PROCEDURAL MATTERS

4. The Tribunal conducted the Review on the papers.

5. Pursuant to s32 of the Complaints Act, it requested submissions from the parties. Submissions were received and exchanged and responses invited. The Complainant responded.

6. All documents are retained on the Tribunal file for record purposes and were copied and distributed to the parties before the Review meeting.

SUMMARY

7. On 2 January 2007 the Complainant lodged a complaint with the Tribunal. The complaint was that the Trustee had wrongly excluded two regular payments (“Payments”) received by him from his Employer when calculating the retirement benefit paid to him.

8. The Fund is a defined benefit fund and the retirement benefit depends on the amount of the member’s “Final Average Salary” at the time of retirement.

9. The issue for determination by the Tribunal is whether the decision under review, that is the payment of the retirement benefit, was fair and reasonable in its operation in relation to the Complainant. This depends upon whether the Trustee’s calculation of the benefit was fair and reasonable. The Tribunal considers that it was: the exclusion of the Payments from the calculation of the Final Average Salary was fair and reasonable. The Tribunal affirms the decision under review.

10. The Tribunal’s reasons are set out below.

BACKGROUND

11. The relevant background facts of this matter are not in dispute, although the significance of the facts is in dispute.

12. The Complainant became a member of the Fund on 1 November 1987. It appears that the Complainant commenced employment with the Employer, or one of its predecessor firms on 17 November 1986. He retired from employment on 31 August 2006.

13. Part of the Complainant’s remuneration was made up of the Payments.

14. The first of the Payments (“the Asia Payment”) was the subject of a letter from the Employer to the Complainant dated 5 March 1998 which relevantly reads:

I am pleased to advise that in accordance with a [Company] decision to provide an additional salary allowance to those managers involved with [Quality] implementation, your salary will be increased by a 10% allowance effective from 1 March 1998.

This allowance will be payable continuously while you are involved in the [Quality] implementation project in Asia Pacific and will not alter your superannuation situation (which is based on your substantive salary without this allowance).

15. It appears that the Asia Payment was initiated in conjunction with the assumption of a new role in the Asia Pacific region by the Complainant. It appears that the Complainant continued to fill that role until his retirement. The Asia Payment continued to be made until his retirement. The amount of the Asia Payment was increased from time to time in accordance with salary reviews by the Employer.

16. The other payment (“the Car Payment”) reflected an agreement reached between the Complainant and the Employer in September 2003. The Employer agreed to make the Car Payment instead of providing a car to the Complainant as part of his “package”. The Trustee was not informed of the amount of the Car Payment.

17. The Payments were not included in the Complainant’s Final Average Salary when calculating his retirement benefit.

18. The Complainant retired from employment with the Employer on 31 August 2006. The Trustee paid $491,049.16 on 19 September 2006 to the Complainant’s rollover fund.

19. The payment was calculated on the basis of a final salary of $101,800 and a final average salary of $98,800. These figures do not include the Payments. The Complainant disputes that these are the correct figures, although there is no dispute that these are the figures used by the Trustee in its calculation.

20. The Complainant estimated that the effect of including the Payments in his Final Average Salary would be to increase the amount of his retirement benefit by $74,000.

TRUST DEED

21. The provisions of the Trust Deed relevant to this matter are those which were in force as at 31 August 2006 when the Complainant ceased employment. The Tribunal is therefore of the view that the version of the trust deed of the Fund that is relevant is the trust deed as amended up to and including the amendment dated 31 May 2005 (‘the Trust Deed’).

22. Schedule B to the Trust Deed sets out the benefits to which members are entitled in certain circumstances. Clause B3 sets out the benefits on retirement prior to normal retirement date. It says:

(a) If a Member retires within 10 years prior to his or her Normal Retirement Date, the benefit payable shall, subject to Clause 47, be a pension payable for 5 years certain and life thereafter determined as equal to one and two-thirds per cent of the Member’s Final Average Salary multiplied by his or her Years of Membership up to the date of the Member’s retirement.

(b) In addition to the benefit payable under paragraph (a), the Trustee shall pay to the Member the amount (if any) standing to the credit of the Member’s Voluntary Account, Transfer Account and Rollover Account.

23. “Final Average Salary” has the following definition:

“Final Average Salary” means the average of the amounts of the Member’s Annual Salaries at the Review Dates which occur within the 3 years immediately prior to the Member’s Normal Retirement Date or (if he or she retires prior to his or her Normal Retirement Date) prior to his or her date of earlier retirement PROVIDED THAT, if the Member is within 3 years of his or her Normal Retirement Date or his or her date of earlier retirement at the date of joining the Service of the Employer, his or her Annual Salary at the first Review Date in respect of the Member shall be deemed to have applied at each preceding Review Date.

24. The “Final Average Salary” depends on the “Annual Salary” of the Member. This term is also defined:

“Annual Salary” means the annual rate of Salary of the Member at the relevant Review Date as advised to the Trustee for the purposes of the Fund.

25. “Salary” has the following meaning in the Deed:

“Salary” means either:

(a) the remuneration (whether described as Salary or wages or otherwise) of the Member and includes such fees (if any) as are payable to the Member in respect of his or her directorship (if any) with the Employer but does not include payment for overtime or any allowances or benefits; or

(b) in any special case, such amount as is, for the purposes of the Fund, agreed upon between the Member and the Employer.

TRIBUNAL’S DELIBERATIONS

26. The Tribunal's role is to determine whether the decision of the Trustee was fair and reasonable in its operation in relation to the Complainant in the circumstances. The issue is not what decision the Tribunal would have made on the evidence before it.

Application of the Superannuation Guarantee (Administration) Act 1992

27. The amount of the Complainant’s retirement benefit is to be calculated by the Trustee in accordance with the Trust Deed applicable at the time.

28. The Complainant argued that regard should be had to the operation of Superannuation Guarantee (Administration) Act 1992 and, in particular, the definition of “ordinary time earnings” in the Superannuation Guarantee (Administration) Act 1992 as explained by Superannuation Guarantee Ruling SGR 94/4. The expression “ordinary time earnings” forms the basis for the calculation of the amount of superannuation guarantee contributions which employers are obliged to make under the Superannuation Guarantee legislation. The Ruling emphasises that regular payments are included in “ordinary time earnings”. It may be assumed that the Payments would fall within the definition of “ordinary time earnings”.

29. Although the SGA Act would have applied to the Complainant and the Employer while the Complainant was employed, the SGA Act does not apply to the present situation. The SGA Act operates to set a minimum standard for superannuation contributions by employers. At present, employers are obliged to make payment of 9% of an employee’s ordinary time earnings as defined by the SGA Act. Provided the contributions made by the Employer to the fund exceed the standard required by the SGA Act, the actual benefits paid to the employee may be calculated as determined by the Trust Deed. The Tribunal was provided with a copy of a certificate from an actuary that the payments made did exceed the minimum requirement.

30. The Tribunal also notes that the expression used in the SGA is “ordinary time earnings” and that this expression has its own definition in the SGA Act. “Earnings” is in some respects a broader expression than “salary”. The scope of “ordinary time earnings” provides no real guidance in understanding the meaning of “salary” or “allowance” in the Trust Deed.

31. The Complainant also argued that the Payments should be included in the calculation because his redundancy entitlements were calculated including the Payments. This has no bearing on the present matter. The basis for those calculations may differ from the definition of “salary”. Further, decisions by the Employer do not bind the Trustee.

Meaning of “Salary” in the Trust Deed

32. The definition of “Salary” in the Trust Deed excludes “payments for overtime or any allowances or benefits”. The Complainant argued that the Payments were not “allowances” within the meaning of that expression in the definition of “Salary” in the Trust Deed and so ought to have been included as part of “Salary”. He also suggested that the reality of the arrangement between the Complainant and the Employer was that the Payments were part of his salary.

33. The Complainant emphasised the fact that the Payments were not variable on a short term basis, in the way that overtime might be. This argument was probably influenced by the operation of the definition of “ordinary time earnings” in the SGA Act, which includes regular payments but does not include payments which are not related to the hours ordinarily worked by the employee.

34. The Tribunal does not accept this contention. It is not clear that “overtime” is necessarily variable. Parties may enter into agreements which require an employee to work a regular amount of “overtime” each week. Conversely, employees frequently receive “allowances” which remain the same for long periods of time, eg a tool allowance, which is paid to an employee for providing his own tools of trade as long as the employee continues to work “on the tools”.

35. The classic explanation of the meaning of “allowance” is that of Latham CJ in Mutual Acceptance Co Ltd v Federal Commissioner of Taxation (1944) 69 CLR 389. Speaking of “allowance”, Latham CJ said at 396 – 397:

When the word is used in connection with the relation of employer and employee it means in my opinion a grant of something additional to ordinary wages for the purpose of meeting some particular requirement connected with the service rendered by the employee or as compensation for unusual conditions of that service. Expense allowances, traveling allowances, and entertainment allowance are payments additional to ordinary wages made for the purpose of meeting certain requirements of a service. Tropical allowances, overtime allowances, and extra pay by way of “dirt money” are allowances as compensation for unusual conditions of service.

While the case arose under income tax legislation, the case has been applied many times in the context of employer – employee relations, as indicated in the opening words of the quote. It remains relevant.

36. In the present case, the Payments appear to have been made having regard to the circumstances in which the Complainant carried out his work. In the case of the Asia Payment, the Payment was associated with the amount of travel required of the Complainant. In the case of the Car Payment, the payment was associated with the fact that the Complainant had to provide his own car when working in Australia. The Car Payment is similar to a tool allowance. In this context, the fact that the Payments were made for extended periods of time does not alter the character of the Payments. Because provision of a personal car and overseas travel were required of the Complainant for long periods of time, the Payments continued to be made.

37. The Tribunal does not consider that the fact that the Payments were varied as a result of “salary” negotiations leads to the conclusion that the Payments are not “allowances”. The Asia Payment was expressed as a percentage of salary anyway. The cost of providing a car would vary from time to time. These issues would be addressed when an employee’s overall remuneration was considered.

38. The Complainant suggested that it was not open to the Employer to determine whether a payment was an allowance or formed part of an employee’s salary. There is some force to this argument. An employer could not “label” a payment so as to transform a payment which was really salary into an allowance. At the same time, however, the description used by the employer is relevant to the categorisation of the payment. In the present case, the nature of the Payments suggest that they are allowances. This is confirmed, in the case of the Asia Payment, by the letter of 5 March 1998.

39. The Trustee raised a broader answer to the complaint. The Trustee pointed to the definition of “Annual Salary” in the Trust Deed. The “Annual Salary” forms the basis of the “Final Annual Salary”. The definition of “Annual Salary” refers to the salary “as advised to the Trustee for the purposes of the Fund”. The definition does not say who has the responsibility of advising the Trustee. It may be assumed that the relevant person is the Employer. The Trustee argued that, having been advised of the “Annual Salary”, the Trustee is obliged to use that figure.

40. The Tribunal accepts this argument, within limits. It is not necessary to state comprehensively what those limits might be. By way of example, a trustee could not rely on information as to salary if it knew or had reasonable grounds for believing that the information was wrong, as acknowledged by the Trustee. In the present case, it appears that the information provided to the Trustee was apparently correct. The Trustee was entitled to act on it.

41. For the reasons set out above, the Tribunal considers that the decision of the Trustee to pay the retirement benefit in the amount it did was fair and reasonable in its operation to the Complainant in the circumstances.

DETERMINATION OF THE TRIBUNAL

42. Section 37(6) of the Complaints Act provides that the Tribunal must affirm the decisions under review if it is satisfied that their operation in relation to the Complainant was fair and reasonable in the circumstances. The Tribunal is so satisfied.

Jane Abbott Jane Abbott, Presiding Member

[signed]

Date of Tribunal signature: 19 September 2007

DETERMINATION NUMBER : D07-08\039

FILE NUMBER : 07-0023