ASIC is encouraging trustees of defined benefit superannuation funds to make timely and appropriate disclosures to members in the wake of poor returns caused by the global financial crisis (GFC).
This follows a review of the disclosure practices of defined benefit funds following the GFC, during which time funds across the superannuation sector experienced poor investment returns. ASIC’s focus is on ensuring trustees make appropriate disclosure to members and improving disclosure practices in relation to defined benefit funds more generally.
Trustees of defined benefit superannuation funds are required to notify members of significant events and changes in their fund’s financial situation, particularly if there is a funding shortfall that an employer will not rectify.
ASIC Commissioner, Greg Tanzer said, ‘While investors in defined benefit funds are typically less affected by investment markets than those in accumulation funds, the GFC highlighted that prolonged market falls can impact a defined benefit fund if there is a funding shortfall and the employer is unwilling or unable to meet shortfall amounts.
‘Many investors in defined benefit funds may not be aware that their ultimate benefit is affected by the capacity of their fund to meet the defined benefit. ASIC therefore encourages trustees to be vigilant about the financial position of their fund and to actively consider making disclosures to help members better understand the financial position of the fund. Trustees are best placed to explain market risk and what happens in the event of a funding shortfall’, Mr Tanzer said.
Mr Tanzer said ASIC would be paying particular attention to disclosures by defined benefit trustees in the future.
‘A failure to provide existing members with ongoing disclosure, where disclosure is required, is an offence. In specific cases, ASIC will consider issuing stop orders on product disclosure statements where it believes there is insufficient disclosure. We will also consider whether further guidance is needed for the industry more broadly’, he said.