Pension standards legislation in Canada allows an employer to act as the administrator of its single employer pension plan. However, as a plan administrator, an employer must remember two points: do no harm and take no advantage, says Randy Bauslaugh, a partner in the Pensions, Benefits & Executive Compensation Group with McCarthy Tétrault, LLP.
Bauslaugh led a three-person panel on plan governance at CPBI Ontario’s Annual Pension Summit at the Toronto Board of Trade on Feb. 29. The panel considered legal duty, governance in action and government support.
Legal duty
Bauslaugh told the audience his five rules for good fiduciary conduct.
- Don’t lie, cheat or steal.
- Don’t take advantage of your position, whether it causes harm or not.
- Act rationally—consider only relevant matters, not irrelevant ones.
- Maintain useful minutes. (They need to show some degree of rationality for the choice you made, Bauslaugh stressed, adding that minutes can be a good educational tool for training new board members.)
- Maintain the confidentiality of confidential information.
However, while acting as plan administrator (i.e., wearing two hats as employer and plan administrator), an employer can encounter conflict.
Employers need to identify any conflict and then manage and monitor it, Bauslaugh said. Employers can recruit professionals to help, but Bauslaugh warns that an 18-page legal document, for example, will not solely protect an employer. The employer must read the document and ensure that it makes sense and that all the facts are right. “You have to assess the logic and rationality of that opinion,” he said. “You can’t blindly rely on it.”
Governance in action
When governing a pension plan, employers (as fiduciaries) need to establish and document rules and responsibilities in the plan’s documents (such as SIP&P, third-party reports, etc.), their own internal corporate documents and any external provider documents, said Leanne Hull, senior counsel in the Plans, Legal, Corporate and Compliance Group with BMO Financial Group. “Proper documentation can reduce your errors and therefore tighten up your plan governance,” she said.
But an employer cannot govern alone and will likely have to delegate tasks to various internal or external providers: lawyers, actuaries, auditors, etc. Despite delegating tasks, however, the employer (under FSCO and OSFI regulations) is still legally responsible for the plan.
When delegating tasks, Hull said to consider the following:
- pick the right person/organization (ensuring that the person/organization is capable);
- define the scope; and
- make tasks measurable (track the progress on issues).
However, good delegation also requires supervision (such as audits, spot checks, ongoing communications). As the plan administrator, Hull said an employer must supervise that the tasks are being done right, are on time and are in accordance with legislative requirements.
Government support
John Poos, vice-president, pension and benefits, George Weston Ltd., concluded the morning’s session with a look at government support for pension plans.
While in some jurisdictions (such as the U.K.) the views of regulators are taken as gospel, this is not the case in Canada. The 2004 CAPSA Guidelines No. 3 (outlining policies and process for administering DC plans) is not law; you don’t have to follow it, said Poos. An employer can do something different, he continued, but must be able to show that the chosen alternative meets the legal requirements.
Poos pointed out a few criticisms of CAPSA. One is around Guideline No. 7, on pension plan funding policy, which was released in November 2011. The question is, What is the funding policy intended to cover? Poos asked.
Poos reminded the audience that the CAPSA Guidelines say that with “activities related to the establishment of a funding policy, the plan sponsor is not held to a fiduciary standard.” The plan administrator “has certain responsibilities…such as ensuring that the investment policy is consistent with the funding policy and the required contributions are made.”
But Poos wonders when a plan sponsor would articulate a funding policy that mandates funding in excess of the minimum required under the statute? And, if the sponsor does that, does it oblige the sponsor to adhere legally to the policy? Also, what is the duty of the plan administrator to implement the minimum funding stated in the policy?
Poos also had a few questions on pooled registered pension plans (PRPPs). Why wouldn’t current DC plans convert to PRPPs and remove possible fiduciary claims regarding DC plan administration? he asked. And does Guideline No. 3 apply to PRPPs?
Brooke Smith is managing editor of Benefits Canada. brooke.smith@rci.rogers.com