What happens when a court finds the Joint Forum’s Guidelines for CAPs are only minimum standards?
Of the guidance now available to sponsors of defined contribution plans on how to best fulfil their legal obligations, the CAP Guidelines are the most current and comprehensive. Of course, while the expectation is that these guidelines will come to be seen as “best practices,” a court, in assessing a plan sponsor’s actions, may view the Guidelines as establishing minimum standards only. It could hold the sponsor to a higher standard, based on the particular circumstances at hand.

In this regard, an Ontario case from the late 1990’s, in the defined benefit plan context, may be instructive. In Deraps v. Labourers’ Pension Fund of Central and Eastern Canada, a representative of the plan administrator met with a plan member and his wife to discuss the execution of a spousal waiver form. The parties signed the waiver, which outlined the provision of a higher pension amount during the member’s lifetime, but no survivor pension. When the member died, the surviving spouse sued the administrator, claiming she had not understood the effect of the waiver. The Ontario Court of Appeal found in her favour, holding that the explanation provided to her was inadequate and amounted to negligent misrepresentation.

What might this mean in the context of a DC plan? If, in the Deraps case, the administrator was held liable because the spouse failed to understand what was communicated to her, would it be possible for a DC member to launch a similar lawsuit, claiming they did not understand the investment information that was provided by the plan administrator or service provider? Investment principles are, after all, very complicated. Surveys have shown the general public often does not understand very basic investment concepts. Despite their best intentions, then, could a DC plan administrator still be held liable even if comprehensive, “state of the art” investment information is provided to members, if they didn’t understand it?

And if so, what is the solution? Sponsors of DC plans are told that to avoid legal liability they should ensure that adequate investment information and/or education is provided to the plan members, so that they can make their own investment decisions. Should the administrator go beyond this, however, and actually test members’ knowledge, to ensure the information is being understood? To take it a step further, should the plan sponsor review the members’ portfolios, and ensure that “good” decisions are being made? The answers to these questions are not obvious, and are complicated by the fact that in Ontario, to take one example, the Pension Benefits Act places ultimate responsibility for investments on the plan administrator, with no distinction between DB and DC plans. In the context of a DC plan, how far does that responsibility extend?

In order to minimize the risk of liability in this area, DC plan sponsors might increasingly decide to offer independent financial advice to their members, so that those members who may never understand the investment information provided by the sponsor can at least make their decisions with the assistance of an expert.


Contrary to the Ontario pension legislation, the Québec Supplemental Pension Plans Act specifically allows pension plan members to decide how the amounts credited to them in the context of a DC plan are to be invested. Since Jan. 1, 2001, the Québec pension legislation even describes the type of investment options that must be offered to the plan members in such situations. But it does not specifically state who, between the employer and the pension committee (i.e. the plan administrator in Québec), is responsible for selecting the investment options. According to the legislation, a minimum of three investment options must be offered to plan members. These options must not only be diversified and involve varying degrees of risk and expected returns, but also allow the creation of portfolios that are generally well-adapted to the needs of the plan members.

The Québec legislator did not specify what particular investment options must be offered, but rather opted for a rule allowing flexibility in that regard. As is the case of the rest of Canada, the CAP Guidelines will be a useful tool in determining which particular options should be offered to plan members.

Douglas Rienzo and Josée Dumoulin are partners in the pensions and benefits department at Osler, Hoskin & Harcourt LLP in Toronto & Montréal. drienzo@osler.com, jdumoulin@osler.com

For a PDF version of this article, click here.

© Copyright 2005 Rogers Publishing Ltd. This article first appeared in the April 2005 edition of BENEFITS CANADA magazine.

Copyright © 2019 Transcontinental Media G.P. This article first appeared in Benefits Canada.

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