Qantas’ decision to temporarily stand down two-thirds of its staff has raised a thorny issue for its superannuation fund, and particularly for its defined benefit members.

In March, Australia’s flagship carrier decided to stand-down around 20,000 employees until at least the end of May in response to the coronavirus pandemic and the havoc it has wreaked on the airline industry.

Whilst defined benefit superannuation arrangements are now the minority in Australia, many employers like TelstraSuper, CommBank Super and QSuper have groups of longer-serving employees who still receive defined benefit superannuation through the company.

The problem for corporate super funds like the $8.4 billion Qantas Super fund is that arrangements for members in a defined benefit scheme – who have been stood down– are not addressed in the fund’s trust deed and rules.

Qantas Super chief executive Michael Clancy conceded that the term stand-down is not in the fund’s trust deed. “We are working closely with Qantas Airways, our plan sponsor, to work through all aspects as it relates to superannuation,” he said in an email.

However,  Clancy confirmed that credited service for defined benefit members would continue while members stand down.

Tim Jenkins, convenor of the Actuaries Institute’s superannuation committee said stand-downs, salary cuts, and temporary reductions in working hours could impact entitlements and insurance cover.

“The situation where employees are stood down or have their salaries cut was rarely envisaged when trust deeds were written and employers and trustees are now looking at changing the rules so members are not disadvantaged,” he said. “No-one wants to see members’ existing benefits adversely affected. We have seen redundancies in the past but it’s unusual to see pay reductions.”

The actuary said stand-down is a huge issue for defined benefit scheme since typically benefits are based on a formula that involves a percentage of salary and the number of years they have been in the fund.  He added that a critical part of the formula is what counts as service, and what salary is used to determine benefits.

Jenkins said whilst not accruing superannuation during the period of stand-down may be appropriate, it would be a concern for a defined benefit member if their past entitlements reduced by 20 per cent because they had a 20 per cent pay cut.

This compares to a typical accumulation superannuation plan where members are entitled to the sum of their account balances. Their existing entitlements aren’t impacted by stand-down,  though falls in investment performance will reduce the value of their accounts.

“It is a fund-by-funds investigation because the terms in each defined benefit section are typically unique to that arrangement,” Jenkins said. “For example, the provisions in the fund rules may cover what we call stand-down appropriately even though it may not use those words. It is very hard to generalise.”

He said all parties should work quickly and resolve difficult issues which could be challenging as it is often many years since the terms for defined benefit sections were last reviewed and amended.

The Government’s superannuation early release scheme does not automatically apply to defined benefit members, which could be a further problem for those affected by stand-downs. Qantas Super’s Clancy said early release applied to both defined benefit and defined contribution staff. So far, the fund had received early release applications from 3,991 of its members which is roughly about $38 million.