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Sunday, February 1, 2004
Getting redress

Can an employer recover losses inflicted by a dishonest employee by ‘attaching’ some or all of that employee’s pension benefit? In short, the answer is ‘yes’, but there are some important technical considerations, says Deneys Reitz.

More often than not when fraud or theft is detected, the employer suspends the employee concerned, convenes a disciplinary enquiry and dismisses the culprit. The employer also usually lays criminal charges.
But Aslam Moosajee, director at Deneys Reitz commercial law firm, points out that most employers don’t take advantage of recovering compensation for the losses incurred from the employee’s pension benefits.
In his paper, presented at the Annual Deneys Reitz Insurance Law Seminar, Mr Moosajee says employers should decide whether or not to institute legal action against the crooked employee by looking, not only at his assets, but also at the value of his pension benefits. Steps should then be taken to ensure that those benefits were recovered as compensation for the losses incurred.
He warns however that an employer cannot automatically set off any losses that it incurs as a result of a fraud or theft perpetrated by an employee against that employee’s pension benefit. “It is slightly more complex than simply claiming against the pension in question.”
The reduction or transfer of pension benefits is permitted in limited circumstances and regulated by Section 37D of the Pension Fund Act. “By instituting civil action and either getting judgments against the employees concerned or convincing them to sign acknowledgements of liabilities, the employer - by relying on S37D - can nevertheless recover some of the loss incurred by fraud,” he explains.
He also notes, “The question that has arisen in a number of complaints to the Pension Fund Adjudicator is whether the trustees, who know of a pending civil or criminal action against a member, are entitled to withhold payment of the pension benefits due to such member, pending finalisation of the civil or criminal action?”
And he summarised the position as follows:  S37D(b)(ii) should be interpreted to include the implied power to withhold payment of a benefit pending the determination or acknowledgment of a liability.
Where the rules of the fund specify an express power to withhold the benefit, such power should be exercised in terms of the rules and subject to the time periods specified in the rules. If no time period is specified then the fund can withhold the benefit for a reasonable period of time.
“It is important to ensure that the rules afford some protection for the member from suffering a decline in the value of the benefit during the period that it is withheld,” he observes. “Furthermore, the amount that may be withheld may not exceed the value of the employer’s claim.”

Copyright © Insurance Times and Investments® Vol:17.1 1st February, 2004
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