In brief 7 min read
There are considerable problems with some guidance that was published a few months ago on section 68A ('no treating of employers') of the Superannuation Industry (Supervision) Act 1993.
ASIC's six examples: not very illustrative
ASIC's information sheet on s68A (INFO 241) includes six examples which, according to ASIC, highlight 'how we see s68A applying to common scenarios and issues'. ASIC states that 'the examples are illustrative only and are not a substitute for careful consideration of particular facts and circumstances'. One problem is that the examples are not, in fact, illustrative - they do not provide the reader with a better understanding of how s68A might apply in any particular case. A further problem is that, while the guidance says the examples are no 'substitute for careful consideration of particular facts and circumstances', the examples themselves suggest very strongly that, in ASIC's view, facts and circumstances are, on the contrary, largely irrelevant to the correct application of s68A. We explore these two problems in this article.
Example 1: Corporate hospitality (breach of s68A)
A superannuation trustee gives tickets to a sporting event grand final to employers who have selected its fund as the default fund for employee superannuation guarantee contributions.
The relevant case study examined in the Royal Commission was so central to the Commissioner's recommendation to amend s68A that most superannuation trustees would not even begin to contemplate the possibility of handing out tickets to a sporting grand final to employers. For this kind of corporate hospitality, the correct application of the law is practically irrelevant. So we will move straight on to the next example.
Example 2: Free educational seminars relating to the payment of superannuation contributions to a fund (no breach of s68A)
An associate of a superannuation trustee provides free educational seminars at the employer’s premises if the trustee’s fund is selected by the employer as its default fund for employee superannuation guarantee contributions. These educational seminars are not broadly offered to members of the fund.
While ASIC's conclusion – that there would be no breach of s68A – may be accepted, what is concerning is the analysis. ASIC does not consider the possibility that an educational seminar may be a service provided to employees only (in which case, s68A is irrelevant). The guidance appears to assume that such a seminar will, somehow (and invariably), be a service to the employer as well. We query whether that assumption will always, or even often, reflect the applicable facts. Certainly, it is easy to think of many circumstances in which an educational seminar would not be a service to the employer.
Nor does the guidance give any real consideration to the possibility that, even if an educational seminar can be a service to an employer, it may be unlikely to influence an employer's choice of default fund. Consider an employer who is bound by an enterprise agreement that is registered with Fair Work Australia and specifies a particular fund as the default fund. In that case, the trustee of some other fund could provide all the educational seminars under the sun entirely fruitlessly. Even outside such a clear case, it is easy to think of many circumstances in which an educational seminar, even if somehow regarded as a service to the employer, could not reasonably be expected to exert the relevant influence.
In the end, ASIC sees the 'solution' for an educational seminar about superannuation contributions to lie in an exception to s68A found in the regulations. However, the exception is irrelevant in the first place if the service is not provided to an employer or, even if it is, the service does not satisfy the influence test. And it is ASIC's reliance on the exception that produces the next item of guidance, which has caused many superannuation trustees a great deal of alarm:
… it is likely that a trustee would be in breach of s68A if it provides free seminars on general wellbeing topics, such as nutrition …
ASIC says this because the exception it has latched onto is limited to superannuation contributions. But, as noted earlier, the reasoning process is back-to-front. ASIC's guidance on 'free seminars on general wellbeing topics' is unlikely to be correct in some, perhaps many, cases.
We pass over example 3 (discounted premiums on business insurance policies) and go straight to example 4.
Example 4: Clearing house facilities (no breach of s68A)
A superannuation trustee offers a free clearing house facility to employers who nominate its fund as the default superannuation fund for employee superannuation guarantee contributions.
Again, the conclusion - no breach of s68A - may be accepted, but the analysis raises some questions. ASIC says 'the offer of a clearing house facility is an incentive that could reasonably be expected to influence' an employer's choice of default fund. The guidance says the service is nevertheless acceptable because of an exception in the regulations. And yet, the proposition that a clearing house facility will always, or even ordinarily, satisfy the influence test in s68A is debateable.
Most superannuation trustees operating in the corporate superannuation market make a clearing house facility available to contributing employers. If the clearing house offered by trustee A is, in the round, the same as the clearing houses offered by trustees B, C and D, then, logically, it is unlikely the influence test would be satisfied. Put simply, if most trustees are supplying employers with more or less the same thing, how could that thing bear, in any meaningful way, on their choice of default fund? This illustrates the main problem with ASIC's approach. In this and other examples, ASIC applies the influence test without any regard to what are, or may be, the applicable circumstances.
This illustrates the main problem with ASIC's approach. In this and other examples, ASIC applies the influence test without any regard to what are, or may be, the applicable circumstances.
The influence test in s68A finds it origins in the influence test in the definition of conflicted remuneration. An application of the influence test is almost certain to miscarry unless the applicable circumstances are carefully considered. At the risk of stating the obvious, you cannot work out the likely influence of any given benefit (conflicted remuneration) or any given good or service (s68A) unless you ask yourself: what else could influence the activity in question – financial product advice (conflicted remuneration) or the choice of a default fund (s68A)?
Example 5: Discounts on administration fees for employees (no breach of s68A)
In relation to the fund’s MySuper product, the superannuation trustee and an employer enter into an arrangement that secures the employer a reduced administration fee for employees, as permitted under the SIS Act.
This one's a head-scratcher. Apparently s68A is not breached because the 'SIS Act contemplates that these types of discounts can be lawfully arranged between a trustee and an employer in limited circumstances for the benefit of employees'. In fact, s68A is not breached because a fee discount for superannuation fund members is not a service provided to an employer. Let's move on to example 6.
Example 6: Fund update over modest lunch (no breach of s68A)
A superannuation trustee holds updates twice a year for employers that have selected its fund as the default superannuation fund for employee superannuation guarantee contributions.
We're way past head-scratching now. According to ASIC, an event held at lunchtime where 'the trustee provides sandwiches and fruit, as well as sparkling water and soft drinks, for employer representatives' is okay. However, the guidance says that 'if the fund update is provided at an expensive restaurant where a three-course meal matched with premium wines is served', it may not be okay. We struggle mightily with this. We concede it is theoretically possible there may be an employer out there whose priorities, position and circumstances are such that they would not change their default fund for an ordinary lunch but would do so for a good lunch. But, as one of us is fond of saying, it is unlikely. And this is without even pausing to note that a lunch is not a good or a service - not really.