Independent Principal Officer

Lack of management of retirement funds, ignorance of the law (and duties), dependence on service providers and “an attitude of noncompliance (sic) and apathy” (per Mr. Mike Codron, Chief Actuary of the Financial Services Board at that time, as published in the Financial Mail of 14 April 2006) have been a major problem in the retirement fund industry. In the mentioned article Mr Codron also states “Many trustees also do not appreciate the full extent of their duties.” The same can be said about the appreciation of the duties of the principal officer.

From 1 August 1994, all funds are required to appoint a principal officer. Section 8(1) states “Every registered fund shall have a principal executive officer”. Some people see the principal officer merely as a contact person for the fund. Kobus Hanekom in his authoritive publication ‘Manual on South African Retirement Funds and other Employee Benefits’ 2002 edition under the heading “functions and duties” of the principal officer has this to say; “the principal officer constitutes a retirement fund’s official representative or contact person with the FSB for the purpose of compliance with the Pension Funds Act and the regulations. As far as the FSB is concerned, the principal officer is required to fulfil the functions of a liaison or administrative officer.” But not everyone agrees with Hanekom, one of the previous the pension funds adjudicators, Vuyani Ngalwana, had the following to say about a principal officer; "It defies logic how the funds' principal officer could have been allowed to act as the employer's broker to the funds", clearly putting more responsibility on the duties of a principal officer, than merely that of a contact person.

But then what role should the principal officer play and what are his/her duties? The Pension Funds Act, 24 of 1956, (herein after referred to as the Act) defines the principal officer in section 1 of the Act as ’ … the officer referred to in section eight’ and defines officer as ‘in relation to a fund, means any member of a board, any manager, principal officer, treasurer, clerk or employee of the fund, but does not include an auditor appointed under section 9 or a valuator appointed under section 9A;’ Section 8(1) reads as follows; - “Principal Officer -(1) Every registered fund shall have a principal executive officer.”
The Companies Act, 1973 also refers to a principal executive officer. The definition of ‘manager’ in the Companies Act is; - “In relation to a company, means any person who is a principal executive officer of the company for the time being, by whatever name he may be designated and whether or not he is a director.”

In ‘Commentary of the Companies Act’ by Blackman, Jooste and Everingham it is stated, “a Manager in the ordinary sense is someone who, either alone or with others, is vested in whole or in part, with the control and administration of the affairs of the company. Managers are those persons who are in a position of real authority, the decision-makers within the company, who have the power and the responsibility to decide corporate policy and strategy”.
The Oxford Advanced Dictionary of Current English defines principal as follows; - ‘highest in order of importance …’ and executive as; - ‘(1) having to do with managing or executing, (2) having authority to carry out decisions, laws, decrees etc. … person or group in a business or commercial organization with administrative or managerial powers.’ It is clear that the principal officer of a retirement fund is the chief (principal) executive officer of that fund.
According to Judge King in his report on corporate governance the chief executive officer’s task is to run the business and to implement the policies and strategies adopted by the board.

The January 2003 Fisher Hoffman PKF guide ‘An outline of Directors responsibilities” has the following to say about the office of the chief executive officer of a corporation; - “A CEO/managing director must be formally appointed by the board, the appointment noted in the board minutes and the powers vested in the appointee must be delegated as specified in the articles of the company. The CEO’s task is to run the business and implement policies and strategies adopted by the board. Generally speaking, the CEO/managing director is presumed to have the power, inter alia, to enter into any contracts on the company’s behalf and to be in charge of the company as a whole and responsible to the board of directors. The board is responsible for overseeing the succession process.”

For the purposes of a Retirement Fund I will propose the following amendments; - “A principal officer must be formally appointed by the board (of trustees), the appointment noted in the trustee minutes and the powers vested in the appointee must be delegated as specified in the rules of the fund. The principal officer’s task is to run the business and implement policies and strategies adopted by the board. Generally speaking, the principal officer is presumed to have the power, inter alia, to enter into any contracts on the fund’s behalf and to be in charge of the fund as a whole and responsible to the board of trustees. The board is responsible for overseeing the succession process.”
The rules of the fund should stipulate the duties of the principal officer of that fund, and in addition the principal officer should have a letter of appointment detailing his duties and responsibilities. The principal officer’s duties should be to oversee the general workings of the fund. Many of the functions of the fund is outsourced, this however does not mean that the principal officer, and eventually the trustees, are not responsible. The principal officer should oversee the service providers and ensure that they are performing their tasks as agreed upon, he/she must ensure that the decisions made at the board of trustees meetings are implemented.

Although the service providers generally prepare the ‘trustees pack’ and the agenda for the trustees meeting, they should do so under instruction and supervision of the principal officer, who must determine the agenda, in consultation with the chairman of trustees.
Principal officer’s should take responsibility of the funds that they manage, as the chief executive officer of their funds they are responsible for the day-to-day management and running of their funds. They report to the board of trustees and are responsible to implement policies and strategies adopted by the board. The principal officer should find his duties and responsibilities primarily in the rules of the fund and his letter of appointment as well as in applicable legislation. As with a trustee, the principal officer should be very aware of his fiduciary duties and must constantly guard against a conflict of interest, in particular if he is also a full time employee of one of the sponsors/employers of the fund.
The legislator has now acknowledged the important function that the principal officer plays in the governance of a retirement fund by introducing the so-called fit and proper requirements set out in the Pension Funds Act.
Larger funds have appoint full time experienced principal officers, smaller funds does not have enough work to keep a principal officer busy on a full time basis and appointed experts on a part time basis to act as principal officers for them.

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