Herbert A. Hall, Contributor

Hall

On Sunday, December 24, Sunday Business carried an article entitled "Defined Benefit Plan Versus Defined Contribution Plan" under the caption "Pension".

As someone who has worked with trustees of pension funds for over a quarter of a century, I feel obligated to respond to a statement contained in the article. It makes the statement that a member of a pension fund of the Defined Contribution type "may be in a disadvantageous position when financial markets consistently yield good returns."

The manner in which excess yields are handled by pension fund trustees is always defined by the trust deed and rules which govern the particular plan. Under the newly promulgated Pensions Act 2004 and its attendant regulations, the regulators of pension funds, the Financial Services Commission (FSC), require that any trust deed must address the issue as to who can benefit from surpluses arising during the life of the fund.

No trust deed worthy of its name, and which hopes to be registered by the FSC, can fail to contain such a section. In my long years of practice, I have never seen a trust deed which does not indicate that when the consulting actuary to the plan advises that there is a surplus and recommends how the surplus might be distributed, the contributing members to the plan are omitted. In fact, a number of trustees will go so far as to have the rule state that "under no circumstances can the sponsor/ employer share in the surplus".

no option

Experience has taught me that most employees, if given the choice, would opt not to be a contributor to the pension plan in effect at the workplace. They do not have such an option.

When statements are made telling them that they take all the risk if the plan fails to meet their expectations, but have no share of the excess earnings that many plans enjoy from time to time, we are simply reinforcing the arguments of plan members that this whole business of contributing to the plan is not seen to be to their long-term advantage.

Herbert A. Hall is chairman of Prime Asset Management Limited.