Iress failed on super underpayments, excess withdrawals, ESSSuper alleges

In the latest hit to the scandal-plagued super sector, ESSSuper alleges a litany of failures by admin provider Iress across member payments, tax obligations, life insurance and risk and compliance.

ESSSuper is suing Iress and its subsidiary Financial Synergy Holdings.

Superannuation admin provider Iress underpaid hundreds of ESSSuper’s pensioners, allowed members to incorrectly withdraw $1.57m from its defined benefit reserve and failed to apply default life insurance to certain members, one of whom subsequently died, according to documents filed in the Federal Court.

The $37bn super fund for Victorian government and emergency services agencies commenced civil proceedings in the Federal Court against Iress and its subsidiary Financial Synergy Holdings this month, alleging breaches of contract and misrepresentations by the software provider.

In the latest hit to the scandal-plagued $4 trillion super sector, a litany of alleged failures by Iress and its subsidiary over a period of years across member payments, tax obligations, life insurance and risk and compliance, among others have been revealed in court documents seen by The Australian.

The blunders began virtually as soon as ESSSuper handed admin control over to Iress in early 2022.

As early as April of that year, Iress “failed to ensure that all withdrawals by defined benefit members of the scheme were paid correctly,” the super fund said in its statement of claim.

Between April 2022 and at least November 2023, members with both accumulation and defined benefit entitlements were allowed to withdraw excess funds from their accumulation account, with the overdrawn balances being taken from the scheme’s defined benefit reserve, according to ESSSuper.

At least $1.57m was incorrectly withdrawn from the defined benefit reserve by these members, with $255,000 yet to be recovered.

Separately, Iress also failed to pay the correct amount to certain defined benefit pensioners in March 2022 due to incorrect tax calculations. More than 250 members were underpaid and 23 were overpaid, according to ESSSuper.

Just over a year later, it erred again on retiree payments, failing “to pay the correct amount to certain retirement income stream pensioners due to an incorrect system configuration setting”.

The admin provider’s failures extended further, to insurance coverage. ESSSuper, like other super funds, is required to provide default insurance cover to members older than 25 and with an account balance of $6,000 or more

“On or about 9 May 2024, the fund became aware that a deceased member was eligible for insurance but that (Iress’ subsidiary) failed to apply insurance to that member when the member became eligible due to … having incorrectly configured the eligibility for members prior to 1 April 2020,” ESSSuper said.

“That did not occur as part of the transition implementation and instead the service provider treated such members whose insurance had ceased from 1 April 2020 as having opted out of their insurance and therefore did not monitor whether those members’ circumstances resulted in eligibility for default insurance,” the fund alleged.

Other failures detailed by ESSSuper in the statement of claim include various tax blunders, including that for fiscal 2022 and 2023, defined benefit salary sacrifice contributions for about 37,000 fund members were reported to the ATO incorrectly and in duplicate.

Further risks to members include that ESSSuper has, since early 2022, had to manually input unit pricing on a daily basis for investments, because the data Iress sent to the fund’s custodian, State Street, was insufficient, according to the fund.

“The fund has been forced to rely on an interim arrangement for unit pricing which involves it (rather than the Custodian) expending resources to manually strike daily unit prices,” the fund said in the statement.

“Further, the interim arrangement described has resulted in the fund being exposed to the risk that the valuation of members’ accounts and overall investment pools is inaccurate by reason of manual error,” the statement said.

The Australian understands all members financially affected by the admin issues have been repaid.

Iress has acknowledged the proceedings but this week denied the claims, saying it would file a defence with the court. Iress continues to provide the contracted services to ESSSuper, with the contract understood to be a five-year term from early 2022.

Iress declined to comment. ESSSuper has been contacted for comment.

The legal action comes as a wave of scandals flood the $4 trillion super sector, prompting regulators to put the industry on notice.

Australian Securities and Investments Commission commissioner Simone Constant read the riot act to super CEOs on Tuesday following claims of funds delaying payment of death and disability claims.

Cbus has been front and centre of the scandal, with the corporate cop suing the fund for allegedly mishandling $20m worth of death and disability claims.

The $84bn health industry fund HESTA, meanwhile, is compensating more than 100,000 members over a move to downgrade the value of unlisted assets in some of its ­options in March 2020 but delay downgrading those same assets in other options for seven days, a move that left many members worse off.