TREATING EMPLOYERS WHATS ALLOWED, WHATS NOT SPEAKER: Lincoln - - PowerPoint PPT Presentation

‘TREATING’ EMPLOYERS – WHAT’S ALLOWED, WHAT’S NOT

SPEAKER: Lincoln Rodgers, Lawyer, Thomson Geer HOST: Karen Volpato, Senior Policy Advisor, AIST

The Member Outcomes Act

• How we got here
• Commissioner Hayne’s

issue with s 68A

• Final recommendation

The Royal Commission Case studies

• ASIC’s likely approach to

enforcement

• What penalties are

involved

• Other issues

Enforcement

Agenda

• What are the actual

changes

• What key elements

should a trustee consider

• What’s in, what’s out
• How to approach

assessing each case study

The Royal Commission

“…some large funds spend not insignificant amounts to maintain or establish good relationships with those who will be responsible for nominating the default fund for their employees. Money is spent on entertainment and sporting events at which the relevant relationships can be made and enhanced.”

The Royal Commission

The provision prohibited funds from providing goods or services to a person on the condition that an employee will be, will apply or agree to become a member of the fund.

Bar set too high Wasn’t achieving its intended purpose Inadequate penalties

Commissioner Hayne’s problem with s 68A

This higher bar meant decisions made by employers about default funds may be affected by considerations that should be irrelevant. The only consequence of a breach is that a person who suffers loss or damage because of the contravention may bring an action against the offender.

Irrelevant considerations by employers

Section 68A did not achieve its intended purpose of preventing funds ‘treating’ employers in

• rder to gain members.

Section 68A of the SIS Act should be amended to prohibit trustees of a regulated superannuation fund, and associates of a trustee, doing any of the acts specified in section 68A(1)(a), (b) or (c) where the act may reasonably be understood by the recipient to have a substantial purpose of having the recipient nominate the fund as a default fund or having one or more employees of the recipient apply or agree to become members of the fund. The provision should be a civil penalty provision enforceable by ASIC.

Recommendation 3.6 – No treating of employers

The Member Outcomes Act

The Amendments

Section 68A of the SIS Act was amended by the Treasury Laws Amendment (Improving Accountability and Member Outcomes in Superannuation Measures No. 1) Act 2019 (Cth) These amendments came into force on 6 April 2019 and will apply to all conduct on or after this date These changes will apply to all arrangements entered into prior to the Act coming into force, but have not yet occurred

The Amendments

Section 68A of the SIS Act now prohibits a trustee or its associate from engaging in particular conduct if it would reasonably be expected to influence an employer to:

• choose a default fund for its employees; or
• encourage employees to choose or retain membership of a fund.

The relevant prohibited conduct is:

• the supply, or offering to supply, goods or services (including at a

particular price) to a person, or a relative or associate of that person; or

• the giving or allowing, or offering to give or allow, a discount,

allowance, rebate or credit in relation to the supply of goods or services to a person or a relative or associate of that person.

The Amendments

There is also a similar prohibition on a trustee or its associate refusing to supply

• r offer to supply goods or services, or refusing to give or allow or offer to give or

allow a discount, allowance, rebate or credit, if it is reasonable to conclude that this refusal is given:

• because of a failure by the employer to choose a fund as a default fund; or
• to encourage employees to choose or retain membership of a fund.

What kinds of goods & services are prohibited? Does a SIS Regulation exemption apply? Influence Goods & Services Exemption

Key considerations

What is reasonably expected to influence?

A trustee can still be in breach of s 68A where such conduct is unsuccessful.

Unsuccessful influence

Could the conduct reasonably be expected to influence that employer?

Objective test

Does the significance

• r cost associated

with the good or service matter?

Materiality

If there is an entrenched and ongoing relationship is an employer less likely to be influenced?

Is the relationship relevant?

We think relevant conduct is best considered on a “sliding scale” of materiality.

Scale of materiality

Consideration 1: Influence

Consideration 2: Goods & Services

Goods & services is not a defined term in the SIS Act. The exact scope of this term is an important question that needs to be resolved.

What goods and services are prohibited?

The legislation could be read literally: i.e. any good or service – but what about a good or service provided to an employer where the sole purpose of that good or service is to promote the merit of the fund?

Goods and services in the broader sense

The alternative view is that goods or services provided will only fall foul of section 68A if they are goods

• r services which only the employer may personally enjoy.

Goods and services for an employer’s own enjoyment

Commissioner Hayne appeared to endorse the latter view in his final report, however there has been no clear statement from ASIC or the legislature on this point.

Clarification is required

Consideration 3: Exemptions to s 68A

Regulation 13.18A of the SIS Regulations provides the following exemptions to s 68A of the SIS Act:

• business loans made on a commercial arm’s length basis (reg 13.18A(1)(a));
• providing a service to an employer for the forwarding of contributions, and related information,

made by the employer on behalf of their employees to their chosen fund – for example, a clearing house service (reg 13.18A(1)(b));

• providing an employer or the employer’s employees with advice or administrative services

relating to the payment of superannuation contributions – for example, software provided to an employer to allow them to make contributions to the fund (reg 13.18A(1)(c)); and

• goods or services available to employees on at least as favourable terms as the supply of good
• r services to the employer – for example, discounted interest rates on home loans (reg

13.18A(1)(d)) ASIC currently has no power to provide relief to the prohibition in s 68A. Note that these exemptions were in place for the old s 68A. They have not been updated following the amendments which took place on 6 April 2019.

CASE STUDIES

Case study 1: Corporate hospitality

Fund A, at its own expense, invites the head of HR of a prospective employer- sponsor to attend a major sporting/cultural event in a corporate suite. The person which Fund A has invited is responsible for nominating the default fund for their employees.

• This is a clear example of the behavior which the Commissioner

took issue with during the Royal Commission.

• The Royal Commission heard evidence that this kind of conduct

does, and is often intended to, influence an employer to nominate or retain a fund as its default fund.

• This is the kind of conduct which ASIC will likely consider at the

“far end” of the materiality scale and likely to influence an employer’s decision on which fund is suitable for its employees and/or how it communicates to its employees about the fund.

• However, what if the instead of access to a corporate suite, an

employer is provided with general admission tickets to a less popular event? Will an employer likely be influenced? Where would this sit on the materiality scale?

Case study 1: Corporate hospitality

Case study 2: Sponsorship arrangements

(a) Fund A is the major sponsor of a national conference organised by an employer

• association. Fund A is entitled under the sponsorship agreement to provide speakers

to address attendees. Many of those in attendance are representatives of employers who are responsible for nominating the default fund for their employees. Fund A's CEO provides a seminar to attendees which contains overt promotional material about Fund A's exceptional performance compared to other funds. (b) In addition to the speaking opportunities, Fund A is also entitled to a booth in which Fund A representatives can meet attendees and promote the fund.

• Both (a) and (b) is conduct that is not prohibited by s 68A of the

SIS Act

• The prohibition is against the provision of goods or services to an

employer if that good or service could be reasonably expected to influence the:

• payment of default superannuation contributions; or
• way the fund is promoted,

by that employer.

• Here, the trustee is only providing a service to the employer

association, not each individual employer attending.

Case study 2: Sponsorship arrangements

Case study 3: Analysis of fund performance

Fund A employs an independent consulting firm to conduct an actuarial analysis of the performance of Fund A compared to Fund B. Fund A provides the result of the analysis to an employer who has nominated Fund B as its default fund for its employees. The analysis shows that Fund A would provide better outcomes for its employees and as a result the employer nominates Fund A as its default fund.

• This case study depends on what constitutes goods or services

for the purposes of s 68A of the SIS Act.

• Broadly, Fund A has either:
• provided the employer with a service: undertaken an

analysis of the projected outcomes of its employees under both Fund A and Fund B; or

• provided the employer with a good: the report which
• utlines the outcomes of its employees under both Fund

A and Fund B.

• The premise of delivering better outcomes for their employee's

superannuation would (and should) reasonably be expected to influence the employer decisions with respect to its contributions and the Fund.

• If however goods and services is limited to those enjoyed

personally by an employer, this would not contravene the provision.

Case study 3: Analysis of fund performance

Case study 4: Training/education seminars

(a) A representative of Fund A visits a workplace at the request of a trade union. Fund A has been asked to provide an education session (free of charge) to the trade union’s members about maximising their retirement outcomes. (b) A representative of Fund A visits a workplace as part of its agreement with an employer-sponsor. Fund A has agreed to provide various education sessions (free of charge) to the employer-sponsors employees. The topics vary but are predominantly in relation to maximising retirement outcomes.

• Case study 3(a) is not prohibited by s 68A of the SIS Act
• The same reasons for case study 2 apply here – generally, the

trade union will not be the employer-sponsor or an associate of the employer-sponsor, so any influence is not the kind prohibited by s 68A of the SIS Act.

Case study 4(a): Training/education seminars

• Case study 3(b) is not so straightforward.
• If the seminar relates solely to the payment of superannuation

contributions to the fund, the trustee could rely on the exemption in regulation 13A(1)(c) of the SIS Regulations.

• This requires a case by case assessment where nuances in the

relationship or the content of the presentation itself may ultimately determine whether it is reasonable to conclude that the employer would be influenced for the purposes of s 68A of the SIS Act.

Case study 4(b): Training/education seminars

Case study 5: Fund catch-up with employers

Fund A holds catch-ups bi-annually with its employer-sponsors to provide an update on the fund’s features, benefits and performance. The fund also uses the opportunity to receive feedback from the employer-sponsor generally. The update is held over an inexpensive lunch, the costs of which are covered by the fund.

• Case study 5 should not be prohibited by s 68A of the SIS Act
• The provision of an inexpensive lunch is unlikely to influence the

that employer sponsor in relation to its default arrangements or promotion of the fund.

• Nonetheless, the trustee should remain alert to the fact that its

expenditure on food, drink and entertainment at such events could ultimately lead to the conclusion that s 68A of the SIS Act has been breached.

Case study 5: Fund catch-up with employers

Case study 6: Catering by employer-sponsors

Fund A is hosting a end of year party for its staff. It engages its employer-sponsors to provide various goods and services for the event (e.g. catering and entertainment).

• Case study 6 should not be prohibited by s 68A of the SIS Act
• S 68A of the SIS Act does not prevent a trustee from engaging an

employer-sponsor to provide it with goods and services.

• A trustee would have to ensure that it complies with all other SIS

Act requirements.

Case study 6: Catering by employer-sponsors

Enforcement & Penalties

Enforcement & Penalties

ASIC is responsible for the enforcement of s 68A of the SIS Act

Sections 68A(1) & (3) of the SIS Act are now civil penalty provisions. There can be both civil and criminal consequences for breaching these provisions.

Civil penalty provision

A person who has suffered loss or damage as a result of a breach can still recover an amount equivalent to the loss or damage. Further, a trustee or its associate can now be fined up to 2,400 penalty units (currently $396,528).

Fines in addition to previous penalties

Enforcement & Penalties

“Premier” events will be a major focus

Given its prominence in the Royal Commission, trustee’s providing an employer-sponsor or their associate with tickets/corporate hospitality for headline events will undoubtedly be a major focus of the Regulator.

A focus on the purpose of these changes Other funds may pressure ASIC to enforce

In addition to ASIC’s likely increased vigilance in this area, it is likely that there may be an increase in funds reporting other fund’s conduct to ASIC. This may especially be the case in respect of case study 3 where a fund loses their employer-sponsor to another fund as a result of the provision of an actuarial analysis. The changes have been introduced to ensure that employers are not affected by considerations that should be irrelevant when nominating a default fund. Such irrelevant considerations are seen to be a result of benefits an employer will enjoy personally and have nothing to do with the merits of the fund.

Questions?