It's not often that a section of the SIS Act makes the daily news, but section 68A of the SIS Act has done just that following the publication of a report commissioned by Industry Super Australia (ISA). The very brief report was put together by UMA, which describes itself as a 'public opinion consultancy'. The headline finding is that some banks have offered some employers incentives to make superannuation contributions to the bank's superannuation fund for their employees. This doesn't seem to be a startling finding. Moreover, it is not obviously a breach of the law.

What is startling is how much weight ASIC and APRA are apparently giving to the report. In response to it, they have asked a number of banks to provide them with information about how they comply with section 68A. But the report's findings are not compelling. The only research appears to have been an online survey of 550 small to very small employers. The questions do not distinguish between benefits that would breach section 68A and benefits that would not. In some cases or, more accurately, in most cases, the reported benefit was provided to the employees and, in other cases, it is not clear who the benefit was offered to. Benefits offered to employees do not breach the section.

What does section 68A ban?

In very brief terms, section 68A prohibits a trustee of a superannuation fund or any of its associates offering:

  • goods or services to a person; or
  • a discount, allowance, rebate or credit to a person,

on the condition that the person's employees will become members of the trustee's superannuation fund.

The section does not prohibit a trustee or its associates offering a benefit to a person on the condition that they become a member of a fund. And so, when the UMA report found that the most common benefit offered by banks was a discount on superannuation fees, it did not provide evidence of a breach of the section.

Section 68A also prohibits a trustee of a superannuation fund and its associates refusing to provide:

  • goods or services to a person; or
  • a discount, allowance, rebate or credit to a person,

because the person's employees are not, or will not become, members of the trustee's superannuation fund. The facts that might breach this section are hard to envisage, but they would seem to require an employer to approach a trustee or its associate asking for an incentive, rather than the other way around.

What are the exceptions?

There are exceptions to the ban. A trustee and its associates can offer the following products and services to a person without breaching section 68A:

  • a clearing house service or a discount on fees for using a clearing house service;
  • advice or an administration service that relates to the payment of superannuation contributions; and
  • goods or services if the goods or services are also available to the person's employees who are members of the fund and they are provided to the employees on terms that are just as favourable as the terms applying to the person.

The first two are unexceptional. The third is slightly puzzling. It permits a trustee or its associate to offer an incentive to an employer on the condition that they contribute to a fund for their employees, provided that they offer the same incentive to the employees. This means that a bank could offer a discount on the interest rate that applies to an employer's business loan on the condition that they contribute to the bank's superannuation fund for their employees, provided that the bank also offers the same discounted rate to each of the employees who are members of the fund. The fact that no employee in fact has a business loan does not appear to prevent the exception applying. Clearly this isn't what is intended, but it indicates very nicely that the conduct section 68A bans is quite narrow.

What is the point of section 68A?

The prohibition in section 68A is intended to prevent employers choosing a default superannuation fund for their employees because benefits have been promised to the employer. And so, if it is true that some banks have offered their customers discounts on their banking products on the condition that they establish an employer plan for their employees in the bank's superannuation fund, those banks will have breached section 68A (unless they also satisfy an exception).

But section 68A does not only apply to banks and it does not only apply to banking products – the offer of any kind of benefit (unless it falls within the exceptions) to an employer by any kind of trustee is caught. The ISA says that section 68A prohibits banks offering incentives to employers. While this can be true, it is only partly true.

No trustee can offer employers tickets to events or invitations to dinner on the condition that they open a superannuation plan for their employees in the trustee's fund. And if they do, they will breach section 68A.

Does the ban work?

As the ISA also points out in another media release, a breach of section 68A is not an offence. If a trustee or its associate breaches the section, all that can happen is that they can be sued by a person who suffers loss or damage because of the breach. The person the Government had in mind when they introduced section 68A to the SIS Act as part of the choice of fund amendments in 2004 was the employee who does not choose their own fund and who finds themselves in a fund chosen by their employer on the basis of some benefit that was promised to the employer. How an employee would in fact prove loss or damage in those circumstances is difficult to imagine.

And so I think section 68A is fairly ham fisted – it provides an inadequate remedy, it is easily stepped around (if someone wants to) and, finally, it has a dubious policy foundation. Section 68A does prevent trustees and their associates offering some incentives to employers on the condition that they contribute to a particular fund for their employees. The law does not, however, prevent an employer choosing a default fund for their employees entirely because of benefits provided to the employer by the trustee or its associate (so long as they are not offered on the condition that the employer contribute to the fund for their employees). An employer does not have an obligation to choose a fund that is in the best interests of their employees or that is suitable. And that is part of the problem that MySuper is intended to address – MySuper should mean that all default superannuation products will be pretty good for most people. It also means that there is less at stake for employees when an employer chooses a default superannuation fund and it makes it absolutely clear that it is the trustee's job to promote the financial interests of the members, irrespective of why their employer chose the fund.