Securities Act (Employer Superannuation Schemes)

Securities Act (Employer Superannuation Schemes) Exemption Notice 2004

Effects of the exemption

This notice exempts two types of employer superannuation schemes from the need to register a prospectus:

• Employer superannuation schemes which are offered to employees or employees of associated persons (or to relatives, spouses, de facto partners or dependants of those employees), that would have come within the exemption for employer superannuation schemes in section 5A of the Securities Act 1978 except for any or all of the following reasons:
  • the offer is only open to employees, etc, but under the scheme's trust deed membership of the scheme is not strictly conditional on being an employee, etc;
  • it is a term of the offer, but not of the trust deed (and so is not a legal requirement for the scheme), that the employer will incur costs to cover any shortfall in the administrative costs of the scheme;
  • those employer costs are incurred by an associated person of the employer, rather than the employer itself;
  • those employer costs are incurred in respect of the year in which there is a shortfall, but not in that year itself;
  • the employer (or associated person) does not incur costs equal to the full administrative costs of the scheme, but the surplus of the scheme is applied to meet contribution liabilities, expense payments (including administrative costs), or both, and the employer incurs costs at least equal to the difference between that applied surplus and the administration costs.
• Small employer superannuation schemes. The key differences from the other employer superannuation schemes are that these schemes may have more than 1 unassociated participating employer, but must have total assets of less than $5 million and have been in existence on 1 October 1997. This exemption is similar to that previously contained in regulation 2C of the Securities Regulations 1983 before they were amended by the Securities Amendment Act 2004. These schemes would have come within the exemption in section 5A of the Securities Act 1978 except for the reasons (set out above) applying to the other employer superannuation schemes or because they have more than 1 unassociated participating employer.

Both exemptions are subject to conditions similar to those applying to employer superannuation schemes exempted under section 5A of the Securities Act 1978. The main differences (other than those relating to the employer costs requirement, which are covered above) are that -

• the annual report must state whether the employer was required to incur costs to fund any shortfall; and
• the employer costs requirement (in clause 7 of the notice), the requirement as to the annual report (in clause 8), and the requirement to respond to requests for the investment objectives and policy of the scheme (in clause 9) must be included, as terms of the offer, in the investment statement (except there is a transitional period of 3 months during which this condition does not apply to small employer superannuation schemes, to allow them to continue using their existing investment statements); and
• for a transitional period of 3 months, small employer superannuation schemes may continue to use the statement warning of restricted disclosure in the form previously required by the Securities Regulations 1983.

These exemptions do not apply to employer superannuation schemes that are already exempt under section 5A of the Securities Act 1978.

However, there is an additional transitional exemption for small employer superannuation schemes (as previously defined in regulation 2C of the Securities Regulations 1983) that were previously exempt under section 5(2E) of the Securities Act 1978 but are exempt now under section 5A of the Act. As with small employer superannuation schemes relying on this notice, for 3 months these schemes may continue to use the statement warning of restricted disclosure in the form previously required by the Regulations.

Background

Employer superannuation schemes are exempted from the requirement for a registered prospectus under section 5A of the Securities Act 1978, as a result of amendments made with effect from 15 April 2004 by the Securities Amendment Act 2004. It was intended that this exemption would be available to all single-employer superannuation schemes (that is, not master trusts) where the employer meets the costs of administering the scheme.

Until the amendments were made, the Act used to provide an exemption from the registered prospectus requirement for "small employer superannuation schemes" (as previously defined in the Securities Regulations 1983). However, some small employer schemes that were covered by the previous exemption, were unintentionally excluded from the definition of "employer superannuation scheme" in the amended legislation.

In addition, some schemes (other than small employer superannuation schemes) which meet the policy of the amended legislation were not included in the definition of "employer superannuation scheme" in the amended legislation.

The exemption

Every superannuation trustee of an employer superannuation scheme, and every person acting on the trustee's behalf, is exempted from section 37(1) of the Securities Act 1978 in respect of any interests in that scheme that are offered only to -

• employees of a person promoting the scheme; or
• employees of any associated person of a promoting person; or
• relatives, spouses, de facto partners, or dependants of those employees.

Every superannuation trustee of a small employer superannuation scheme, and every person acting on the trustee's behalf, is exempted from section 37(1) of the Securities Act 1978 in respect of any interests in that scheme that are offered only to -

• employees of a person or persons promoting the scheme; or
• employees of any associated person of a promoting person; or
• relatives, spouses, de facto partners, or dependants of those employees.

Transitional exemption

This exemption, which expires on 23 October 2004, applies to small employer superannuation schemes as previously defined in regulation 2C of the Securities Regulations 1983 until the Securities Amendment Act 2004 came into force on 15 April 2004, and that are now exempt under section 5A of the Securities Act 1978. Every superannuation trustee of a small employer superannuation scheme, and every person acting on the trustee's behalf, is exempted from clause 1(2) of Schedule 3D of the Regulations.

Conditions

The exemptions (other than the transitional exemption) are subject to the condition that the offer includes the following terms:

• if there is a shortfall for a financial year, the promoter of the scheme and/or associated persons, will incur costs in respect of that year that are at least equal to the amount of the shortfall.
  • to determine whether there is a shortfall for a financial year, -
    • determine the administrative costs for the scheme (this excludes costs that are directly attributable to the management of the investments of the scheme);
    • then determine how much (if any) of the surplus (that is, the excess in the value of the scheme's assets over the value of the members' accrued benefits) has been applied to meet contribution liabilities, expense payments (which may include administrative costs), or both, for that year;
    • then deduct the applied surplus amount from the administrative costs. The remaining amount of administrative costs, if any, is the shortfall.
• each annual report prepared under section 14 of the Superannuation Schemes Act 1989 for a financial year during which the scheme's trustees relied on the exemptions must include the following statements and information:
  • if any superannuation trustee, promoter, or manager of the scheme, or any director of that superannuation trustee, promoter, or manager, has, during the 5 years preceding the specified date, been adjudged bankrupt or insolvent, convicted of any crime involving dishonesty (within the meaning of section 2(1) of the Crimes Act 1961), prohibited from acting as a director of a company, or placed in statutory management or receivership, a statement to that effect including the name and any alternative or former name or names of the person concerned;
  • if more than 10% of the value of the scheme's assets (calculated in accordance with generally accepted accounting practice) was, at any time during the year preceding the specified date, represented directly or indirectly by any securities that were issued by a superannuation trustee, manager, or custodian of the scheme (or any associated person of any of them), a description of those securities;
  • a brief description of any legal proceedings or arbitrations that are pending at the specified date and that may have a material adverse effect on the scheme;
  • a statement by the superannuation trustees of the scheme (or, if a superannuation trustee is a body corporate or unincorporated, by the directors of that body) as to whether, in their opinion, after due enquiry by them, either or both of the following have materially and adversely changed since the specified date:
    • the value of the scheme's assets relative to its liabilities (including contingent liabilities);
    • the ability of the scheme to pay its debts as they become due in the normal course of business;
  • a statement as to the amount, if any, of a shortfall that was met by the scheme's promoter or associated person.
• any member of the superannuation scheme must receive a description of the investment objectives and policy for the scheme, or of the means for making changes to these, within 5 working days of requesting this information.

The exemption for employer superannuation schemes is subject to the further condition that the above terms of the offer are included in the investment statement. Small employer superannuation schemes have a transition period until 23 October 2004 before they are required to include these offer terms in the investment statement.

The exemption for employer superannuation schemes is also subject to the condition that the investment statement includes a warning statement about restricted disclosure, in the form set out in the notice.

The exemption for small employer superannuation schemes is also subject to the condition that the investment statement includes a warning statement about restricted disclosure. This statement should be in the form set out in the notice, except for a transitional period which ends on 23 October 2004. During this period, small employer superannuation schemes may provide the warning statement in the form previously set out in clause 1(2) of Schedule 3D of the Regulations.

The transitional exemption for small employer superannuation schemes as previously defined in regulation 2C of the Regulations is subject to the condition that the investment statement includes a warning statement in the form previously set out in clause 1(2) of Schedule 3D of the Regulations.

Reasons

The Commission considers that the purpose of section 5A of the Securities Act 1978 is to grant an exemption from the requirement to have a registered prospectus to employer superannuation schemes where the costs of the scheme are met by the employer. Some schemes meet this policy purpose, but are unable to comply with the terms of the statutory exemption for various technical reasons. The Commission considers that it is consistent with the purpose of the Act to grant an exemption to extend the effect of the exemption in section 5A of the Act to these schemes, and to schemes that previously enjoyed the benefit of the section 5(2E) exemption for small employer superannuation schemes before the Securities Amendment Act 2004 came into force.

The Commission is of the view that it is appropriate to have a transitional period in which issuers of schemes that previously enjoyed the benefit of the exemption in the Securities Regulations 1983 for small employer superannuation schemes can rely on the exemption from the requirement to have a registered prospectus while using their existing investment statements. The content of those existing investment statements is sufficiently similar to the content required under the new exemptions that the benefit of immediately preparing new investment statements is outweighed by the cost of doing so.