Auscoal Super and the Coal Industry Superannuation Fund (CISF) have signed a memorandum of understanding for the merger of the two funds.
A due diligence process is underway and the funds are aiming for a merger date of 30 June 2013.
The merger discussions were sparked by a strategic review of CISF, the fund's chairman Frank Sciarrone said
"We conducted this process in conjunction with PricewaterhouseCoopers with the focus being one of ensuring that we could continue to deliver a superannuation solution that was in the best interests of our members," he said.
"We reviewed three main options: stay as we are, outsource some services like administration, or merge."
"From our analysis it was clear members would be better off under a merged scenario due to the economies of scale that a large merger partner can bring. With this in mind, we went through a tender process and chose AUSCOAL Super," he said.
Sciarrone said the fund was aware of the proposed requirements for sufficient scale under Stronger Super, as CISF has just 1200 member and $161 million in funds under management.
But he said the strategic review had been the main driver behind the approach.
"The move was prompted by advice before the CISF board that costs associated with administering the fund and with meeting future legal obligations will continue to increase and has the potential to negatively impact member benefits over the medium to long term," he said.
With both funds servicing the coal industry, there was a natural fit for CISF to merge with the $6.5-billion Auscoal, Sciarrone said.
"We believe there is a natural fit for the two funds coming together which we are keen to explore," Sciarrone said.
"There are obvious synergies between the two funds and a close relationship between our employers, members and unions.
"We are in the process of confirming that a merger would be in the best interests of our members.
"We aim to fully understand the advantages and disadvantages that a merger would deliver to our members, our employers and our respective staff."
Sciarrone said the funds had no intention reduce the number of staff after the merger.
