIONS ON FINANCIAL ISSUES Sec 51-56 • Shall not invest fund assets unless at arms length –Sec 51 • Shall not acquire an employer asset as an asset of the fund- Sec 52 • Shall not lend money of the fund or use fund assets to give any other financial assistance- Sec 53 • Shall not knowingly acquire an asset from a member or an associate of a member except as authorized by the registrars directives – Sec 54 • Shall not borrow money from the pension fund – sec 55 • Fund assets of a pension fund shall not be invested outside Malawi – sec 56

21. key issues • Trustee not to be paid a fee unless • Independent trustee • Body corporate • Trustees to be indemnified out of fund assets in respect of a liability incurred while acting as a trustee or as an operator • Trustees to be liable for • failing to act honestly in matters concerning the fund • intentionally or recklessly failing to exercise, in relation to a matter affecting the fund, the degree of care and diligence that a trustee or operator was required to exercise • No person to victimize a trustee – section 79 • Contravention is liability to an offense

22. Other issues…cont’d • The fund to appoint a Principal Officer • Must be approved by the Registrar • Must be a fit and proper person in terms of Registrars directive • May not be removed or change without prior approval • Duties include but not limited • Receive and process communications between the fund and other authorities concerning the fund • Ensure implementation of decisions of the board of trustees • Ensure that all legislatively required returns are submitted on time • Responsible for all administrative functions in terms of the rules and legislation • A Principal Officer is like a company Secretary

23. Thank you