Industry fund flags DB issues in Fraser review
Wednesday, 10 February 2016 12:28pm

An industry superannuation fund has used the Fraser Review on governance to flag its concerns about the administration of defined benefit schemes.

Vision Super, a $7.5 billion fund for local government and water authority employees, said any move to mandate independent directors on super fund boards could adversely impact the complex governance requirements of defined benefit (DB) funds.

It said watering down employer representation on super fund boards could reduce the accountability of the board and the employer sponsors of DB super schemes.

Vision Super administers three DB schemes that cover more than 100 local councils, water authorities, cemeteries, Parks Victoria and other community-based institutions. The schemes have more than 10,000 members.

Vision Super chief executive Stephen Rowe said employers, not fund members, carry all the investment risk in DB schemes.

"Imposing independents on boards would mean fewer employer representatives, which could have far reaching implications for the employer-sponsors," Rowe said.

"Not all super funds are the same. There is a very important connection between the governance of defined benefit schemes and the responsibility of the employer.

"Investment and funding decisions by the boards of defined benefit schemes directly affect the financial position of the sponsoring employers. Employer representatives on the boards are critical as key board decisions can have direct financial implications for employers."

Vision Super does support the appointment of independent directors - and voluntarily appointed an independent director in 2014 after identifying a skills gap - but is concerned at moves that would replace employer representatives with independents.

It said in the lead up to the GFC the trustee equal representation rules meant that the employer-sponsor investment risk would have been considered key investment decisions. It added that following the GFC many DB funds were left with insufficient assets required to meet their liabilities.

Plans to fully fund the schemes effectively involved the employers coming up with the shortfall. These plans were fully supported by employer sponsors as they had sufficient representation in the trustee board rooms.

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