Fair Work Act and superannuation fund choice

With effect from 1 January 2010 Modern Awards will include a clause dealing with superannuation which imposes a limitation on the default fund which an employer can utilise in circumstances where an employee has not chosen a superannuation fund.  This means that one of the funds nominated in the Award (which are usually industry funds) will become the default fund if the employer decides to change the existing default fund being a fund to which the employer made contributions for employees before 12 June 2008.

The Fair Work Act 2009 provides in Section 137 that “superannuation” is an allowable term to be included in Modern Awards and similarly, Section 172 permits an Enterprise Agreement (which is the instrument replacing Collective Agreements and Australian Workplace Agreements) to include superannuation on the basis that it is a matter pertaining to the relationship between an employer and the employer’s employees.

It is important to note that the Modern Awards which have been issued by the Australian Industrial Relations Commission so far contain a “standard” superannuation clause which imposes a limitation on the default fund which an employer can utilise in circumstances where an employee has not chosen a fund.  The relevant clause provides that the employer must pay the superannuation contributions in such circumstances to a number of funds which are described in the award (which are generally industry funds).  There is also an opportunity for the employer to continue to contribute to any superannuation fund to which the employer was making superannuation contributions for the benefit of its employees before 12 June 2008 provided that the fund is an “eligible choice fund”. 

The meaning of “eligible choice fund” is found in Section 32D of the Superannuation Guarantee (Administration) Act 1992 (SG Act) as a fund which is a complying superannuation fund together with certain other instruments such as retirement savings accounts or a defined benefit fund in respect of which a benefit certificate has been issued.

The effect of this provision in the Modern Award (and any similar provision which may appear in Enterprise Agreement) is that if an employer decides to change the existing default fund then any new default fund selected must be a fund described in the award.

The legislative mechanism for choice of fund is found in Section 32C of the SG Act and in particular Section 32C(6) deems contributions made under certain agreements and workplace determinations to comply with the choice of fund requirements.  This section does not yet appear to have been amended to allow for contributions made under Modern Awards or Enterprise Agreements. 

It was expected that the amendments would be contained in the Fair Work (Transitional Provisions and Consequential Amendments) Act 2009 which was enacted in June 2009 given that Modern Awards will apply from 1 January 2010 but this is not the case.  In the meantime, it must be presumed that an appropriate amendment to the SG Act will be made to enable consistency with the provisions of the Modern Award and any Enterprise Agreement which has similar provisions.