First of all, the board of Pension Fund Transnet recognized the changing needs of the company and the Fund's participants and pensioners. This fund was established to house the SATS pensioner portion of the then existing Transnet Pension Fund.
The objectives of the study
Chapter outline
This chapter covers the analysis and presentation of data collected regarding the restructuring of Transnet Pension Funds. The above analysis has been carried out to assess the effectiveness of the pension funds' restructuring measures.
Literature review
- Reporting requirements
- Legal requirements
- Corporate governance
- Investments and risk management strategies
This means that in the case of the pension fund, this responsibility belongs to the Board of Administration. On the other hand, the employer is interested in the efficient and fair operation of the fund.
Research Methodology
- Research questions
- Data collection and sources
- Verification of data validity
- Methods of data analysis and presentation
Other topics that are important in this research include the investment strategies of pension funds, the preparation and auditing of the statement of income, expenditure and financial position, as well as issues in the field of corporate governance. These include reports prepared by various pension fund actuaries in both their capacity as advisors to the Board of Trustees and as reporting actuaries within the meaning of section 9A of the Pension Funds Act 1956. These reports include the Chairman's Report, the Fund Management Report , Report of the director, report of the independent accountants, actuarial report and annual accounts.
The annual accounts include a statement of funds and net assets at the end of the financial year, an income statement for the covered accounting period and notes to the annual accounts. This document aims to detail a coherent framework to guide the government in the restructuring process of the state-owned enterprises. Primary data has been obtained through informal interviews held with the principal, operations manager, member of the board appointed by the managing director of Transnet Limited, the employer company.
The primary sources of data for analysis purposes are the annual reports of the Transnet Pension Fund for the financial years ended 31 March 1991 to 31 March 2001 and the annual reports of Transnet Limited, the employer company for the financial years ended 31 March 1991 to 31 March 2001. In presenting the results, which refers to research questions and the purpose of the study. This is followed by recommendations of strategies that can be implemented by both the Board of Transnet Limited and the Board of the Pension Funds, taking into account the current financial position and performance of these organizations as well as the overall government initiatives to restructure the business. .
Analysis and presentation of data
Analysis of Annual Reports for financial year ended 31 March 1991
The total actuarial deficit of the Pension Fund on the date of incorporation of the company on 1 April 1990 amounted to R 17.1 billion consisting of a statutory deficit of R6.8 billion and a social deficit of R 10.3 billion. During the 1990/91 financial year the company issued R4.8 million T 011 Debentures in favor of the Pension Fund to partially reduce the deficit. In terms of the Transnet Pension Fund Act and the agreements relating to the establishment of the Fund, Transnet Limited underwrites the Fund's obligations with the State acting as an ultimate guarantor.
This was to be financed by higher corporate contributions to the Fund and by lump sum payments from the company's profits. Therefore, part of the Pension Fund's assets should have been allocated to liquid funds. When developing the Pension Fund's strategy, an actuarial valuation of the Fund should be carried out annually to monitor whether the strategy to tackle the deficit is achieving the desired results.
The pension fund also reflected R 5.9 billion. as an asset raised in its books as a result of the issuance of T 011 bonds in its favor. The pension fund's financial statements for the year ended 31 March 1991 did not present fairly in accordance with AC 101 of GAAP. This was above the actuarially assumed inflation-dependent increase in pensionable remuneration of 11% per year, which is a sign of a commitment from the company management and the pension fund's board to reduce this deficit.
Analysis of Annual Reports for financial years ended 31 March 1992, 31 March 1993, 31 March
1998/9 and 1999/2000 financial years experienced actuarial surpluses for the first time in the history of the Pension Fund. The guarantee obligation of the Government will decrease as the company finances the deficit and will expire when it is fully funded. Under the old AC 116, which was in force during that period, it was not mandatory to make provision in the employer company books for retirement benefit fund shortfalls.
Based on this statement, the exclusion of these deficits in the balance sheets and the income statements of the company therefore amounted to an understatement of both liabilities and expenses. However, the fact that provision was not made for these deficits did not compromise the fair presentation of the company's financial information, as this provision was not mandatory in terms of the old RE 116. The actuarial surpluses experienced during the 1998/9 and 1999/2000 financial years were not capitalized in the books of the company as no decision was made by the Government and the company to whom the surplus belonged.
In the absence of anything else, profits could only be capitalized in the company's balance sheet as. According to the Pension Fund Amendment Act (which was published after the financial years in question), the employer company could include this profit in its profit and loss account and, under certain circumstances, capitalize it as an asset on its balance sheet. The funded status of the Edcon Pension Fund determined in accordance with AC 116 and IAS 19 is as follows:.
R'OOO
The impact of the split of Transnet Pension Fund into three separate funds and the consequences of
Board of Directors and management and Board of Directors of funds and its management. The Board of Directors of the Second Transnet Defined Benefit Fund has been duly constituted in accordance with the Transnet Pension Fund Act 2000 as amended. All changes to the rules of the Transnet Defined Contribution Fund and the Transnet Pension Fund have been registered with the Financial Services Board (FSB) in terms of of these laws.
All changes to the rules of the Transnet Second Defined Benefit Fund were registered under this Act with the Minister for Finance (now the Minister for the Treasury). In accordance with the Act on Transnet Pension Funds, the company and the government guarantee any shortfall that may occur in defined benefit funds. This is in terms of transfer agreements made between members and trustees.
In terms of the Deed of Trust, Transnet's Second Designated Beneficiary is the beneficiary of this trust only to the extent of the deficit. The financial statements of the Transnet Second Defined Benefit Fund for the year ended 31 March 2001 therefore did not achieve fair presentation. The R3 632 million deficit of the Transnet Second Defined Benefit Fund was fully provided for in the company's balance sheet at 31 March 2001.
Recommended Actions
The company could not show it as an asset on the balance sheet because it did not meet all the requirements for asset recognition in terms of AC 000. The administrator should have obtained written guarantees from the government regarding the guarantee for defined benefit fund deficits. The granting of this document by the government is important to enable trustees to demonstrate that the governance processes have been completed and that they have fulfilled their fiduciary duties.
In order for Transnet Treasury to enjoy the status of being the asset managers of the Pension Funds, it must register with the FSB, failing which this relationship must be terminated. Furthermore, it must be considered whether this deficit should be the burden of the company or transferred directly to the Government. During the 2000/2001 financial year the company sold 75 million M-Cell Limited shares (not related to the transfer of 75 million shares to the Transnet M-Cell Limited Trust mentioned above).
From this profit, a dividend of R1.8 billion was paid to the government after deducting R0.2 billion in STC. The transaction netted the company R5.7 billion, of which the full amount, less expenses but excluding the cost of acquiring these shares, will be remitted to the government. Based on this, it is recommended that the state not exercise its right to these dividends, but instead use them to solve the burden of the pension fund.
Summary and conclusion
Most statutory and regulatory requirements were met with the exception of a few instances of non-compliance. These include the failure to formulate service level agreements between the funds and the administrator, the unavailability of a written government guarantee, which was one of the instruments used to induce the administrators of the second defined benefit fund to agree to the cancellation of their share of T 011 Bonds. There were also contentious legal and accounting issues surrounding the formation of the Transnet Limited M-Cell Trust, created for the benefit of the Second Defined Benefit Fund.
Questionable issues include the way the trust deed was drafted, especially when deciding on the beneficiaries of the trust. Under the Trust Deed, the pension fund was only a beneficiary of the Trust if the fund was in deficit, otherwise the beneficiary was the company. The market value of the M-Cell Limited shares held in the Trust was capitalized on the books of the Fund.
Control, as one of the recognition criteria in terms of AC 000 was not transferred to the fund. The worst thing is that this capitalization was accomplished before the financial statements of the Trust were approved by its trustees. Other areas of corporate governance non-compliance included slow progress in implementing the Investment and Risk Management Framework.
Bibliography
Policy Framework for an Accelerated Agenda for State Owned Enterprises (2000) Department of Public Enterprises of the Republic of South Africa.
Definitions of concepts
