Prohibition on influencing employers’ superannuation fund choice: section 68A of the SIS Act
This information sheet (INFO 241) is for trustees of regulated superannuation funds and their associates. It explains:
- the background to amendments to section 68A of the Superannuation Industry (Supervision) Act 1993 (SIS Act)
- the prohibition in section 68A against particular conduct by a trustee or its associates
- the exemptions from section 68A that are available in regulation 13.18A of the Superannuation Industry (Supervision) Regulations 1994 (SIS Regulations)
- the penalties that apply for a breach of section 68A.
This information sheet also provides examples that include common scenarios and issues to help trustees and their associates understand their obligations under section 68A.
Section 68A aims to promote good decision making by employers about superannuation for their employees.
For conduct occurring on or after 6 April 2019, the Treasury Laws Amendment (Improving Accountability and Member Outcomes in Superannuation Measures No. 1) Act 2019 increased:
- the scope of section 68A
- the penalty for a breach of section 68A.
The amendments followed a recommendation by the Royal Commission into Misconduct in the Banking, Superannuation and Financial Services Industry (Royal Commission) to improve the enforceability of section 68A: see recommendation 3.6, Royal Commission’s Final Report, 1 February 2019.
In making decisions about enforcement action, we will consider the purpose of the provision.
Section 68A prohibits a trustee or its associate from engaging in particular conduct if it would reasonably be expected to influence an employer to:
- choose a default fund for employees, or
- encourage employees to choose or retain membership of a fund.
The relevant prohibited conduct is:
- the supply, or offering to supply, goods or services (including at a particular price) to a person, or a relative or associate of a person
- the giving or allowing, or offering to give or allow, a discount, allowance, rebate or credit in relation to the supply of goods or services to a person, or a relative or associate of a person.
The prohibition in section 68A is an objective test – it prohibits conduct that would reasonably be expected to influence an employer. What could reasonably be expected to influence an employer will be determined by the facts and circumstances in each case. There is no need to prove that the influence has been effective. So, for example, the section can be breached even if there is no change in choice of default fund by an employer.
There is also a similar prohibition on a trustee or its associate refusing to supply or offer to supply goods or services, or refusing to give or allow or offer to give or allow a discount, allowance, rebate or credit, if it is reasonable to conclude that this refusal is given:
- because of a failure by the employer to choose a fund as a default fund, or
- to encourage employees to choose or retain membership of a fund.
Meaning of associate
The question of whether a person is an associate of another person for the purposes of the SIS Act is determined in the same way as that question would be determined under the Corporations Act 2001 (Corporations Act). This means, for example, companies within the same corporate group will generally be associates: see section 11 of the Corporations Act. However, some parts of the Corporations Act definition of associate are excluded for SIS Act purposes: see section 12 of the SIS Act.
A trustee must, under section 35A of the SIS Act, keep accounting records that:
- correctly record and explain the transactions and financial position of the trustee
- enable the preparation of any other documents required to be audited under the registrable superannuation entity (RSE) licensee law
- enable those documents to be conveniently and properly audited under the RSE licensee law.
A trustee should consider how it monitors compliance with section 68A and, in particular, whether its accounting records provide sufficient information for the trustee to do so.
A trustee cannot assume that because its actions do not breach section 68A that its actions are lawful. There may be other laws that are relevant. For example, the spending of member money on benefits to employers might, in some circumstances, breach the sole purpose test: see section 62 of the SIS Act.
ASIC has no power to give relief from the prohibition in section 68A. However, exemptions are available in regulation 13.18A of the SIS Regulations. These include exemptions for:
- business loans made on a commercial arm’s length basis – however, this does not apply to a business loan that is supplied on the condition that a person other than the person receiving the loan be a member of a fund (see regulation 13.18A(1)(a))
- providing a service to an employer for the forwarding of contributions, and related information, made by the employer on behalf of their employees to their chosen fund – for example, a clearing house service (see regulation 13.18A(1)(b))
- providing an employer or the employer’s employees with advice or administrative services relating to the payment of superannuation contributions – for example, software provided to an employer to allow them to make contributions to the fund (see regulation 13.18A(1)(c))
- goods or services available to employees on at least as favourable terms as the supply of good or services to the employer – for example, discounted interest rates on home loans (see regulation 13.18A(1)(d)).
We note that the exemptions in regulation 13.18A have not been updated following the amendments to section 68A that took effect on 6 April 2019.
ASIC is responsible for the administration of section 68A: see section 6 of the SIS Act.
Section 68A(1) and (3) are now civil penalty provisions and, under Part 21 of the SIS Act, there are civil and criminal consequences for breaching these provisions. If a court finds that a trustee or its associate has breached these civil penalty provisions, they may be fined up to 2,400 penalty units.
Section 68A has always provided that a victim who suffers loss or damage because of a breach could recover the amount of loss or damage by action against the offender (being a person who breached the section): see section 68A(5).
Further, for those trustees that hold an Australian financial services (AFS) licence, a breach of section 68A may be a breach of a financial services law, giving rise to potential civil penalties and licensing consequences for breaching provisions of Chapter 7 of the Corporations Act.
The six examples below highlight:
- how we see section 68A applying to common scenarios and issues
- how the objective test in section 68A works.
The examples are illustrative only and are not a substitute for careful consideration of particular facts and circumstances.
Example 1: Corporate hospitality (breach of section 68A)
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. This is part of the trustee’s corporate hospitality and entertainment budget. The trustee also gives tickets to employers who use another trustee’s fund as the employer’s default fund.
The trustee is likely to be in breach of section 68A for providing the tickets to each group of employers.
The fact that the employer’s staff were able to attend the sporting event grand final courtesy of the trustee is likely to influence an employer’s decision on which fund is suitable for its employees, and how the employer communicates to its employees about that fund.
If the provision of the sporting tickets is widely known, it might also influence other employers more generally. That is, it could potentially create an expectation around being given valuable corporate hospitality if the employer chooses the fund.
On the other hand, if the corporate hospitality is tea and coffee at a meeting to discuss the fund, it is unlikely to be a breach of section 68A because the goods offered are of such low value that they could not be considered reasonably likely to influence the employer.
Example 2: Free educational seminars relating to the payment of superannuation contributions to a fund (no breach of section 68A)
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.
The seminars focus on topics such as salary sacrificing to superannuation, non-concessional contributions, and claiming deductions on personal superannuation contributions. Having the seminars delivered on the employer’s business premises benefits the employer, who is able to highlight the availability of the seminars as making working for the employer more attractive.
Potentially, the provision of seminars by an associate of the trustee may be an incentive that could reasonably be expected to influence the choice of fund into which the employer pays employee superannuation guarantee contributions. However, it may not be a breach of section 68A. This is because when a trustee, or its associate, provides advice services to an employer, or employees, that relate solely to the payment of superannuation contributions to a fund, the trustee can rely on the exemption in regulation 13.18A(1)(c) of the SIS Regulations.
When a trustee, or its associate, provides advice services on unrelated topics, they will not be able to rely on the exemption in regulation 13.18A(1)(c). For example, it is likely that a trustee would be in breach of section 68A if it provides free seminars on general wellbeing topics, such as nutrition. These services could reasonably be expected to influence an employer’s decision in selecting a default fund, and are not an exempted service under regulation 13.18A(1)(c).
Example 3: Discounted premiums on business insurance policies (breach of section 68A)
Thomas owns and operates a small construction company. The default superannuation fund selected by Thomas for his employees is operated by a superannuation trustee that is part of a financial services group. The trustee told Thomas that if he picked its fund as the default fund, one of the benefits would be discounted premiums on insurance policies held by Thomas’ business.
These discounted insurance premiums are offered by a related body corporate (i.e. an associate) of the trustee, and the offer is not available to Thomas’ employees.
The offer of discounted premiums on these insurance policies is likely to be a breach of section 68A because it could reasonably be expected to influence the choice of fund into which employee superannuation guarantee contributions are paid by Thomas.
Regulation 13.18A(1)(d) of the SIS Regulations provides an exemption from section 68A when the supply, or offer to supply, of goods or services to an employer is also made to employees who are members of the fund on at least the same terms.
Trustees that make such an offer must take care to ensure that the terms of any offer made to employees who are members of the fund are at least as favourable as those offered to the employer. The offer must also be available, which means that the offer is accessible by the employees. Failure to communicate the offer appropriately, or imposing restrictions on the offer, would raise questions as to whether the offer is truly available to employees.
For example, in the scenario above, the offer of discounted insurance premiums on business insurance policies is not practically available to employees because the employees are not conducting a business. Merely making the offer to Thomas’ employees, where the trustee knows that the product is unsuitable, is not sufficient to enliven the exemption in regulation 13.18A(1)(d).
Example 4: Clearing house facilities (no breach of section 68A)
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.
This clearing house facility allows employers to make a single payment to the clearing house, which then distributes the payments to each employee’s fund. The clearing house facility also allows the employer to update employee information in one convenient location. The trustee considers that this is a feature that distinguishes it from other trustees, and provides employers with a valuable service that reduces the administrative burden of processing and paying employee superannuation guarantee contributions.
While the offer of a clearing house facility is an incentive that could reasonably be expected to influence the choice of fund into which an employer pays its employee superannuation guarantee contributions, it is a not a breach of section 68A. This is because regulation 13.18A(1)(b) of the SIS Regulations specifically excludes this type of service from the operation of section 68A.
Regulation 13.18A provides a number of exemptions from the operation of section 68A, most notably regulation 13.18A(1)(b) and (c) for administrative-type services. While this example has highlighted one practical example of this exemption, trustees will need to seek their own legal advice on whether other administrative services a trustee may wish to offer to employers are exempted from section 68A.
Example 5: Discounts on administration fees for employees (no breach of section 68A)
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 discounting of the administration fee does not result in a breach of section 68A. 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.
Example 6: Fund update over modest lunch (no breach of section 68A)
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.
The purpose of these events is to provide employers with an update on the fund’s features and benefits, as well as an update on the fund’s performance. These events are held at lunchtime and the trustee provides sandwiches and fruit, as well as sparkling water and soft drinks, for employer representatives.
The provision of a modest lunch to employers during a fund update event is unlikely to be a breach of section 68A. It would not reasonably be expected to influence the decision of those employers in relation to:
- their employees’ default superannuation fund, or
- encouraging employees to choose or retain membership of the fund.
This does not mean, however, that all food and drink expenditure associated with fund update events cannot lead to a breach of section 68A. It will depend on whether this could reasonably be expected to influence the employer. For example, if the fund update is provided at an expensive restaurant where a three-course meal matched with premium wines is served, there may be a breach of section 68A.
Please note that this information sheet is a summary giving you basic information about a particular topic. It does not cover the whole of the relevant law regarding that topic, and it is not a substitute for professional advice.
You should also note that because this information sheet avoids legal language wherever possible, it might include some generalisations about the application of the law. Some provisions of the law referred to have exceptions or important qualifications. In most cases your particular circumstances must be taken into account when determining how the law applies to you.
This is Information Sheet 241 (INFO 241), issued in July 2019.