Rebuild the foundations

The strategy To put my self-managed super fund back on track after the global financial crisis.Do I need to do that?As the technical services director for Multiport, Phil La Greca, points out, most of the attention so far has focused on the damage done by the GFC to retirement savings. That's fair enough. But he says for self-managed funds, the GFC has also raised regulatory and administrative issues that may need to be addressed before your 2009 audit.What sort of issues? One question all funds should ask is how the GFC has affected their investment strategy. All self-managed funds are required to have a written investment strategy and – here's the important bit – to manage the fund in accordance with that strategy. Typically the strategy will set out how the fund's assets will be split over different types of investments. If you're going for a balanced approach, your strategy may require 50 per cent of the fund to be in Australian and international shares, 10 per cent in listed property, 25 per cent in fixed interest and 15 per cent in cash.The strategy should allow some wriggle room around these targets but dramatic market movements can still result in your portfolio looking nothing like what it intended.La Greca looked at the effect of market movements on a $600,000 portfolio with this balanced strategy in July 2007. By July 2009 – if nothing else had changed – the investment mix would have gone from being 60 per cent growth assets to 45 per cent. You'd have gone from having a balanced investment strategy to a conservative one. As he points out, you may even have unwittingly exacerbated the shift by holding new contributions in cash or selling out of shares as prices fell.Does that mean I have to change my investments? If you're still within the ranges set in your investment strategy, there's no problem. But if you're no longer investing in accordance with the strategy, La Greca says you may need to either revise the investment strategy or prepare a trustee resolution re-affirming the existing strategy but noting there has been a tactical decision to temporarily move outside the normal asset allocation ranges.If you have in-house assets, such as a loan to a related party or investments in related trusts, the re-valuations caused by the GFC may also have led you to inadvertently breach the 5 per cent limit on in-house assets.La Greca uses the example of a $600,000 fund with a $30,000 loan to a family company. If the total value of the fund has fallen to $501,000 as a result of the GFC, that loan will now constitute 6 per cent of the fund's assets, which is outside the limit.What should I do if my fund has breached the limit? La Greca says the trustees need to put together a written plan identifying the excess amount (in this case $4950) and how the excess will be reduced by June 30 so the remaining loan is back within the 5 per cent limit.In practice, he says, that means the trustees will need to either make contributions or rollovers to restore the fund to $600,000, have the borrower repay the excess $4950 of the loan to the fund, or – if possible – pay part of the loan as an "in specie" benefit to the member. However, in this case, La Greca says the amount transferred to the member will need to be more than $4950 to cover capital gains or lump-sum benefits tax incurred by the fund and to take account of the fact the transfer will reduce the fund's assets.Are there any other issues to be considered? If your fund is paying a transition to retirement pension, La Greca says you may need to rework the numbers on your strategy to take account of your lower account balance. Funds paying defined benefit pensions (which fortunately are rarer) may also find they no longer have sufficient assets to maintain those pensions. You'll need advice if this is the case as the options available depend on the type of pension and why it was set up.