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Management committee roles and responsibilities – an overview of a management committee’s roles and responsibilities

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Introduction

The management committee (MANCO) of an employer participating in an umbrella fund is not legally required, nor does it have any fiduciary responsibility to ensure the performance of the fund. However, MANCOs serve an important role. The MANCO, usually via the fund’s administrator, acts as a link between the board of trustees of the umbrella fund and the paticipating employer, ensuring that the participating employer has a voice, a means of representation, a means to ensure accountability, and a way to communicate with and educate the ultimate beneficiaries.

MANCOs serve a critical role in ensuring a good match between the participating employer and its members’ underlying needs and the fund’s offering. This can include access to information, transparency of costs, cost efficiency, investment choice and/or range of available funds and service levels, for example.

Governance and oversight of the MANCO

A MANCO should be constituted of participating employer and member-elected representatives. Although there is no legislation in place determining the ratio of such, it is considered best practice to have equal representation from both. This ensures contributions from different people within the organisation. A management committee may also include an independent asset consultant or financial adviser. There are no regulations relating to the size of the MANCO, but it is advised that – in line with a move towards cost efficiencies and the limited resources and/or capability to manage standalone funds – MANCOs should be sized according to the participating employer size, allowing for efficiency from both a size and cost perspective.

Although there is no minimum requirement in terms of training or qualifications for members of the MANCO, many industry experts believe that a certain level of relevant technical expertise should be achieved within the committee to ensure its effectiveness.

To promote good governance and consistent and effective management, the MANCO should meet at least annually to discuss and review its retirement fund. The annual meeting should include an agenda, feedback and updates from the underlying insurer and investment consultants and a review of previous minutes and action items. Minutes should be taken and distributed to committee members within a few days following the meeting. Apart from reviewing the fund, this meeting could also be used to put together intended member education initiatives for the ensuing year.

Although MANCOs aren’t regulated, there are industry guidelines that may be relevant to them in order for them to act in the best interest of their members. The Pension Funds Act regulates pension and retirement funds, including umbrella funds and, as such, MANCOs need to ensure compliance with the act’s requirements.

Risk benefits

Retirement saving incorporates both investing (via Regulation-28-compliant funds), as well as risk benefits. Group life assurance is typically part of both standalone and umbrella retirement funds. In addition to life cover, there are other types of cover that may be obtained, depending on an individual’s needs, including: death, disability, dread disease, education benefits or funeral cover. This cover can provide a lump-sum benefit and/or income protection over a certain period. MANCOs can therefore play an important role in obtaining suitable group risk benefits within the umbrella fund for its members.

In the current environment, participating employers may have both risk and investment components provided as a full service offering from the umbrella fund.  It is, however, also possible to have the umbrella fund only provide the investment component, with the risk benefits being obtained through an external life insurer. The MANCO’s role is to ensure that the members are getting the best possible rates on the risk cover (i.e. cost of cover); that the underlying risk benefits from the insurer are matched to the needs and requirements of the underlying members; and that this risk cover is reviewed on an annual basis. MANCOs should also ensure that members receive a high standard of service from all service providers on an ongoing basis.

Investment choice

Umbrella funds will have certain investment objectives that underpin their investment strategies. Asset manager selection and the creation of risk-profiled strategies rests with the umbrella fund board of trustees. There are different strategies that may be available to members, as well as certain regulations that may be applicable. For example, Regulation 37 of the Pension Funds Act requires that the board of trustees must offer a default investment portfolio to contributing members who do not exercise any choice as to how their savings should be invested. With reference to Regulation 37, all defined contribution funds are required to have a default investment portfolio that is appropriate for the member.

The member choice option allows the member to elect alternative portfolios within the umbrella fund’s list of available funds. Their ultimate fund selection would need to be Regulation 28 compliant. Regulation 28 of the Pension Funds Act limits the amount of exposure allowed to certain asset classes. In short, these limits are as follows: equity 75%; listed property 25%; offshore assets 30%; and hedge funds 10%. If electing to consider alternative portfolios within the umbrella’s list of available funds, members should be encouraged to seek independent financial advice – another aspect the MANCO can educate and inform members about on an ongoing basis.

The MANCO should monitor whether the underlying investment strategies are indeed meeting the investment objectives of the members. This can be done at an annual or biannual review meeting with the umbrella fund and/or investment consultants.

Member education

It is the MANCO’s function to ensure that its members are always well informed. The committee should seek to educate members on all relevant aspects relating to their retirement investments and risk benefits (if applicable). This can be done by means of ongoing workshops, webinars, email communication or one-on-one sessions – should there be more specific questions relating to the member’s retirement savings.

Regulation 39 of the Pension Funds Act states that members must be given access to retirement benefit counselling not less than three months prior to their normal retirement age, as determined in the rules of the fund. This can be implemented in different ways, including face-to-face or telephonic engagements, workshops or webinars. The MANCO can inform members that they have access to the services of a benefit counsellor and encourage them to utilise these services – irrespective of their age or term to retirement.

Member education can also be broader than solely focusing on the retirement savings aspect. Other issues, such as beneficiary nominations, are of vital importance and are often overlooked by many members. It is advisable that the MANCO regularly communicates to members that their nominated beneficiary details are correct and up to date and/or that their retirement fund and risk benefit selections are updated.

Default investment strategies, which must be approved by the board of trustees, are for those members unwilling or unable to make their own selection. These strategies take into account the member’s age and number of years to retirement and will invest accordingly.

A life-stage model adjusts asset allocation as one moves towards retirement. For example, the focus will be on capital preservation the closer one moves to retirement, as opposed to the focus being on capital growth for younger members.

MANCOs should help members retire comfortably

It is a well-known fact that less than 10% of South Africans can afford to retire comfortably. Against this backdrop, a MANCO can play an important role in helping individuals achieve their retirement goals over the long term. Members of a MANCO, who are also members of the umbrella fund, naturally have a vested interest and would then want to ensure a professionally managed and efficient retirement fund for themselves and their colleagues.

REFERENCES
1. www.treasury.gov.za
2. www.totrust.co.za
3. www.fsca.co.za

To learn more about this topic, please visit our website www.atleha-edu.org or contact us on 021 851 0091 to find out more about our educational workshops and events.