Choice of Fund for superannuation guarantee contributions - early issues
On 1 July 2005 Choice of Fund began. Employers are now obliged to offer their employees a choice of superannuation funds except where present arrangements are taken to be already complying with Choice of Fund. Apart from the extra paperwork the scheme need not be a burden. However a few of our clients have asked some tricky questions and we thought it would be valuable if we looked at some of the "devil in the detail".
Q1. State awards: does the fund have to be named?
An employer is taken to be complying with Choice of Fund, "if a contribution, or part of a contribution, is made under, or in accordance with, a state industrial award".
The current, but not universal view, is that if the award requires that contributions are to be made to a complying fund, whether named or not, then these provisions are sufficient compliance and Choice of Fund does not have to be offered. This issue might soon be of historical interest only, because the Federal Government plans lifting the exemption for state industrial awards on 1 July 2006.
Interestingly under section 124 of the NSW Industrial Relations Act an employee has always been able to request in writing that their superannuation contributions go elsewhere if the award named a fund; NSW has had a choice of fund system for a long time but how many employees have taken it up?
Q2. What if my Federal registered certified agreement conflicts with the legislation?
Prior to SGL many workers only received the benefit of superannuation contributions through industrial awards or Federal certified agreements, which were often directed to a company fund. One client was finding its company fund expensive to operate and hoped Choice of Fund would override the certified agreement.
Choice of Fund does not amend, but rather preserves, a certified agreement, so any superannuation obligations in the agreement continue to operate. The employer could have been prosecuted for breaching the certified agreement if it did not continue to offer the company fund. Our client was required to negotiate an amendment to the certified agreement.
Q3. Does the protection in section 32ZA of the legislation mean employers can offer Choice of Fund to all?
On the face of it, this section is of great benefit because it provides that an employer is not liable to compensate any person for loss or damage "arising from anything done by the employer in complying" with the legislation. Some employers would like to offer Choice of Fund to all because it is administratively easier to do so.
Are there risks in offering Choice of Fund to all employees if the employer is not required to do so? There is an argument that offering Choice of Fund where there is no requirement to do so is not "complying" with the legislation, and so there is no protection if anything goes wrong.
There is no prohibition or offence in offering Choice of Fund to all, but beware the ex-employee returning in ten years saying that the fund they were encouraged to invest in has not performed as well as the fund they were in before they were "forced" by the boss to make a choice. The section 32ZA protection only applies if you are "complying", so perhaps it is wise to do no more than you have to do.
For the time being Choice of Fund is all about the paperwork and it may be some years before any problems become apparent.
Author: Mark Paul