The Ontario government recently issued final regulations regarding pension advisory committees that will come into effect on Jan. 1, 2017.
People might legitimately wonder whether that’s a significant development. After all, Ontario’s Pension Benefits Act has allowed for advisory committees since 1988. However, the legislation provides very little guidance about advisory committees and, as a result, they still remain relatively uncommon. In fact, the report of the expert commission on pensions in 2008 observed that advisory committees were “neither effective nor numerous” and recommended changes to encourage their formation.
Will you form an advisory committee at your organization?
The upcoming changes are an effort to make it easier to form advisory committees. For example, the plan administrator must facilitate committee formation by providing prescribed information and conducting a vote by plan members to determine whether they’ll form a committee once an initial group comes forward with a request.
In addition, reasonable expenses related to the advisory committee are payable from the pension fund. We believe the changes will make an advisory committee more accessible for plan members. It’s unlikely advisory committees will spring up in all plans, but we can certainly foresee scenarios where they may be more likely to arise, including:
- A plan with some or all of the members represented by a union;
- A plan with an active retiree association;
- A plan sponsored by an employer that’s experiencing financial difficulties;
- A plan where the workplace is in the midst of change or turmoil; and
- A plan that’s misunderstood or under appreciated by its members due to poor communication.
What are the rights and responsibilities of an advisory committee?
As its name implies, the committee has an advisory role only. It won’t be able to compel the employer to amend the plan, nor will it be able to force the administrator to change its practices. Despite those limitations, there may be a tendency for some advisory committees to think they have a broader mandate. Therefore, a meeting early on between the administrator and the newly appointed committee to review its mandate could be a useful tool to help manage expectations.
The legislation gives the committee the right to examine the administrator’s records “in respect of the administration of the pension plan and the pension fund.” If a committee exercises that right liberally, it could request a wide range of information. For instance, an advisory committee could conceivably ask to examine such varied items as governance structure and policies, contracts with third parties, expenses paid from the fund and investment holdings in it. Initially, the scope of its powers is likely to be an area of uncertainty. We can hope that, over time, accepted practices will develop so that committee members will have a sense of what level of review is reasonable in the circumstances without overwhelming the administrator with requests.
Is this just an administrative nightmare?
An administrator might view the requirements as a burden, but there’s an opportunity for it to build a positive relationship of mutual trust by treating the committee as an ally. That could go a long way toward moderating the informational demands of a new committee and allowing the parties to achieve a comfortable working relationship.
Keep in mind also that an advisory committee will have access to direct communication with members of the pension plan since the administrator must provide reasonable administrative assistance to the committee to prepare and distribute an annual report of its activities, with costs paid from the pension fund. A positive relationship with the committee may help ensure the message in the annual report is also positive.
There are areas of ambiguity in the Ontario government’s new rules. For example, what’s the process for plan members to appoint their representatives following a successful vote? What will constitute reasonable expenses of the committee? How can expenses be paid from the pension fund in a defined contribution pension plan?
We expect an initial period of uncertainty over the role of committees and the process to manage them will evolve as administrators, plan members and unions become familiar with the new rules and develop common practices. Until then, it’s important to understand the new regulations and prepare for the changes. After all, it takes only 10 employees or one union request to trigger a vote for the establishment of an advisory committee. Will you be ready?