In the normal course of business, if often happens that an employee is absent from work for various reasons. Such absence can carry the employer’s consent, e.g. maternity leave, sabbatical absence, suspension with immediate departure from office, dismissal or ill-health. In other instances it can be unauthorised absence, e.g. ill-health, disablement, absconding etc. Until such time as employment ends contractually or legally, employees are entitled to their contractually agreed remuneration and benefits. This includes employer contributions towards the member’s retirement as well as death and disability benefits typically offered by pension funds. It is critical, however, that the rules of the fund and the relevant insurance policies are complied with in order to ascertain that an employee remains covered by the fund for these benefits. In this regard, the employer plays an important role and should carefully consider the following exposition.

Introduction – rules vs contract of employment

The rules of the fund typically set out the rights and obligations of the employer and the member and determine how the administrator is required to administer the fund. Since an employee’s membership of the fund arises from his employment with the employer, the contract of employment may have a key bearing on the employer’s and the employee’s contribution obligations towards the fund.

Commencement and termination of membership

Typically rules would state that membership commences on the first day of the month coincident with or following his becoming and employee. Membership typically ceases upon termination of service. Service can thus terminate at any time in terms of the rules. Service is usually defined as full-time permanent employment with any of the employers. One will now have to refer to the contract of employment to determine when the service of an employee actually terminates. The employer would have to advise the fund administrator of the correct date of termination of service in terms of a member’s employment contract.

Commencement and termination of contributions payable

Contributions to the fund by the member and by the employer are typically payable at the specified rate of the monthly equivalent of the member’s annual pensionable emoluments. Pensionable emoluments’ are then usually defined as the member’s basic annual salary or wage and any other amounts that are regarded as pensionable by the trustees at the request of the employer. This formulation provides considerable latitude to the employer to have different classes of membership where the fund contributions are based on different proportions of the employee’s cost to company.

To determine the employer’s and the employee’s obligation concerning the contributions to the fund, the employer would have to first calculate the annual pensionable remuneration, divide this amount by twelve and multiply the result by the relevant contribution percentage. It appears logical that the basis for determining the annual pensionable remuneration has to be the employee’s current rate of pay per pay period, times number of pay periods per year. This means that if rules are formulated as set out above, they do not provide for any pro-rata payment in the last month even though the employee’s service may have terminated in the course of the month.

Whether or not any contributions are payable for the last month if it was a broken period will have to be established from the contract of employment. The rules link the contribution to the member’s remuneration. Again the employer would have to advise the administrator of the correct end date of the member’s last monthly contribution in terms of a member’s employment contract.

Commencement and termination of risk cover – what does the insurance policy say?

As far as ‘risk benefits’ are concerned, the reassurance policies link a member’s cover to his membership in terms of the rules of the fund, which in turn, link membership of the fund to his or her service in terms of his employment contract. Typically the policy read together with the rules, would imply that cover always commences on the 1st day of a month but ceases as soon as the service of the employee ceases in terms of his contract of employment.

Temporary absence – what do the rules say?

The rules normally make provision for ‘temporary absence’. Typically, this rule provides for continuation of benefits and contributions while the member is in receipt of his or her full normal remuneration. When a Member is granted leave of absence with less than full normal remuneration, the rules would typically provide that his or her member’s share will be credited with any contributions actually paid by the member and/or the employer during such period of absence. Commencement and termination date for this purpose would then be irrelevant.

As far as ‘risk cover’ is concerned the rules typically provide that the member will continue to be covered for the insured benefits in the event of death or disability, for the period specified in the assurance policy issued to the fund by the relevant insurer (normally between 1 and 2 years). After expiry of said period, such cover shall terminate unless the member returns to active service. Any benefit that may become payable during such period of absence will be based on the member’s pensionable emoluments as specified in the assurance policy issued to the fund by the relevant insurer (normally based on the employee’s full normal remuneration).

Temporary absence – disability reassurance policy

Although every insurer has slightly different formulations in their insurance policies, typically, for ‘leave of absence’, the disability reassurance policy normally provides that no claim for the benefit is admitted if the disability arises during a period in which the member concerned is deliberately absent from the employer’s service without permission, unless the fund and the insurer agree otherwise in a particular case. By implication, in the case of temporary absence approved by the employer the member will continue to be covered.

Temporary absence – death reassurance policy

Although every insurer has slightly different formulations in their insurance policies, typically, for ‘leave of absence’ the group life reassurance policy normally provides that if a member is absent from the service of the employer with the employer’s consent, it is deemed that the member’s membership continues, subject to the following
1. During the period of absence the member’s remuneration is deemed to be equal to the remuneration he/she received immediately before the commencement of absence….”
For ‘absence without the employer’s consent’, these policies typically state that a member’s membership lapses and the member’s service with the employer is regarded as terminated if and as soon as he/she is absent from the employer’s service without the employer’s consent.”

Summary

The following conclusions can be drawn from the above deliberations:

1. Contributions by both employer and employee have to be made for full months, except in the case of approved temporary absence.
2. The date of termination of service is to be determined in accordance with the contract of employment.
3. Death and disability benefits cease upon date of termination of service in accordance with the contract of employment.
4. Whether or not contributions by the employee and the employer are payable for the last month in which service terminates is to be determined in accordance with the contract of employment.
5. In the case of temporary absence, contributions by employer and employee are determined in the normal manner, where the employee receives his full remuneration.
6. In the case of temporary absence, the rules do not detail how contributions by employer and employee are to be determined, where the employee’s remuneration is less than his full remuneration and the administrator simply updates what it receives.
7. In the case of approved temporary absence, the employee’s death and disability benefits will continue based on the employee’s remuneration prior to the approved temporary absence.
8. In the case of unapproved temporary absence, the fund and the insurer can agree to keep a specific member covered for disability benefits, else cover will lapse.

Important notice and disclaimer
This article summarises the understanding, observation and notes of the author and lays no claim on accuracy, correctness or completeness. Retirement Fund Solutions Namibia (Pty) Ltd does not accept any liability for the content of this contribution and no decision should be taken on the basis of the information contained herein before having confirmed the detail with the relevant party. Any views expressed herein are those of the author and not necessarily those of Retirement Fund Solutions.