While 2012 saw strong investment returns for Canadian DB pension plans, solvency funding issues continued to be a challenge. With similar patterns expected to continue in 2013, plan design considerations and related legal developments will revolve around issues such as plan de-risking and solvency funding solutions.
Speaking at a seminar hosted by Hoskin & Harcourt LLP, Paul Litner, chair of the firm’s pensions and benefits practice, said RBC Investor Services data shows the median investment return for Canadian DB plans in 2012 was 9.4%. Despite this, a recent Aon Hewitt survey indicates the median solvency-funding ratio in Canada improved by just 1% in 2012, to 69%.
“I think what this tells us, first and foremost, is that funding and efficiency of pension plans are topics that will continue to drive and influence many plan sponsor, and perhaps even government, activities in 2013,” he said.
During the seminar, the Osler legal team highlighted recent pension law cases driven by plan design and governance issues, and explained the potential implications for Canadian plan sponsors. Following are some of the highlights.
Ubaldini c. Rio Tinto Canada Management Inc., [2012] QCCS 4323 (Que. C.S.)
When Arturo Ubaldini retired from Alcan in 1978, he was married and had designated his wife as beneficiary. They later divorced and Ubaldini married Erika Gruber, whom he requested be named his new plan beneficiary. Alcan told Ubaldini that the plan terms didn’t entitle a subsequent spouse to the death benefit.
Despite this, plan statements from 2002 to 2008 did name Gruber as the beneficiary, and when Ubaldini died in 2009 and Gruber discovered she wasn’t, in fact, the eligible beneficiary, she sued to claim the benefit.
While the court found that Gruber was not entitled to the benefit, it did order Alcan to pay her $10,000 for the “stress and feeling of insecurity” the company’s communication error caused her.
Osler associate Julien Ranger-Musiol says this decision highlights the need for plan sponsors to ensure member communications are accurate.
“It is a reminder that you must always be careful with your employee communications. They can generate some liability. And you want to make sure you have procedures to ensure the accuracy of the information you’re providing,” he reminded attendees.
Re Amcor Packaging Canada Inc.
Osler lawyer Lesha Van Der Bij cited this case as further evidence that plan sponsors should ensure they keep careful, accurate plan administration records.
Amcor sought to reduce its pension costs and risks by closing its DB plan to new hires and adding a new DC component. It was discovered that an erroneous amendment to Amcor’s DB plan, which had been filed with authorities, unintentionally increased benefits payable to deferred vested members who elected to retire before their normal retirement date.
Amcor asked the Ontario Superior Court for permission to correct the mistake, rather than paying the increased DB benefits to members.
In this case, the court agreed, stating that based on records kept during the plan change process—meeting memos, emails, board resolutions, etc.—Amcor didn’t intend to increase the benefits.
As the low-interest environment of recent years continues throughout 2013, plan sponsors will increasingly focus on removing risk through plan design changes. Throughout the presentation, members of the Osler team emphasized that—as these cases show—accurate member communications and thorough recordkeeping can go a long way toward ensuring any plan changes made don’t result in litigation for the plan sponsor.