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

Agenda The Royal The Member Case studies Enforcement Commission Outcomes Act • ASIC’s likely approach to • How we got here • What’s in, what’s out • What are the actual enforcement • Commissioner Hayne’s • How to approach changes • What penalties are issue with s 68A • What key elements assessing each case study involved • Final recommendation should a trustee consider • Other issues

The Royal Commission

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 .”

Commissioner Hayne’s problem with s 68A Wasn’t achieving its intended purpose Section 68A did not achieve its intended purpose of preventing funds ‘treating’ employers in order to gain members. Bar set too high 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. Irrelevant considerations by employers This higher bar meant decisions made by employers about default funds may be affected by considerations that should be irrelevant. Inadequate penalties 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.

Recommendation 3.6 – No treating of employers 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.

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 or 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.

Key considerations What is reasonably Influence expected to influence? What kinds of goods & Goods & Services services are prohibited? Does a SIS Regulation Exemption exemption apply?

Consideration 1: Influence Is the relationship Unsuccessful relevant? influence A trustee can still be If there is an entrenched in breach of s 68A and ongoing relationship where such conduct Objective test is an employer less likely Scale of Materiality is unsuccessful. to be influenced? Could the conduct materiality Does the significance reasonably be or cost associated We think relevant expected to influence with the good or conduct is best that employer? service matter? considered on a “sliding scale” of materiality.

Consideration 2: Goods & Services What goods and services are prohibited? 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. Goods and services in the broader sense 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 for an employer’s own enjoyment The alternative view is that goods or services provided will only fall foul of section 68A if they are goods or services which only the employer may personally enjoy. Clarification is required 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.

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 or 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.

Case study 1: Corporate hospitality • 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 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 .

Case study 2: Sponsorship arrangements • 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 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.