Pension plan administrators are required to exercise care, diligence, and prudence when administering a pension fund. Although they are permitted to appoint agents to carry out various tasks, the administrator is still required to supervise the agent. For example, Ontario’s Pension Benefits Act provides that where an administrator employs an agent, it must be satisfied of the agent’s suitability and must “carry out such supervision of the agent as is prudent and reasonable”. This requirement is too often forgotten by plan administrators once a delegation has been made.
A delegation of tasks by an administrator does not result in a full shifting of liability to the agent. The administrator always has the ultimate liability to the beneficiaries of the pension plan. Hence, the close supervision of an appointed agent is only prudent and, if properly carried out, will serve either to avoid liability at the outset or will limit the administrator’s accountability.
Exactly what is required in terms of prudent and reasonable supervision has not been extensively considered in the pension case law. Likely the nature of the task being delegated and the relative skill, knowledge and experience of both the administrator and the agent will be factors to be considered.
The cases in Ontario that have considered the issue of adequate supervision have been in the quasi-criminal context and involved investments. In R. v. Blair, members of the pension committee administering a pension fund were charged with failing to adequately supervise the activities of the investment manager of a master trust fund. The pension investment committee members were acquitted of the charges against them. In Blair the Court noted that:
• regular performance reviews of the master trust fund were undertaken;
• computer reports regarding the fund’s performance were available at any time and there was access to an on-line system which provided daily valuations of each security in the fund’s portfolio;
• one committee member was assigned the task of reviewing monthly reports from the trustee; and
• a system had been implemented so that board members could regularly question the agent about the master trust fund and obtain an up-to-date printout of the investments at any time.
In Blair, the supervision of the investment manager had been partly delegated by the administrator to the trustee under the terms of the master trust agreement. The Court noted that where this is done, the administrator still has the duty to confirm that the trustee is properly performing its monitoring role.
Another recent case that considered prudent and reasonable supervision of an agent is R. v. Christophe. The administrator of the plan, a jointly-sponsored Board of Trustees, delegated investment functions to an Investment Committee, whose members were subsequently found guilty for failure to comply with the quantitative limits requirements under the applicable pension law.
The Court also considered whether the members of the Board of Trustees were liable for failure to supervise the Investment Committee and found such members guilty in this regard under Ontario’s Pension Benefits Act on the basis that the Board of Trustees had done nothing to supervise the Investment Committee members. The Court noted that the duty to supervise agents in the context of pension plan investments is a “fairly important duty”.
The Court in Christophe noted that the degree of supervision of an agent may vary with the knowledge of the members of the Board of Trustees as it relates to the skill, education and experience of the agents. As an example, the Court noted that where less experienced persons are delegated the authority, more supervision is likely to be needed. Regardless of the expertise of the agent, it is apparent that some level of supervision is necessary, as the Court stated that “at least a basic level of supervision is required, given the high fiduciary duty operating to protect the interests of the pension plan members”.
Overall, the case law is clear that where tasks or authority is delegated to an agent, the administrator must ensure that there is reasonable and prudent supervision of the agent on an ongoing basis.