House of Representatives

Explanatory Memorandum

(Circulated by the authority of the Minister for Employment and Workplace Relations and Minister for Financial Services and Superannuation, the Hon Bill Shorten MP)

Chapter 4 - Modern awards and enterprise agreements

Outline of chapter

4.1 This chapter explains amendments to the FW Act relating to the nomination of default superannuation funds in modern awards and enterprise agreements. The amendments generally provide that only funds offering a MySuper product can be included in modern awards and enterprise agreements.

Context of amendments

4.2 From 1 January 2014, employers will generally only be able to avoid penalties under the choice of fund provisions in the SG Act by making superannuation contributions, on behalf of those employees who have not chosen their fund, to a superannuation fund that is authorised to offer a MySuper product.

4.3 Most modern awards specify a particular fund or funds to which employers must make compulsory superannuation contributions for the benefit of employees covered by the award who have not chosen a fund ('default funds'). A failure to make contributions for such employees to a default fund listed in the award constitutes a contravention of the award, exposing the employer to penalties under the FW Act.

4.4 These amendments introduce a new requirement that default funds listed in modern awards (other than exempt public sector superannuation schemes) must be authorised to offer a MySuper product. This requirement is intended to ensure that the new MySuper requirements under the SG Act do not result in employers being required to make compulsory superannuation contributions twice, because they are required to comply with both the terms of the modern award and the SG Act. Otherwise, employers could be required to make contributions to a fund that offers a MySuper product in order to satisfy their superannuation guarantee obligation under the SG Act, and to make contributions to a default fund listed in a modern award that does not offer a MySuper product in order to comply with the award.

4.5 Enterprise agreements can also nominate a fund to which an employer must make compulsory superannuation contributions for the benefit of employees who are covered by the agreement. In the case of enterprise agreements, generally the nominated fund is effectively the 'chosen' fund for all employees covered by the agreement. The SG Act exempts the employer from providing those employees with a standard choice form. An employee who did not support that fund being included in the enterprise agreement, or who joined the employer after the enterprise agreement was made, will have their superannuation contributions sent to the nominated fund. However, an enterprise agreement may also nominate a fund as a default fund, while still allowing employees to choose a different fund.

4.6 An enterprise agreement covers all the employees engaged to perform work covered by the agreement, including those who did not vote in favour of the agreement or who were not employed at the time the agreement was approved. It is intended that, in general, these employees should have their superannuation contributions made to a fund that offers a MySuper product.

Summary of new law

4.7 Modern awards will generally only be permitted to nominate a fund that offers a MySuper product as a 'default fund' (that is a fund to which employers are to make compulsory contributions for employees that do not have a chosen fund).

4.8 An exception to this rule is that an 'exempt public sector superannuation scheme', within the meaning given by the SIS Act, will also be permitted to be included as a default fund in a modern award. Exempt public sector superannuation schemes are not regulated by APRA and will not be able to offer MySuper products.

4.9 A term of a modern award will be invalid to the extent that it does not comply with this requirement.

4.10 Despite a term of a modern award being invalid to the extent that it nominates a non-compliant default fund, such terms may remain in the text of a modern award and cause confusion for employers and employees. For this reason, FWA will be required to conduct a 'one-off' process to ensure, as far as possible, that on 1 January 2014 modern awards do not purport to nominate any default funds that do not comply with the new requirement.

4.11 There will also be an ongoing obligation on FWA to remove any invalid references to non-compliant funds in modern awards 'as soon as practicable' after receiving a written notification from APRA that a fund has ceased to offer any MySuper product or that a fund has ceased to be an exempt public sector superannuation scheme and does not offer a MySuper product.

4.12 FWA will be required to include a new term in modern awards that permits employers to make contributions to a fund for an employee who is a defined benefit member of that fund. This will allow contributions to defined benefit schemes even if the fund is not specified in the modern award and does not offer a MySuper product.

4.13 Under the SG Act, contributions made to superannuation funds in accordance with the terms of certain industrial instruments are deemed to comply with the choice of fund requirements. Contributions made under two further types of award-based transitional instrument, made under the former federal workplace relations system, will be deemed compliant with the choice of fund requirements. The effect of these amendments is that funds listed in any such instruments that remain in operation on 1 January 2014 will not be required to offer a MySuper product. The FW Act will also be amended to provide that an enterprise agreement approved by FWA on or after 1 January 2014 will only be able to nominate a default fund (or scheme) that is either:

•

a fund that offers a MySuper product;

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a fund that only receives contributions in respect of employees of the relevant employer who have not chosen a fund if such employees are defined benefit members; or

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an exempt public sector superannuation scheme.

4.14 A term of an enterprise agreement will be an unlawful term and of no effect to the extent that it nominates a default fund that does not comply with this requirement.

Comparison of key features of new law and current law

Detailed explanation of new law

4.15 A definition of the term 'default fund employee' will be inserted into the FW Act. 'Default fund employees' are employees who have no chosen fund within the meaning of the SG Act. Definitions of the terms 'defined benefit member', 'exempt public sector superannuation scheme' and 'MySuper product' will also be inserted into the FW Act as they are relevant to interpreting these amendments. The terms are to take the meaning ascribed to them by relevant superannuation legislation. [Schedule 4 , items 1, 2, 3 and 4, section 12 ].

4.16 Modern awards must not include a term that requires or permits contributions to be made to a superannuation fund for the benefit of an employee who has no chosen fund (that is a 'default fund employee'), unless the fund:

•

offers a MySuper product; or

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is an exempt public sector superannuation scheme.

[Schedule 4, item 6, subsection 155A(1)] .

4.17 Allowing exempt public sector superannuation schemes to be named as default funds in modern awards is required because such funds or schemes are not regulated by APRA and therefore cannot be authorised to offer a MySuper product. [Schedule 4, item 6, paragraph 155A(1)(b)] .

4.18 The requirement that default funds in modern awards offer a MySuper product or be an exempt public sector superannuation scheme will apply to both existing modern awards and any new modern awards from 1 January 2014. [Schedule 4, item 8, schedule 1, clause 9 ].

4.19 Section 137 of the FW Act will operate so that a term of a modern award will have no effect to the extent that it does not comply with the new requirement. For example, if the authorisation of a fund to offer a MySuper product is cancelled and the fund is not an exempt public sector superannuation scheme, a term in a modern award will be invalid to the extent that it nominates that fund as a default fund from the time of the cancellation. This will ensure that employers are not exposed to double-jeopardy in circumstances where a default fund listed in a modern award ceases to comply with these criteria. Employers should not be obligated to make contributions to a fund under the terms of a modern award when they would be subject to penalties under the SG Act for doing so. [Schedule 4, item 6, subsection 155A(1)] .

4.20 The new requirement only applies to terms in modern awards that specify a particular superannuation fund as a default fund. A term of a modern award will still have effect if it requires or permits superannuation contributions to a class of fund but does not specify a particular fund. For example, most modern awards include a grandfather clause that permits an employer to make contributions to a fund that the employer was contributing to before 12 September 2008, provided the fund is an eligible choice fund. Although this term would notionally permit contributions to a fund that does not meet the new requirement, the term would still have effect because it does not specify a particular fund. However, contributions to a default fund made in reliance on the grandfather clause would not meet the requirements of the SG Act if the contributions are not made to a fund that offers a MySuper product or an exempt public sector superannuation scheme, and the contributions are not made for a defined benefit member.

4.21 FWA must conduct a 'one-off' process to ensure that on 1 January 2014, modern awards do not include any terms that fail to comply with the new requirement for default funds. [Schedule 4, item 8, clause 11 ].

4.22 While any such terms would have no effect as a result of section 137 of the FW Act, this process will ensure that they are not included on the face of a modern award in order to avoid confusion for employers and employees.

4.23 FWA will be required to ensure that by 1 January 2014, the text of each modern award does not include any term to the extent that it contravenes the new requirement for default funds in the following circumstances:

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the award was made before 1 January 2014;

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the award was in operation on 1 January 2014; and

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immediately before 1 January 2014, the award included a term that would not have complied with the new requirement.

[Schedule 4, item 8, clause 11 ].

4.24 For example, FWA would be required to remove a reference to one default fund from a modern award by 1 January 2014 in the following circumstances:

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On 31 December 2013 a modern award includes a term permitting superannuation contributions to be made in respect of employees with no chosen fund to four different funds.

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One of the funds does not, at this time, comply with the new requirement for default funds because the fund is not authorised to offer a MySuper product and is not an exempt public sector superannuation scheme.

[Schedule 4, item 8, clause 11 ].

4.25 Where a default fund listed in a modern award ceases to comply with the new requirement that such funds either offer a MySuper product or be an exempt public sector superannuation scheme on or after 1 January 2014, the 'one-off' process will not apply. Instead, FWA will be compelled to ensure that modern awards do not include any invalid references to a non-compliant fund after receiving a notification from APRA concerning the fund.

4.26 If APRA cancels the authorisation of a fund to offer a MySuper product and the fund is not authorised to offer any other MySuper product, APRA will be required to notify FWA in writing. In addition, if APRA becomes aware that a fund ceases to be an exempt public sector superannuation scheme and is not authorised to offer a MySuper product APRA must notify FWA in writing of that fact. [Schedule 4, items 11, section 29U and item 12, section 29XC ]

4.27 If FWA receives a notice in writing from APRA that a fund is no longer authorised to offer any MySuper product or has ceased to be an exempt public sector superannuation scheme and is not authorised to offer a MySuper product, then FWA must ensure that the text of the modern award is updated to remove any invalid references to the fund as soon as reasonably practicable after receiving the notice. It is intended that invalid references to non-compliant funds be removed quickly in order to avoid confusion for employers and employees. [Schedule 4, item 6, subsections 155A(2 )-( 5)] .

4.28 While FWA is required to remove any invalid references in modern awards to a non-compliant fund in modern awards after receiving a notification concerning the fund from APRA, FWA may also vary modern awards to remove non-compliant default funds at any time, using one of the existing variation mechanisms in the FW Act:

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an ongoing system of four yearly reviews of modern awards, the first of which will occur in 2014;

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variations to modern awards, either on application or on FWA's own motion, where FWA considers the variation necessary to achieve the modern awards objective. Applications to vary modern awards under section 157 of the FW Act can be made by an employee or employer covered by the modern award, or by an organisation entitlement to represent their industrial interests; and

•

variations to modern awards, either on application by a party to the award, or on its own initiative, to remove an ambiguity or uncertainty, or to correct an error.

4.29 Each modern award must include a new term that permits an employer to make contributions to a superannuation fund or scheme for employees that do not have a chosen fund if the employee is a 'defined benefit member' of the fund or scheme. [Schedule 4, item 5, section 149A ].

4.30 The new mandatory term to be included in modern awards will ensure consistency with the amendments in Schedule 5 to the Bill, which allow employers to continue to make default contributions to funds for defined benefit members, regardless of whether that fund offers a MySuper product. The mandatory term in modern awards will comply with the new requirement in section 155A of the FW Act because it would not specify any particular fund.

4.31 The requirement that modern awards include the mandatory term will apply to both existing modern awards and any new modern awards from 1 January 2014. [Schedule 4, item 8, schedule 1, clause 9 ].

4.32 FWA is required to amend existing modern awards to ensure that they include the new mandatory term by 1 January 2014. [Schedule 4, item 8, Schedule 1, clause 10 ]

4.33 A term of an enterprise agreement that requires or permits superannuation contributions to be made to a specified fund for the benefit of a default fund employee is an unlawful term, unless:

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the fund offers a MySuper product;

•

all 'default fund employees' in relation to whom contributions are being made to the fund or scheme by the relevant employer are 'defined benefit members'; or

•

the fund is an exempt public sector superannuation scheme.

[Schedule 4, item 8, paragraph 194(h)] .

4.34 This requirement will apply to enterprise agreements that are approved by FWA on or after 1 January 2014. Therefore, a term that nominates a fund in an enterprise agreement approved by FWA before 1 January 2014 that does not meet the criteria will remain a lawful term. [Schedule 4, item 8, clause 12 ]

4.35 Under section 253 of the FW Act, a term of an enterprise agreement has no effect to the extent that it is an unlawful term.

4.36 FWA can only approve an enterprise agreement once satisfied that it does not contain any unlawful terms under subsection 186(4) of the FW Act. FWA can accept undertakings from an employer to address concerns about the inclusion of unlawful terms in an enterprise agreement. [Schedule 4, item 8, clause 8 ].

4.37 To ensure that an RSE licensee may accept contributions for employees that do not have a chosen fund under enterprise agreements and have not asked their contributions to be directed to a specified choice product, section 29WA of the MySuper Core Provisions Bill will not apply to contributions made in accordance with an enterprise agreement approved before 1 January 2014, even though the fund specified does not meet one of the criteria. [Schedule 4, item 13 ].

4.38 Contributions made to default funds nominated in two types of award-based transitional instruments will be deemed compliant with the choice of fund requirements in the SG Act. The effect of this amendment is that a contribution to a fund by an employer for the benefit of an employee is deemed to have been made in compliance with the choice of fund requirements if the contribution, or a part of the contribution, is made under or in accordance with such instruments. Such contributions will therefore not have to be made to a MySuper product. [Schedule 4, item 9, subsection 12A(1) and Schedule 4, item 10, subsection 32C(6)] .

4.39 The relevant instruments are 'awards' (often referred to as 'pre-reform federal awards') and State reference transitional awards or common rules. These instruments were made under the former federal workplace relations system and have since been preserved as transitional instruments under Schedule 3 to the TPCA Act. [Schedule 4, item 9, subsection 12A(1) and Schedule 4, item 10, subsection 32C(6)] .

4.40 While the majority of these transitional instruments have now been terminated, there may be some residual instruments that continue to operate for a limited period on or after 1 January 2014.