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Survey looks at fund shortfall

THE Australian Securities and Investments Commission has launched a survey of defined benefit superannuation schemes offered by company super funds.

The sharp fall in investment returns over the past couple of years has eroded the reserves of many defined benefit schemes and left some in deficit.

ASIC said it was concerned to ensure that members of defined benefit schemes receive adequate information about the financial status of their plan, particularly the scheme’s ability to meet its commitments.

It also wants to ensure that corporate sponsors of defined benefit schemes appropriately report their financial relationship with the plan.

“ASIC is of the view that, under Australian accounting standards, if a plan is in deficit because accrued benefits exceed plan assets, the corporate sponsor should be reporting the liability,” ASIC chief accountant Greg Pound said.

“If the company is of the view that no liability to the plan exists, either as a legal or constructive obligation, the plan trustees and employees are entitled to know that the company is not underwriting the obligations of the fund.”

The Australian Prudential Regulation Authority reported last month that the average solvency levels of defined benefit schemes had declined by 10 per cent.

It found the problem was more acute among smaller funds.

Larger funds remained generally solvent and should have sufficient assets to meet members’ benefit entitlements as they fall due, APRA said.

In contrast, at least 90 per cent of funds at the smaller end of the market had experienced declines in solvency levels.

AXIS Financial Group manager corporate services Richard Matsinger said actuaries generally recommend that defined benefit schemes hold a 10-15 per cent surplus of assets over vested benefits.

Falling equity markets have wiped out that surplus for many funds.

Mr Matsinger said one option was for employers to increase contributions to make up for any funding shortfall.

A second option being chosen by many companies was to wind up their in-house fund and outsource their superannuation to a master trust.

Mr Matsinger said some master trusts were able to manage defined benefit schemes, though virtually all-new funds were defined contribution (accumulation) schemes.

The ASIC survey is being undertaken in conjunction with the Corporate Superannuation Association, whose members constitute primarily the large corporate super funds.

CSA chief executive Nicholas Brookes said corporate super trustees and corporate sponsors were closely monitoring the financial status of their funds.

“Trustees and corporate sponsors are already taking appropriate action such as increasing employer contributions,” Mr Brookes said.

APRA noted that, while it will be encouraging trustees and employers to restore funding of defined benefit schemes to more appropriate levels, it has no statutory powers to enforce this.

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