Boeing Superannuation Pty Ltd v Glanville
[2004] FCA 623
•19 MAY 2004
FEDERAL COURT OF AUSTRALIA
Boeing Superannuation Pty Ltd v Glanville [2004] FCA 623
SUPERANNUATION - appeal from Superannuation Complaints Tribunal – defined benefits fund – meaning of “equitable share of the Plan” – whether surplus to be included in the calculation of benefit upon re-organisation – whether joinder of Actuary was beyond the power of the Superannuation Complaints Tribunal – whether directions given by Superannuation Complaints Tribunal to the Actuary were beyond power – whether the Trustee was obliged to accept the calculation by the Actuary
Superannuation (Resolution of Complaints) Act 1993 (Cth) ss 14, 17, 18, 37, 46
Superannuation Industry (Supervision) Act 1993 (Cth) subss 58(1), 59(1)The Attorney-General for the Commonwealth v Breckler (1999) 197 CLR 83 referred to
BOEING SUPERANNUATION PTY LTD v DAVID GLANVILLE and AON CONSULTING PTY LIMITED
No Q 169 of 2002BOEING SUPERANNUATION PTY LTD v ALEXANDER FRAME and AON CONSULTING PTY LIMITED
No Q 170 of 2002BOEING SUPERANNUATION PTY LTD V FRANZ WEISS and AON CONSULTING PTY LIMITED
No Q 171 of 2002SPENDER J
BRISBANE
19 MAY 2004
IN THE FEDERAL COURT OF AUSTRALIA
QUEENSLAND DISTRICT REGISTRY
Q 169 OF 2002
BETWEEN:
BOEING SUPERANNUATION PTY LTD
APPLICANTAND:
DAVID GLANVILLE
FIRST RESPONDENTAON CONSULTING PTY LIMITED
SECOND RESPONDENTJUDGE:
SPENDER J
DATE OF ORDER:
19 MAY 2004
WHERE MADE:
BRISBANE
IN THE FEDERAL COURT OF AUSTRALIA
QUEENSLAND DISTRICT REGISTRY
Q 170 OF 2002
BETWEEN:
BOEING SUPERANNUATION PTY LTD
APPLICANTAND:
ALEXANDER FRAME
FIRST RESPONDENTAON CONSULTING PTY LIMITED
SECOND RESPONDENTJUDGE:
SPENDER J
DATE OF ORDER:
19 MAY 2004
WHERE MADE:
BRISBANE
IN THE FEDERAL COURT OF AUSTRALIA
QUEENSLAND DISTRICT REGISTRY
Q 171 OF 2002
BETWEEN:
BOEING SUPERANNUATION PTY LTD
APPLICANTAND:
FRANZ WEISS
FIRST RESPONDENTAON CONSULTING PTY LIMITED
SECOND RESPONDENTJUDGE:
SPENDER J
DATE OF ORDER:
19 MAY 2004
WHERE MADE:
BRISBANE
THE COURT ORDERS THAT:
1. The determination of the Superannuation Complaints Tribunal in each case be set aside.
2.The matter in each case be remitted to the Superannuation Complaints Tribunal, with a direction that the Superannuation Complaints Tribunal affirm the decision of the Trustee, pursuant to subs 37(3) of the Superannuation (Resolution of Complaints) Act 1993 (Cth).
3. In each case, there be no order as to costs.
Note: Settlement and entry of orders is dealt with in Order 36 of the Federal Court Rules.
IN THE FEDERAL COURT OF AUSTRALIA
QUEENSLAND DISTRICT REGISTRY
Q 169 OF 2002
BETWEEN:
BOEING SUPERANNUATION PTY LTD
APPLICANTAND:
DAVID GLANVILLE
FIRST RESPONDENTAON CONSULTING PTY LIMITED
SECOND RESPONDENT
JUDGE:
SPENDER J
DATE:
19 MAY 2004
PLACE:
BRISBANE
IN THE FEDERAL COURT OF AUSTRALIA
QUEENSLAND DISTRICT REGISTRY
Q 170 OF 2002
BETWEEN:
BOEING SUPERANNUATION PTY LTD
APPLICANTAND:
ALEXANDER FRAME
FIRST RESPONDENTAON CONSULTING PTY LIMITED
SECOND RESPONDENT
JUDGE:
SPENDER J
DATE:
19 MAY 2004
PLACE:
BRISBANE
IN THE FEDERAL COURT OF AUSTRALIA
QUEENSLAND DISTRICT REGISTRY
Q 171 OF 2002
BETWEEN:
BOEING SUPERANNUATION PTY LTD
APPLICANTAND:
FRANZ WEISS
FIRST RESPONDENTAON CONSULTING PTY LIMITED
SECOND RESPONDENT
JUDGE:
SPENDER J
DATE:
19 MAY 2004
PLACE:
BRISBANE
REASONS FOR JUDGMENT
These are three appeals (numbers 169, 170 and 171 of 2002) under s 46 of the Superannuation (Resolution of Complaints) Act 1993 (Cth) (“the Act”) by Boeing Superannuation Pty Ltd (“the Trustee”) from determinations made on 27 September 2002 by the Superannuation Complaints Tribunal (“the Tribunal”). Each appeal raises the same questions.
Each of the complainants to the Tribunal was formerly an employee of Boeing Australia Limited (“the Company”) and a Category C member of the Boeing Australia Superannuation Plan (“the Plan”), of which Boeing Superannuation Pty Ltd is the Trustee.
The essence of the complaints of the first respondents in each appeal (“the Complainants”) centres on one aspect of the quantum that the Complainants were paid out of the fund when the Complainants left employment with the Company as a result of a re-organisation. Each of the Complainants in essence complains that they will be provided by the Trustee with a “resignation benefit” rather than what is said to be “the equitable share of the defined benefits plan”. Embedded in this complaint is a view that an “equitable share of the defined benefits plan” involves an assessment of the Plan on the basis that there is no “surplus” or “residual money” in the defined plan, and that something of an aliquot share of all the assets in the Plan is what is meant by “an equitable share of the defined benefits plan.”.
The entitlement of members of the Plan is governed by the terms of the Trust Deed dated 18 May 1999, including the first schedule rules (“the rules”). This Trust Deed establishes a “defined benefits” superannuation fund.
For a Category C member who remained in the service until (generally) age 65, which is the “Normal Retirement Date” under cl 1(a), the amount payable was fixed by the rules, especially rules 4.1, 4.2(e) and 4.3. Other benefits, also defined in the rules, were payable in different circumstances (for example, for early retirement with the consent of the Company at age 55: r 6.1(b)).
“Plan” was defined in cl 1(a) of the Trust Deed as meaning:
‘… the Plan established by proposal dated 26 April 1968 for policy number EFG 98 issued by The National Mutual Life Association of Australasia Limited and shall comprise all contributions made to the Plan pursuant to the terms of this Deed and all other moneys from time to time received and held by or on account of the Trustee under the provisions of this Deed and the investments (including each Policy) for the time being representing the same and all income derived therefrom.’
“Actuary” was defined by the same clause as:
‘(1)a Fellow of The Institute of Actuaries of Australia
or
(2)a partnership or corporation formed by Fellows of The Institute of Actuaries of Australia in a manner which is acceptable to the Institute.’
The Tribunal found that Aon Consulting Pty Limited (“Aon”) was the “Actuary” as defined in the Trust Deed.
By r 2.1(a), Category C members, inter alia, were required to contribute in each year to the Plan, five per cent of the member’s salary. By r 3.1, the Company was to contribute in respect of each of its employees who were members ‘such percentage of Salary as shall be agreed between the Trustee and the Company after considering the advice of the Actuary’. This is an important consideration in the present appeals, since the Complainants contend that whatever might be considered to be a “surplus” over the exposure of the Plan to prospective claims at any particular time, is a matter that would necessarily impact on the level of future contributions to the Plan by the Company.
Rule 4 dealt with the circumstance of normal retirement. Rule 4.1 provided:
‘If a Member retires from Service on the Member’s Normal Retirement Date the Trustee shall pay to that Member an amount determined in accordance with the provisions of this Rule.’
Rule 4.2, in the circumstance of these appeals, relevantly provided:
‘Subject to Rule 4.3 the amount payable under Rule 4.1 of this Rule shall be equal to the aggregate of:
…(e)15% of Final Average Salary for each year of Service as a Category C Member after 31 December 1980;
…
(g)the Member’s Supplementary Accumulation (if any); and
(h)the Member’s Legislative Accumulation (if any); less
(i)the Member’s Tax Charge Debit Account (if any)’
Rule 4.3 provided:
‘For the purposes of this Rule, Service shall be calculated in years and complete months and the maximum amount payable in respect of any Member shall be equal to seven times the Member’s Final Average Salary together with the Member’s Supplementary Accumulation (if any) and the Member’s Legislative Accumulation (if any) less the Member’s Tax Charge Debit Account (if any).’
Rule 6 dealt with early retirement. Amongst other things that rule provided:
‘6.1 If a Member:
…
(b) with the consent of the Company retires from the Service:(i)at any time after the Member has attained age 55 years but before attaining age 60 years;
…
OR
(iii)at any time on account of ill health
the Trustee shall pay for the benefit of that Member an early retirement benefit the amount of which shall be calculated in accordance with Rule 4 of this Schedule but counting only Service as a contributory Member or a Deemed Contributory Member to the date of the Member’s retirement.’
Rule 7, which is of central importance on these appeals, concerned “Leaving the Service”.
Rule 7.4 provided:
‘If the Member is leaving the Service as a result of Retrenchment or Reorganisation of the Company the amount payable under this Rule shall be the amount calculated by an Actuary as being the Member’s equitable share of the Plan if the Member remained in the Service.’
On 18 May 2000 a notice on behalf of the Trustee was sent to each of the Complainants in these appeals advising that they were entitled to receive an equitable share of the Plan. The notice said:
‘The equitable share is calculated by an actuary and is based on years of service, the final average salary and a factor (usually 15%) dependent on category of membership. The amount of the equitable share benefit may be significantly in excess of the normal leaving service benefit, depending on the Members length of service.’
On 8 August 2000, a notice on behalf of the Trustee was sent to each of the Complainants which attached a benefit advice notice showing ‘Your equitable share of the Boeing Plan’s assets as at 19 May 2000 together with interest to 21 August 2000’. By way of example, the benefit advice notice for Mr Glanville, relevant in respect of appeal 169 of 2002, showed that Mr Glanville was entitled to a total benefit as at 19 May 2000 of $81,654.17, and a total benefit as at 21 August 2000 of $83,441.61.
On 15 August 2000, Mr Glanville wrote to the Complaints Officer of the Boeing Australia Superannuation Plan complaining:
‘… I will only be provided with a Resignation Benefit rather than my Equitable Share of the Defined Benefits Plan.’
Mr Glanville said that the ‘Member Exit Advice Quote At 19/5/2000 For D L Glanville Created on 11/08/2000 provided by AON Consulting on behalf of THE TRUSTEE’ stated that he was only to receive ‘a Resignation Benefit, which is far below the expectation of the equitable share’ described in the email on behalf of the Trustee dated 18 May 2000. Mr Glanville sought that the method referred to in the email on behalf of the Trustee of 18 May 2000 be adhered to, with the consequence that ‘each member could receive their equitable share and that there would be no residual money left in the Defined Plan.’
On 29 August 2000, the Trustee wrote a letter dealing with the calculation of equitable shares for Raytheon employees, including each of the first respondents to these appeals. The letter to Mr Glanville said in part:
‘Some Raytheon employees who were “defined benefit” members of the Boeing Australia Superannuation Fund have questioned the calculation of their transfer amount from the Boeing Australia Superannuation Fund. Much of the comment has been based on an expectation that the “equitable share” would be greater than the “leaving service (resignation) benefit”.
This letter provides you with additional information about the calculation and the reasons for the formula used.
Past Practice
The Trust Deed is the governing document for the Fund. The Deed allows, under Rule 7.4 for the amount paid on a reorganisation of the company to be the “equitable share” as advised by an Actuary. The equitable share is calculated taking into account the amount of money in the superannuation fund, the method of funding the Plan benefits, the member’s length of service and their age with respect to retirement age.
The previous practice for calculating equitable shares was to give members the greater of either:
(1)the benefit they were entitled to on leaving (i.e. the vested resignation benefit); or
(2)the Discounted Accrued Retirement Benefit (where discounting was from age 60 in years and complete months. This practice was used because it was basically the way the contribution rates were being calculated to fund for the Fund’s benefits.
The Discounted Accrued Retirement Benefit is the amount of the early retirement benefit that has been paid into the fund to date. It is the amount members would have received at retirement based on service to date, discounted for the difference between their present age and their retiring age. As a result of this, members who are considerably younger than their counterparts on similar salaries and with the same length of service have a lower equitable share at this time because there is longer to go in achieving their defined benefit.’
The letter later said:
‘Raytheon Transfer Calculation
Under the provisions of the Trust Deed, members may, with Company consent, retire at age 55 years and receive their retirement benefit. The Trustee took the view that it was more reasonable to have discounting from age 55. This is more generous than the hitherto practice of discounting from age 60.
…
The following are calculations of your vested benefit, discounted accrued retirement benefit and your transfer value (equitable share).
Vested Benefit $81,654.17 Accrued Multiple 1.38750 Final Average Salary $69,488.67 Discounted Accrued Retirement Benefit $58,989.41 Equitable Share $81,654.17’
The complaint of each of the Complainants is that there should not have been any such discounting, and that such discounting was contrary to the Trustee’s letter of 18 May 2000.
The Tribunal, on 27 September 2002, published reasons for its review determinations of the complaints by each of the Complainants in these appeals. The Tribunal had conducted the hearings on 11 February 2002 and on 8 May 2002.
The Tribunal described the “DECISION UNDER REVIEW” as:
‘The Complainant seeks review of a decision of the Trustee as to what constitutes “an equitable share of the Plan” in the calculation of his superannuation benefit as the result of leaving the service of the original Employer following a re-organisation of the company.…’
The Tribunal claimed that each Complainant had said that the miscalculation resulted in a loss to his superannuation assets of not insignificant amounts. The Tribunal described the Procedures it had adopted as follows:
‘The Tribunal decided to determine the matter on the papers. At the first hearing, the Tribunal decided it needed further information from the Actuary. It also became apparent that the Actuary had not been joined as a Party. The Determination Hearing was adjourned to allow the Actuary to be joined and for the Tribunal to request answers to questions it had of the Actuary. Submissions received pursuant to Section 32 of the Complaints Act as well as the questions asked and answers provided by the Actuary were exchanged between the Parties and responses invited. All that material was before the Tribunal as well as the contents of the file, which had been also exchanged between the Parties prior to the hearing.
There are 3 complaints from different Complainants against the same Trustee, all of which raise the same issue. The Tribunal has decided to determine the complaints in the one Determination as there are no different material facts.’
The Tribunal noted that:
‘Unfortunately the phrase “the Member’s equitable share of the Plan if the Member remained in the Service” is not defined.’
Under the heading “THE ISSUE” the Tribunal said:
‘In a letter dated 21 March 2002 to the Tribunal and in answer to specific questions put by the Tribunal the Actuary stated that there was no accepted actuarial practice used to calculate an “equitable share”. She stated that the term “equitable share” permitted two alternative definitions vis
“Equitable share of all assets”
or
“Equitable share of assets”In the case of the latter definition, the Tribunal accepts that the Actuary is referring to relevant non-surplus assets.
The Actuary then went on to state that it was the latter definition which she had applied for the following reasons vis:
·it was the past practice of the previous actuary to the Fund to use the DARB methodology and as such it would be consistent and equitable to all past, present and future Members of the Fund if the same method was followed,
·the sale agreement between the Old and the New Companies provided that the Member’s benefit should be calculated under Rule 7.4 of the Plan but “there was specific mention of the Company being sold having a right to part of the Fund surplus”,
·usually in a defined benefit fund as was the case here it is generally considered that the Company (employer) owns the surplus as it is Company (employer) which is responsible for funding the benefits,
·She stated:
“The fund exists to secure the benefits payable under the rules and a member’s entitlement is to those benefits, not to a share of the assets”.
·The definition of “equitable share” under the Deed states it is based on the assumption that the Member remained in the Service. If a Member remained in the Service then that Member would not be entitled to any surplus. The surplus would be used “to create a buffer against adverse economic factors and to reduce employer contributions”. The Actuary contrasted the nature of a terminating fund where a share of assets would be distributed to all Members and the defined benefit fund where this was not the case.’
The Tribunal noted, as to its function, that if the Tribunal finds the decision of the Trustee fair and reasonable in the circumstances, then the Tribunal must affirm the decision. The Tribunal also noted that ‘Actuaries have special skills and in general terms, their advice will be upheld unless the Actuary has been found to address the wrong question or not correctly inform him/herself as to the question to be answered.’
The Tribunal agreed with the Actuary that the share must be equitable and that that equity extends to past, current and continuing members of the Plan.
The Tribunal, however, said:
‘… it is not possible to be equitable if a wrong basis of calculation is employed in the first instance or has been employed in past calculations.’
The decision of the Tribunal was expressed in these terms:
‘ “Plan” is by definition to include “contributions … and all other monies from time to time received and held by or on account of the Trustee … and the investments … for the time being representing the same and all income derived there from”. It is clear that the “surplus” is money held on account of the Trustee as the result of income earned from investments. Accordingly it is incorporated within the defined meaning of “Plan”. It follows that in the calculation of a Member’s “equitable share of the Plan” that the surplus should, by definition, be included. It is clear that the Actuary did not include the surplus, i.e. the Actuary did not correctly inform herself of the definition to be applied.
It follows from the above that the decision of the Trustee in its operation to the Complainant is not fair or reasonable in the circumstances. To correct that situation, the surplus should have been included in the calculation of the Complainant’s benefit upon the re-organisation occurring. It is unfair to the Complainant that the surplus was not included in the calculation of his benefit upon the re-organisation occurring. That calculation should be made by dividing the total assets and then extrapolating the share of the surplus owing to the Complainant.’
The Tribunal expressed its decision as follows:
‘… the Tribunal is satisfied that the decision of the Actuary in making the calculation is not fair and reasonable to the Complainant in the circumstances because the Actuary applied a formula in the calculation which did not accord with the definition of “Plan” in the Deed. Accordingly, the Tribunal pursuant to the powers set out in Section 37(3) of the Act sets aside the decision under review and remits the matter to the Actuary and Trustee with a direction that the Actuary re-calculate the benefit as at the date of the re-organisation taking into account the surplus contained in the Fund and that that sum be remitted with interest at the Fund’s relevant crediting rate to the Complainant’s successor Fund.’
In my view, there can be no doubt that what is said to be “surplus” moneys, that is the excess of funds in the Plan over presently assessed liabilities, is part of the defined “Plan”. What is at issue here is whether an “equitable share of the Plan” required, as the Tribunal determined, that the surplus be included in the calculation of the benefit upon the re-organisation, or, as the Actuary contended, that the surplus was a buffer against adverse economic factors and was a consideration determining future employer contributions to the Plan, and that the assessment of the equitable share of the Plan for a member exiting the Plan as the result of a re-organisation should be calculated on a basis that did not have regard to the claimed “surplus”.
As the Actuary’s advice to the Tribunal, referred to in its reasons, made plain, the view of the Tribunal that the calculation should be made by dividing the total assets and extrapolating a share of the surplus owing to the complainants might be appropriate where there was a terminating plan, but is not the appropriate method of calculation of a member’s equitable share of a plan where one has a continuing “defined benefit” plan.
The Company appeals from that determination in each case. Each appeal is based on the following grounds:
‘(a)The Tribunal erred in finding that the Actuary, in the calculation, and the Fund, in giving effect to the Actuary’s calculation, did not take into account the surplus in determining the member’s equitable share of the Plan if the Member remained in the Service, when it is apparent from the Actuary’s determination that it did consider whether the surplus should be included for that purpose.
(b)The Tribunal erred in finding that when calculating a Member’s ‘equitable share of the Plan if the person remained in Service,’ as required by the Trust Deed, a surplus should be included, when on a correct interpretation of the applicable Trust Deed, members had no right to, interest in or legitimate expectation that they might benefit from any part of the surplus in the Fund if they had remained members of the Fund.
(c)If the Tribunal had found, correctly:-
(i)that the Actuary had taken into account the surplus in her determination of what was the Member’s equitable share of the Plan if the Member remained in the Service;
(ii)The Member had no right to, interest in, or legitimate expectation to benefit from the surplus if he had remained in the Service;
(iii)The Member’s equitable share of the Plan was correctly to be determined having regard to that part of the Plan which was available to the Member if he had remained in the Service, and therefore correctly excluding the surplus,
the Tribunal would have concluded that the decision of the Trustee, giving effect to the Actuary’s calculation, was fair and reasonable to the Member, and accordingly, would have affirmed the Trustee’s decision.
(d)Alternatively, if the Tribunal has found, correctly, that the Trustee’s decision was not fair and reasonable, then:-
(i)The Tribunal was required, by Section 36(4) of the Act, to exercise its power only for the purpose of placing the complainant as nearly as practicable in such a position that the unfairness, unreasonableness or both, that the Tribunal determine to exist in relation to the Trustee’s decision no longer exists;
(ii)The Tribunal’s decision proceeded from the Tribunal’s finding that the Actuary had not taken into account the surplus for the purpose of determining the Member’s equitable share of the Plan;
(iii)The only Order necessary to address that unfairness or unreasonableness was an Order directing the Actuary to re-calculate the amount taking into account the surplus;
(iv)It was, or might be, open to the Actuary to determine that the Member’s equitable share of the Plan, taking into account the surplus, would be an amount either identical to the Actuary’s original calculation, or alternatively, an amount less than the amount which would be arrived at following the Tribunal’s direction;
(v)Accordingly, the Tribunal exceeded its jurisdiction by directing the Actuary in how it should re-calculate the Member’s equitable share of the Plan.
(e)The Tribunal exceeded its power in making the directions to the Trustee.
(f)The Tribunal exceeded its power in joining the Actuary as a party, in reviewing the Actuary’s calculation under rule 7.4, and in making the directions to the Actuary.’
None of the Complainants appeared on the appeal. However, Mr Glanville and Mr Weiss made written submissions, essentially ‘on the basis that it does not constitute taking part and that the Federal Court must not award costs against me.’ These submissions were exhibited to affidavits filed on behalf of the Company, and are thus before me, and I have had regard to them concerning the issues for determination. While there is in fact no contradictor on the appeals, the substance of what the Complainants would wish to say is before the Court on the appeals.
It is to be noted that each Complainant was concerned with whether there should have been a discounting as indicated by the letter of 29 August 2000. The Tribunal, in the course of resolving that complaint, joined the Actuary as a party and, on the basis of communications from the Actuary, decided that the calculation by the Actuary was erroneous in that it failed to include part of the “surplus” in the calculation of the Complainants’ equitable share in the Plan.
In my opinion, the purported joinder of Aon was beyond the power of the Tribunal. The Chairperson of the Tribunal had written a letter dated 25 February 2002 to a Mr Sweeney of Aon stating that:
‘Pursuant to the provisions of Section 17A of the Superannuation (Resolution of Complaints) Act 1993 the Tribunal has determined to join your firm (sic) [Aon Consulting Pty Limited] as the Actuary which was for purposes of rule 7.4 of the Trust Deed governing the above mentioned Plan a decision maker.’
The letter later said:
‘The Tribunal understands that, while it could be considered that your Discounted Accrued Retirement Benefit (DARB) is accepted actuarial practice for the calculation of a pragmatic approximation to an actuarial reserve, there is no such accepted actuarial practice for the calculation of an “equitable share of the Plan”, each such case being determined by the specific provisions of the relevant Trust Deed. It appears to the Tribunal that your approach did not involve the determination of each Member’s relevant and equitable share of the “Plan” which is defined in such a way as to be the total net assets of the fund at the relevant date of calculation, including any reserves, funding surplus or deficit. Your comments on this feature would be appreciated.’
Mr Sweeney, on behalf of Aon, replied on 21 March 2002 to the Tribunal indicating that the Actuary used the second definition of “Equitable Share” from a paper by D.A. Edward entitled “Calculation of Superannuation Transfer Values” published by the Institute of Actuaries of Australia, which definition provided no allowance for surplus as the appropriate definition of “Equitable Share”. That definition relevantly was:
‘Equitable Share of Assets … is defined for these purposes as actuarial reserves plus such share (if any) of surplus as, in the understanding of the actuary, has already been earmarked for the purpose of enhancing benefits. In most cases this will mean that there would be no inclusion from surplus.’
The letter later said:
‘Below, I will outline, with reference to the issues of equity, member’s share of the plan and the ongoing nature of the plan.
· Past Practice – The previous actuary to the Fund used a DARB methodology when calculating previous transfer values out of the Fund. Past practice is a very important issue to consider as the actuary needs to be consistent and equitable to all past, present and future members of the Fund.
· Sale Agreement – Although the sale agreement between the relevant companies stated that member’s benefits should be calculated under Rule 7.4, there was no specific mention of the company being sold having a right to part of the Fund surplus.
· Ownership of the Surplus – In a defined benefit fund, it is generally considered that the Company owns the surplus, as they are responsible for funding the benefits. Many actuaries do not favour the idea that a continuing defined benefit fund can be considered as a collection of individual “shares” belonging to and identified with each member. The fund exists to secure the benefits payable under the rules and a member’s entitlement is to those benefits, not to a share of the assets.
· Ongoing Nature of the Fund – the definition of “equitable share” under the Deed states it is based on the assumption that the member remained in the Service. If a member remained in service with the Company they would not be entitled to any surplus and would just receive their specified benefit whilst the surplus is used to create a buffer against adverse economic factors and to reduce employer contributions. If the Fund were terminating then the definition of equitable share would change to incorporate a share of surplus for all members.’
The letter continued:
‘Once it is established that the actuarial reserve without allowance for surplus is the ‘equitable share of the Plan’, then the issue is how to calculate the actuarial reserve. You have queried why the non-discounted accrued retirement benefit was not used due to the assumption the member is to remain in the Fund. If the member remains a member of the Fund, they would only be entitled to the retirement benefit from age 55 and hence one needs to assume that the Fund would have earned investment income on the past benefit accrued by the member for the period to age 55 and also salary increases of the member. The discount applies as it is common to assume that investment increases exceed salary increases over the long term.’
And concluded:
‘The DARB calculation is an estimate [of] the present value of this benefit based on past membership. This is discussed in depth in my letters of explanation dated 29 August 2000.’
Subsection 17A(1) of the Act provides:
‘If:
(a)a person has made a complaint under section 14; and
(b)the Tribunal decides, under subsection 18(1), that an insurer or other decision-maker or any other person should be joined as a party to the complaint;
the Tribunal must, by notice in writing given to the new party and to all of the existing parties to the complaint:
(c)tell them that it has so decided and of its reasons for so deciding; and
(d)tell the new party of the party’s obligations under section 24.’ (Emphasis added)
Each of the Complainants in this case was “a person who made a complaint under s 14”. Section 18 of the Act relevantly provides:
‘(1) The parties to a complaint under section 14 are:
(a)the complainant; and
(b)the trustee; and
(c)if the subject matter of the complaint relates to a death benefit or a disability benefit under a contract of insurance between the trustee and an insurer and the Tribunal decides that the insurer should be a party to the complaint – the insurer; and
(d)if the subject matter of the complaint relates to a disability benefit (whether under a contract of insurance or otherwise) and the Tribunal decides that a person other than a trustee or insurer is responsible for determining either or both of the existence and the extent of the disability (whether total and permanent or otherwise) – that person; and
(e)if any other person has applied to the Tribunal to be made a party to the complaint (whether under section 24A or otherwise) and the Tribunal decides that the person should be a party to the complaint – that person.’
In my opinion, the Actuary, Aon, is not within subss 18(1)(a) to (e) of the Act.
Six judges of the High Court (Gleeson CJ, Gaudron, McHugh, Gummow, Hayne and Callinan JJ) said in The Attorney-General for the Commonwealth v Breckler (1999) 197 CLR 83 at par 36:
‘If the determination of a complaint by the Tribunal be characterised as activity of an administrative nature, then in the absence of legislative prescription to the contrary, the determination would be open to collateral review by a court in the course of dealing with an issue properly arising as an element in a justiciable controversy of which the court was seised.’
Further, at par 46:
‘… the Complaints Act does not purport to give determinations of the Tribunal that conclusive character which would prevent collateral challenge in proceedings to compel observance of those determinations. Section 37(3) of the Complaints Act obliges the Tribunal to make a determination in writing which affirms the decision of the trustee in question, remits it, varies it, or sets it aside by substituting the decision of the Tribunal for that of the trustee. Upon such variations or substitutions, s 41(3)(a) operates by specifying that the decision of the Tribunal is “for all purposes” to be taken to be a decision of the trustee. … Conferral upon the determination of the Tribunal of the status of a decision of the trustee does not bring with it a preclusive effect which immunises the determination, and thus its status, from attack in properly constituted curial proceedings. The scope and range of such proceedings is indicated earlier in these reasons.
In my judgment there was no power to join the Actuary Aon. The Tribunal’s power to review a decision of a third party arises from subs 37(2) of the Act, which provides:
‘(2) If an insurer or other decision-maker has been joined as a party to a complaint under section 14:
(a)the Tribunal must, when reviewing the trustee’s decision, also review any decision of the insurer or other decision-maker that is relevant to the complaint; and
(b)for that purpose, has all the powers, obligations and discretions that are conferred on the insurer or other decision-maker; and
(c)subject to subsection (6), must make a determination in accordance with subsection (3).’
It follows, in my judgment, that the precondition to the operation of subs 37(2) of the Act, namely that a decision-maker has been joined as a party to a complaint under s 14, (which means lawfully joined), is not satisfied, with the result that the directions which the Tribunal purported to give to the Actuary as a party are beyond power. The Tribunal however has power, in my opinion, under s 25(3) of the Act to obtain documents and information from the Actuary relevant to what is “an equitable share of the Plan”.
It has to be understood that s 14 of the Act confers power on a person to make a complaint to the Tribunal that ‘the decision is or was unfair or unreasonable’: subs 14(2). The “decision” referred to in that subsection is a decision referred to in subs 14(1) which is a decision made by a trustee of a fund in relation to, relevantly, a particular member or a particular former member of a regulated superannuation fund. The complaint procedure, therefore, is in respect of decisions made by a trustee of a fund.
In this particular case, the Trustee determined that the entitlement of the former members of the Plan who had been the subject of a re-organisation was in the amount determined by the Actuary to the Plan, that being the amount of the “equitable share of the Plan” applicable to that member. The Complainants complained that that quantification was erroneous and that the calculation made by the Actuary and determined by the Trustee was erroneous.
The powers of the Tribunal, in that context, are those conferred, relevantly, by subs 37(3) of the Act:
‘On reviewing the decision of a trustee, insurer or other decision-maker that is the subject of, or relevant to, a complaint under section 14, the Tribunal must make a determination in writing:
(a)affirming the decision; or
(b)remitting the matter to which the decision relates to the trustee, insurer or other decision-maker for reconsideration in accordance with the directions of the Tribunal; or
(c)varying the decision; or
(d)setting aside the decision and substituting a decision for the decision so set aside.’
Subsection 37(4) of the Act provides:
‘The Tribunal may only exercise its determination-making power under subsection (3) for the purpose of placing the complainant as nearly as practicable in such a position that the unfairness, unreasonableness, or both, that the Tribunal has determined to exist in relation to the trustee’s decision that is the subject of the complaint no longer exists.’
Under the Trust Deed, the Trustee is required to pay persons such as the Complainants in these appeals their equitable share of the Plan, notwithstanding the provision in the Trust Deed that the equitable share of the Plan is as calculated by the Actuary. In my view, the Trustee is entitled to take advice and, if appropriate, act on that advice given by the Actuary.
However, particularly having regard to subss 58(1) and 59(1) of the Superannuation Industry (Supervision) Act 1993 (Cth) (“the Supervision Act), in my opinion, if a Trustee acts on advice by an Actuary as to what is the applicable “equitable share of the Plan” for a particular member, and that advice is erroneous, it is competent for the Tribunal to redress that error. The decision as to what is the equitable share of the Plan is a decision of the Trustee, notwithstanding that it is done on advice from the Actuary.
Subsection 58(1) of the Supervision Act provides:
‘Subject to subsection (2), the governing rules of a superannuation entity other than a superannuation fund with fewer than 5 members or an excluded approved deposit fund must not permit the trustee to be subject, in the exercise of any of the trustee’s powers under those rules, to direction by any other person.’
and subs 59(1) of the Supervision Act provides:
‘Subject to subsection (1A), the governing rules of a superannuation entity other than a self managed superannuation fund must not permit a discretion under those rules that is exercisable by a person other than the trustee to be exercised unless:
(a)those rules require the consent of the trustee to the exercise of that discretion; or
(b)if the entity is an employer-sponsored fund:
(i) the exercise of the discretion relates to the contributions that an employer-sponsor will, after the discretion is exercised, be required or permitted to pay to the fund; or
(ii) the exercise of the discretion relates solely to a decision to terminate the fund; or
(iii) the circumstances in which the discretion was exercised are covered by regulations made for the purposes of this subparagraph.’
It is relevant to note clause 12(1) of the Trust Deed, which provides:
‘The Trustee shall:
(1)(a) arrange for the Actuary to make such actuarial investigations and valuations of the Plan at such times and from time to time as determined by the Trustee and in accordance with the Applicable Requirements; and
(b)obtain from the Actuary such statements, certificates reports and other information as shall satisfy the Applicable Requirements and the requirements of this Deed.
…’
and clause 14 provides:
‘Benefits and Contributions
14. The benefits payable by the Trustee under the Plan to or in respect of each Member and the contributions payable by the Company and by each Member to provide those benefits shall be as set out in the Schedule or Schedules.’
It follows, in my opinion, that it was competent for the Trustee to determine what was the equitable share of the Plan in respect of each of the Complainants, and competent for the Tribunal to entertain the correctness of that decision, that review of the decision of the Trustee being based on an assessment on whether the decision of the Trustee was fair and reasonable in the circumstances.
I do not accept the submission on behalf of the Company that the Tribunal was obliged to accept the calculation by the Actuary as to the amount of a particular member’s equitable share of the Plan. It was submitted on behalf of the Company that the relevant “rights of any member” were their rights to payment of the amount calculated by the Actuary, and that no rule empowered the Trustee to review or change the Actuary’s calculation. It was further submitted on behalf of the Company that:
‘As the Trustee had no power to review the Actuary’s calculation, the Tribunal was not empowered to direct the Trustee to do so.’
I accept that the Trustee was obliged to hold the Plan ‘upon the terms and conditions and subject to the trust’s powers authorities and directions hereinafter contained’: Trust Deed cl 2. Clause 12(1)(b) of the Trust Deed provided that the Trustee was obliged to obtain the r 7.4 amount from the Actuary. In my opinion, the Trustee was obliged to pay to a person in the position of each of the Complainants the amount which was that “member’s equitable share of the Plan if the member remained in the service”, and if a calculation of that amount by the Actuary was erroneous, that did not render the Trustee’s decision to pay that amount as calculated by the Actuary to the member immune from review by the Tribunal.
In my judgment, the Tribunal erred in the construction it placed on r 7.4.
The benefits payable under the Plan are funded by the Trustee’s investment of employer/employee contributions and the contributions by the Company: see r 2 and r 3. The amount of the Company’s contribution is not fixed. This is no doubt because the extent of any necessary contribution by the Company depends upon an actuarial assessment of how much (if any) is required at any particular time to ensure that the defined benefits are adequately funded: see r 3.1. Rule 3.1 provided:
‘Each Company shall contribute in respect of each of its Employees who are Members such percentage of Salary as shall be agreed between the Trustee and the Company after considering the advice of the Actuary.’
Where there is an actuarial “surplus” in the Plan, the proper operation of r 3.1 may result in no contributions being required from the Company at that particular time. This is referred to in the correspondence between the parties as a “contributions holiday”.
The Actuary determined that in the particular circumstances the “equitable share” was the amount discounted for early receipt the member eventually would have received had the member remained in the service until age 55. The Actuary made an assumption in the Complainants’ favour that the benefit would have accrued at age 55 rather than at age 65, the Normal Retirement Date referred to in the Trust Deed, or at age 60.
The conclusion by the Tribunal was that because the “surplus” is part of the Plan property, it necessarily followed that the calculation of “the member’s equitable share of the Plan if the member remained in the service” should include a share of the “surplus”. In my judgment, in so concluding, the Tribunal erred.
In my opinion, on its proper construction r 7.4 indicates that a departing member should receive what is “equitable”, having regard to the member’s potential future benefits had the member remained in the service. So much follows from the terms of r 7.4. On the facts, which are not in dispute, that would have been a particular, defined benefit. The so-called surplus is not a defined amount, but is the notional amount which the Actuary calculates exceeds so much of the Plan property as is presently required to ensure that the Plan will return to members the future benefits defined in the Trust Deed. Consistent with r 3.1, calculation of such a “surplus” may have the effect that the Company may not be required to make contributions or may make future contributions at a lower rate than hitherto.
In my opinion, the amounts the Complainants would have received had they remained in the service until age 55 and then received a benefit upon retirement, would not have included any part of any “actuarial surplus” at any particular time. The contrary interpretation which the Tribunal adopted has the effect of discriminating in favour of departing members, because remaining members would not receive any share of the surplus when they received their defined benefits. In my judgment, the determination of the equitable share of the Plan by the Trustee, based on the calculations of the Actuary, correctly construed r 7.4 of the Trust Deed as determining the complainants’ future defined benefit, and discount that for early receipt.
In my opinion, the Tribunal erred in law in its construction of the rule.
For the above reasons, the determination of the Tribunal in each case must be set aside, and in lieu thereof, there should be an order that the matters be remitted to the Tribunal, with a direction that the Tribunal affirm the decision of the Trustee, pursuant to subs 37(3) of the Superannuation (Resolution of Complaints) Act 1993 (Cth).
In each case, there should be no order as to the costs of these proceedings.
I certify that the preceding fifty-nine (59) numbered paragraphs are a true copy of the Reasons for Judgment herein of the Honourable Justice Spender . Associate:
Dated: 19 May 2004
Counsel for the Applicant: Mr Hugh Fraser QC, with Mr Richard Schulte Solicitor for the Applicant: Minter Ellison There was no appearance by the Respondents Date of Hearing: 18 December 2003 Date of Judgment: 19 May 2004
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