ASIC questions defined benefit disclosure

Proposals to publish the financial positions of defined benefit funds on the Australian Prudential Regulation Authority's (APRA's) website may affect trustees' disclosure to members, says the Australian Securities and Investments Commission (ASIC).

It said trustees might want to explain their financial position to members - who would otherwise get the fund's vested benefits index (VBI), a reflection of its financial position, from APRA.

ASIC said trustees should consider whether disclosure of and reporting against any shortfall would be appropriate under APRA's proposal for trustees to set a shortfall limit and enforce an actuarial investigation in the case of a breach.

It suggested trustees consider providing market risk information on product disclosure statements.

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In ASIC's review of disclosure practices, it found 58 per cent of defined benefit funds were in a sound financial position with a vested benefits index (VBI) of 100 per cent or more.

Of the 470 funds and sub-funds ASIC looked at, 30 per cent had a VBI of between 90-100 per cent, 7 per cent between 80-90 per cent and only 1 per cent reported a VBI of less than 80 per cent.

The remaining funds had either closed or had no defined benefit members, ASIC said.

It said 70 per cent of trustees that experienced a shortfall had disclosed the shortfall to members in their annual statement, while the majority of trustees that did not disclose shortfalls had made suitable arrangements with the employer to bring the VBI up to 100 per cent.

ASIC is encouraging defined benefit trustees to consider disclosure practices in the wake of poor returns caused by the Global Financial Crisis, it said.

Trustees were required to alert members about significant events and changes in the fund's financial situation, particularly in the case of a funding shortfall, according to ASIC.