Employers may have many reasons for wanting to exit the world of DB plans, but shifting from DB to DC will not necessarily reduce the legal risks associated with being a plan sponsor or administrator.

As DC plans expand in Canada in both number and scope, the potential for legal action around such plans also grows. Governments are increasingly focused on developing the legislative framework that defines the legal duties of DC plan sponsors, administrators and other service providers. Recent amendments to the federal Pension Benefits Standards Act have, for the first time, attempted to articulate how duties of prudence will apply to DC plan administrators and even provide some limited protections to those who comply with these requirements.

Following are some key legal considerations for plan sponsors to monitor as the Canadian DC pension landscape continues to develop.

Investment selection and monitoring
Plan administrators (and their agents) tasked with investing plan assets must ensure that a prudent process is in place for selecting and monitoring investments and investment managers. In R. v. Christophe, the Ontario Court of Justice confirmed that, in the context of pension investing, the key components of a prudent process are exercising appropriate due diligence, making fully informed decisions based on appropriate information and advice, and appropriately monitoring investments even after they have been made. Noting that members of the multi-employer pension plan (in essence, a DC plan) were at greater risk, given that there was no healthy plan sponsor to underwrite the pension obligations, the court implied that the standard of prudence is higher in such plans, compared with traditional (single employer) DB plans. This decision underscores how courts are willing to apply the same high legal duties to plan administrators, regardless of plan type.

Fiduciary duty to plan members
In the recent Indalex case, the Ontario Court of Appeal confirmed that plan administrators are subject to fiduciary obligations to plan members at common law and by virtue of pension standards legislation. The court also confirmed that administrators owe a fiduciary duty to plan members to act in their best interest, notwithstanding any conflicting duties. When the employer acts as both administrator and plan sponsor, it must put the conflicting duties of these roles aside and act in the members’ best interest. The court’s broad holding in relation to fiduciary duties is equally applicable to administrators of DC and DB plans.

Plan communications
Communication with plan members is a critical element of DC plan administration. The recent Ontario Court of Appeal decision in Ault v. Canada serves as a reminder of the legal duty to communicate all relevant information to plan members who are making decisions that can affect their pension benefits. Moreover, this legal duty applies even if members do not make any inquiries. Member communication is arguably even more important in DC plans than in DB plans, since, DC plan members’ ultimate retirement benefits can be almost entirely based on their ability to make informed decisions.

Paul Litner is a partner in the pension and benefits department at Osler, Hoskin & Harcourt LLP. plitner@osler.com

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Copyright © 2020 Transcontinental Media G.P. Originally published on benefitscanada.com

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