The government's push to increase the number of independent directors on superannuation boards will reduce the accountability of defined benefit funds, warns Vision Super.
In a submission to the Fraser Review of the governance of superannuation funds, Vision Super argued that reducing the number of employer representatives on super boards will hurt the governance of defined benefit funds.
Vision Super chief executive Stephen Rowe, whose fund oversees three defined benefit schemes with over 10,000 members, voiced his concern at moves by the federal government to replace employer representatives with independents.
"Employers, not fund members, carry all the investment risk in defined benefit schemes. But imposing independents on boards would mean fewer employer representatives, which could have far reaching implications for the employer-sponsors," Mr Rowe said.
"Not all super funds are the same. There is a very important connection between the governance of defined benefit schemes and the responsibility of the employer.
"Investment and funding decisions by the boards of defined benefit schemes directly affect the financial position of the sponsoring employers. Employer representatives on the boards are critical as key board decisions can have direct financial implications for employers," Mr Rowe said.
In the wake of the GFC, many defined benefit funds were left with insufficient assets to meet their liabilities, said Vision Super – which meant the employer sponsors had to come up with the shortfall.
"These plans were fully supported by employer-sponsors as they had sufficient representation in the trustee board rooms," said Vision Super.
“Diluting employer representation by requiring a third independents completely overlooks the fact that defined benefit schemes are still a major component of the sector, and that the investment risk sits with the employer institution.
"We fully support the appointment of independent directors, but the trustee board charged with running the fund must be left in control of determining what is appropriate for that particular fund," said the submission.