Reference no: EM133336764

CASE STUDY

A SUPER PROBLEM AT CONSOLIDATED INDUSTRIES

Troy Milton, marketing manager for Consolidated Industries, pushes his superannuation statement across Sandra Hargreaves's desk. 'I tell you, Sandra, this is a rip-off. How HR ever got employees involved with such a plan is beyond me. The fund's performance is terrible, but I'm still being charged excessively. Do you realise that in the past two years the fund manager has underperformed the market by 5 per cent? I'm 57 - how am I expected to make that up? I'm due to retire in less than three years.' Sandra studies the statement. 'Well, I must say, it doesn't look good.'

That's the understatement of the year! What makes me mad is not the pathetic performance, but the fees I'm being charged. The master trust fund manager takes out 4 per cent of everything I contribute and then has the gall to charge me a further 2 per cent to invest my money in mutual funds run by the bank, which also charges management fees. It's an absolute gravy train for them. My super is worth about$500 000. That means I'm paying at least $10 000 a year in management fees. That's almost $200 a week! And those are the fees that I can identify. I defy you to read the fund's literature and then tell me what the total charges are. It is an exercise in futility. There is no way a layperson can work out what all the fees and charges amount to or what they are for. The fund literature is a masterly exercise in legalese and obfuscation.'

'But those charges are not unusual, Troy,' adds Sandra. 'Maybe for a retail fund, but not for an industry fund. Look at this article. It says that over the last five years the average industry fund has outperformed the average retail fund.' 'Mmm, there does appear to be somewhat of a difference,' replies Sandra.

'You bet there is! Industry funds have consistently outperformed Consolidated Industries' main fund manager and they are much cheaper. I want to change to an industry fund with low administration fees and good performance.'

'How much are the fees, Troy?'

'Only $1 per week, plus its investment costs are much lower than what I'm paying now. What's more, the performance of its balanced fund has consistently beaten the average for the typical commercial the balanced fund owned by the big banks.'

'Well, if you want to change, you can. It's your choice,' replies Sandra. 'Don't worry, I plan to. I just wonder how many other people at Consolidated Industries realise how much they are paying in fees. It's like having to pay an extra tax. HR should do something, Sandra.'

Question 1: What ethical, legal and HR issues are raised in this case?

Question 2. What responsibility does HR have regarding employee superannuation?

Question 3. If you were Sandra what would you do?

Question 4. Identify the stakeholders and their vested interests. Are there any conflicts?