The Choice of Fund superannuation regime was passed by Federal parliament this year and will apply to most superannuation arrangements from July 1 2005.
Employees will be able to choose the superannuation fund into which superannuation guarantee contributions are made on their behalf by their employer.
The fund to which contributions are paid must be a complying superannuation fund.
The regime will apply to all types of employers, including corporates, sole traders and partnerships.
It will not apply to all employees.
The main categories of employees who will not be able to exercise a choice under the Choice of Fund regime are:
- employees for whom contributions are being made under, or in accordance with, an Australian Workplace Agreement or Certified Agreement under the Workplace Relations Act 1996 (Cth);
- employees for whom contributions are being made in accordance with a State award or agreement;
- certain public sector employees; and
- certain members of defined benefit schemes.
The new choice regime applies to contributions used to satisfy superannuation guarantee obligations, but not to additional or voluntary employer contributions.
Upon the introduction of the new regime or commencement of employment thereafter, employers must give their eligible employees a ‘standard choice form’ that offers them an unlimited choice of funds.
The employer must make contributions to the chosen fund unless an exemption applies.
Special rules will apply in relation to the content of the standard choice form and
to the procedure that will apply if the employer becomes aware that a chosen fund is no longer able or refuses to accept contributions in respect of an employee.
Employers will need to carefully review, and if necessary amend, contracts with
their employees dealing with superannuation arrangements.
This is particularly the case where an in-house superannuation fund currently exists or where contributions in excess of the superannuation guarantee amount are paid.
For those employers with in-house funds, the choice regime is a catalyst for the employer to review:
- whether it remains viable to maintain the fund, in view of the potential loss of members; and
- whether the in-house fund offers superior benefits to other funds and if so, whether this is understood and appreciated by employees.
Where an employee does not choose a fund, employers will be able to contribute to a ‘default fund’ chosen by the employer.
A default fund is any complying fund chosen by the employer that offers prescribed death insurance cover (details of this cover have not yet been prescribed).
Exemptions to Choice of Fund apply for employees who are defined benefit members of a defined benefit scheme, where:
1. the member has, since before July 1 2005, been a member of a defined benefit scheme that has a surplus of at least 10 per cent, on an ongoing basis, as certified by an actuary;
2. the member has reached their maximum benefit accrual; and
3. the member would be entitled to the same retirement, resignation or retrenchment benefit under an existing defined benefit scheme, whether or not their employer contributed to another fund in accordance with the Choice of Fund regime.
Failure to make contributions in compliance with the Choice of Fund requirements will incur a penalty equal to 25 per cent of the quarterly superannuation guarantee contribution not made to the chosen fund.
This is subject to a cap, for each relevant period, of $500 per employee.
For more information phone: Bruno Di Girolami, partner, 9429 7444
Minter Ellison