Navigating pension fiduciary duties during coronavirus pandemic

Employers that act as pension plan administrators have statutory fiduciary duties that are defined by the plan documents and by governing pension legislation. While those duties continue to apply during the coronavirus pandemic and the resulting market volatility, they require even more careful navigation, as cash flow and internal corporate resources may be strained.

Pension regulators across Canada have introduced various relief measures to ease the burden on plan administrators in light of the business disruptions caused by the pandemic, including extensions to various filing deadlines, such as for annual information returns, pension plan financial statements, actuarial reports and annual member statements.

Read: An overview of Canadian DB pension relief measures during coronavirus

In addition, governments have introduced certain temporary funding relief measures. For instance, the Office of the Superintendent of Financial Institutions announced a moratorium, through the remainder of 2020, on solvency payment requirements for federally regulated defined benefit pension plans. Also for 2020, the Canada Revenue Agency waived the minimum contribution rule for defined contribution pension plans where the plan is amended in order to suspend accruals for the remainder of the year.

Notwithstanding these relief measures, the various pension regulators have retained their focus on ensuring benefit security throughout the pandemic period. This focus is evidenced by the prompt attention paid by regulators to restricting approval for commuted-value transfers and annuity purchases where the transfer ratio has declined significantly or the solvency of the plan may be impaired, in light of the impact of the pandemic on the value of pension plan assets. While the legislative requirements vary by jurisdiction, plan administrators must, of course, ensure they meet the requirements imposed by the jurisdiction of the plan in relation to any such transfers or annuity purchases.

Read: OSFI temporarily freezes portability transfers, annuity purchases due to coronavirus

Apart from these immediate measures, plan administrators must ensure they continue to meet their statutory and fiduciary duties in relation to the pension plan during the pandemic period. Apart from the obvious impact on funding obligations — a key area of concern for many plan sponsors — there are a number of other issues that plan administrators, their boards and pension committees should consider as part of their oversight responsibilities in relation to the pension plan.

Some of these issues may include:

  • Ensuring that any required requests for filing extensions are made in a timely manner so that all compliance obligations are met;
  • Monitoring the transfer ratio of the plan and taking appropriate action in response in respect of any commuted-value transfers;
  • Implementing an appropriate communications strategy for plan members (and, if necessary, to participating employers) regarding the status of the payment of commuted values;
  • Increasing the frequency of investment monitoring of the pension fund wherever appropriate;
  • Revisiting the statement of investment policies and procedures for the plan to determine whether any changes are warranted, including changes to allow asset classes to exceed the specified asset mix ranges without the need for rebalancing or increasing the maximum amount of assets that may be held in cash;

Read: SIPP requirements: Out of the boilerplate and into the boiler

  • Ensuring pension committee meetings continue to be held on a regular basis, including virtually where appropriate, and ensuring that up-to-date information is provided to committee members;
  • Carefully evaluating the timing of filed actuarial valuation reports, including the impact and fiduciary implications of any off-cycle valuations;
  • Discussing with the actuary the disclosure requirements associated with the significant stock market decline as a subsequent event and disclosure of any plan specific risks, in respect of any actuarial valuations currently in process;
  • If a funding policy exists, considering whether any adjustments to such policy are appropriate in light of the current market conditions;
  • Obtaining the appropriate legal advice regarding the impact of any COVID-19 related statutory leaves, temporary layoffs and periods of reduced remuneration may have on the continued accrual of benefits under the plan;
  • If a plan amendment reducing or suspending DC pension contributions is contemplated by the plan sponsor, ensuring that any such plan amendment is made, filed and communicated to plan members in accordance with all applicable legal requirements; and
  • In the event that the plan administrator wishes to move to electronic communications with plan members, obtaining the appropriate legal advice to ensure that all statutory and regulatory requirements are met to ensure both member consent and the appropriate protections are in place.

Read: Employer responsibilities around benefits, pension provision during coronavirus

Since statutory fiduciary duties continue to apply during the pandemic, plan administrators should consider these issues carefully to the extent that their plans are impacted by the pandemic — and should carefully document any decisions that are made.