© Copyright 2000 Rogers Media. The following article first appeared in the May 2000 edition of BENEFITS CANADA magazine.

Enter at your own risk

The electronic world of pension plan communications is full of legal pitfalls, but the benefits of using technology are substantial. Plan sponsors need to balance legal and fiduciary responsibilities as they navigate their way through the wired world.

By Nancy Chaplick

There are many advantages of using electronic technology to communicate with plan members. Technology enables plan sponsors to receive member enrolment information online. Members can click on the various choices they have to make from time to time. Sponsors can give members electronic statements that are required annually or on termination or retirement, and deliver plan descriptions, amendments and investment information--all online.

Technology is racing ahead, but the law is not keeping pace. Before sponsors jump on the electronic bandwagon, they must consider the legal implications of their actions and ask themselves if their online communications conform with the law. The answer to that depends on the nature of the communication. Sponsors must review the relevant statute to see if there are any legal requirements governing the communication in question.

The laws of Ontario provide a good illustration of how online communication issues can arise. It's worth noting that the laws of other provinces are similar.

Under the Ontario Pension Benefits Act (PBA) there are numerous communications with members that are expressly required to be in writing, including annual statements, spousal waivers and termination statements. The PBA also requires certain communications to be signed. In addition, Ontario's Succession Law Reform Act states that all beneficiary designations under retirement plans must be signed.

The PBA does not define the term writing, but the Ontario Interpretation Act does. This statute sets out general rules of interpretation that apply to other statutes in the province. It states that in every Act, unless the context is otherwise specified, writing, written--or any similar term--includes words printed, painted, engraved, lithographed, photographed, represented or reproduced by any mode in a visible form.

This definition is obviously quite broad. Relying on the Interpretation Act, sponsors could take the position that providing computer access to statements or other documents, which are required by law to be in writing, fulfills their legal obligations. However, in the absence of a clear judicial decision on the subject, it is dangerous to rely on this position. A court could argue that the communication is not written unless the recipient makes a hard copy or, at the very least, opens it on the screen. Both of these steps are beyond sponsors' control. In Ontario, the risk is compounded by the Financial Services Commission of Ontario (FSCO), which has taken the position that delivery on-screen is not writing. While FSCO's stance is not law, ignore it at your peril.

RISKY BUSINESS

If sponsors decide to communicate electronically where written documents are required by law, they must recognize the risks. They could be prosecuted for breaching the pension statutes; although, more likely, the regulator would first issue a warning. More importantly, however, if sponsors accept or deliver a communication electronically that is required to be in writing, its validity or effect may be disputed at a later date.

For example, a spousal waiver is required under the PBA to be in writing. Suppose the waiver is sent electronically without a follow-up hard copy, and the spouse later disputes the validity of the waiver, arguing that the sponsor should not have acted on it because it did not meet statutory requirements. That sponsor has a potential lawsuit on its hands.

The risk is even greater where the law expressly requires that a document be signed. There is no Interpretation Act definition of the term signed to rely on, unlike the term written. In such instances, sponsors are clearly exposing themselves to significant risk if they do not obtain a handwritten signature.

A beneficiary designation is one form of communication required by law to be signed. If an electronic designation is accepted, sponsors have led members to believe that the designation is valid when it most likely is not. After a member's death, it's too late to find out that the designation is invalid. Clearly, inviting members to complete beneficiary designations online, without a signed hard copy, can cause grave prejudice to members and their intended beneficiaries.

Here's another example to consider. A single member with no will designates a friend as beneficiary, electronically. No written follow-up is required. The member dies without a will and is survived by his brother. The brother disputes the designation's validity because it was not manually signed and alleges that payment should be made to the estate and, therefore, to him as the nearest next of kin. The brother may succeed in his suit as there is no law stating that a document with an electronic signature is equivalent to a signed written document. The plan administrator has prejudiced the friend's interest by inviting an invalid designation. This could be a case in which the administrator is personally liable to make a duplicate payment to the friend.

PAPER TRAIL

Even where laws state that electronic communications satisfy all legal requirements, is it still prudent to leave a paper trail? Records are important for evidentiary purposes. In other words, if a plan sponsor is sued, it may be more difficult for electronic records to be used as evidence in court proceedings.

Suppose a plan sponsor is sued by a former member. The member alleges that she relied on incorrect information given to her years ago, and it was sent electronically and there are no hard copies. The sponsor delves into its computer records and discovers that the information was indeed correct.

It's likely these electronic records can be entered into evidence as the provinces and the federal government have statutes dealing with evidence in court proceedings. At present, these laws permit a business record to be admitted as evidence if it is made in the usual and ordinary course of business. A record is broadly defined to include any type of storage of information, and courts have concluded that electronic records fall under this definition.

The potential pitfall for sponsors is that the law requires the party introducing records to demonstrate reliability, and that may be much more difficult with electronic records. As well, courts may require evidence on the complete recordkeeping process to verify the nature and reliability of the technology and processes used.

There is hope that the law will catch up to technology. Recommendations for changes to the law have been proposed by the Uniform Law Conference of Canada, an organization comprised of representatives of each provincial government. The conference makes recommendations to each province on changes to laws to promote uniformity across Canada. It has recommended passage throughout Canada of the Uniform Electronic Commerce Act and Uniform Electronic Evidence Act. The aim is to make the law media neutral. If these proposed laws are adopted, references in statutes to written or signed documents would not preclude electronic forms.

The conference has proposed that information would be effectively provided if the recipient can access, retain and subsequently reference it. The organization has also drafted new evidence rules to make it easier to use electronic evidence in the courts. However, each province can decide whether or not to adopt the conference's recommendations. Saskatchewan is the first province to propose legislation along these lines.

Ottawa recently passed Bill C-6, which allows the government to authorize the use of electronic communications, where federal laws (such as the Pension Benefits Standards Act) currently contemplate written and signed documents. These reforms also incorporate amendments to the Canada Evidence Act to clarify and strengthen the use of electronic evidence in the courts. The Bill was awaiting Royal Assent at press time.

Changes have been implemented to Ontario's Evidence Act (but not proclaimed in force at press time), which make it clear that computer records are admissible as evidence. These changes also prescribe ways in which the integrity of computer documents can be more easily proven in court.

FIDUCIARY MATTERS

It seems inevitable that laws will eventually change to keep up with technology, but the big question is when. For now, if plan sponsors and administrators identify communications that can be legally exchanged online, they should ask themselves if electronic communication is legal and prudent in this particular instance (see "Wired worries").

While there are many fiduciary matters for plan sponsors to consider when communicating online, it's important not to let them prevent firms from recognizing the benefits of technology. Once sponsors are confident that they can meet legal and fiduciary responsibilities when communicating electronically, they can exchange information accurately, conveniently and efficiently.

Technology also allows records to be kept up-to-date more readily. Sponsors can deliver informative materials in a manageable and interactive form and link related sites to provide supplementary information. Communication and record storage costs can also be reduced. In fact, once the risks are conquered or managed, the question for sponsors becomes: Are we meeting our fiduciary responsibility if we don't communicate electronically?

Nancy Chaplick is a partner with Osler, Hoskin & Harcourt LLP in Toronto.

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Wired worries

Are plan sponsors and administrators meeting their fiduciary responsibilities if they communicate electronically? Here are some of the many issues to consider.

• Amendments. Do plan documents have to be amended to allow for electronic communications? Even if the law allows electronic communications, plan documents may require another form. Make all necessary plan changes.

• Skills, access and consent. Do employees have technical skills and access to computers? Should sponsors provide them with appropriate computer training? Do different considerations apply to retirees and deferreds than to active employees? Proposed changes to the laws to facilitate electronic communications require the recipient to consent to this mode of communication.

• Privacy. Is the system private and secure? Needless to say, the utmost diligence is needed to satisfy the responsibility to provide and receive personal information in a confidential and secure manner. If sponsors use an outside provider, they must investigate the provider's safeguards.

• Safeguards. Can sponsors and members be ensured of the integrity and authenticity of the data? How do sponsors confirm the identity of the sender? How do they guard against tampering?

• Updates. Is information kept accurate and up-to-date? Individuals accessing information might reasonably expect it to be kept up-to-date in real time. Sponsors may have a greater obligation to keep communications current when delivering information electronically because of the ease of making and delivering changes.

• Recordkeeping. Are records properly stored and accessible? Who keeps the records and in what form? Sponsors may be obliged to produce records many years, even decades, from now. Will they be able to do so? If sponsors use an outside service provider, are they satisfied with the integrity of its recordkeeping processes? What happens to records if the relationship with the service provider ends?

• Online archives. Where information is constantly updated, can sponsors prove its historical content? For example, a sponsor must prove it sent specific electronic information to a member on a particular date, 10 years ago. Do its computer records keep this historical information?

The Romanow Commission has released its final report on the future of healthcare in Canada.

For Commissioner Romanow's recommendations, click here.

Click here for Senator Michael Kirby's report, "The Health of Canadians – The Federal Role: Recommendations for Reform."