The recent Ontario Court of Appeal decision in the Ault v. Canada (Attorney General) case serves as a reminder to pension service providers that they may have fiduciary duties to plan beneficiaries, and emphasizes the importance of accurate and full disclosure to plan members of relevant information.

The case involved the administration of a public sector pension plan—the Public Service Superannuation Plan (PSSP)—prior to Oct.15, 2000. Prior to this date, members could transfer pension monies between the PSSP and certain private pension plans under reciprocal transfer agreements.

This issue
One of the reciprocal agreements was with a private company called Loba. The actuary behind Loba recruited federal employees to join the Loba pension plan. The concept was that these employees would resign from their public service employment and become employed with Loba for as long as it took to have their pension monies transferred to the Loba plan and then they would resign from Loba.

The government had some concerns about the legitimacy of this scheme, however, a reciprocal transfer agreement with Loba was negotiated. The Canada Revenue Agency (CRA) also had concerns about the validity of the Loba pension plan, which were expressed in letters to the government and Loba. The CRA requested that their letters be distributed to those interested in the reciprocal agreements.

Despite the concerns of the government and the knowledge that CRA was also concerned, the plan administrator did not inform the affected plan members of these issues. In addition, the CRA letters were not broadly distributed.

Certain members quit the public service and commenced employment with Loba. They subsequently found out that the Loba pension plan had been suspended and was being investigated by CRA, and the RCMP was investigating the company and the actuary who established the plan. Registration of the Loba pension plan was revoked a few years later and the pension monies of these members were not transferred to the plan. These members sued the government for pension losses and the government brought third-party actions against Loba and the actuary who established the company (the Loba parties).

The outcome
The members were successful in their claim against the government for negligent misrepresentation. The government, as the plan administrator, was in a special relationship with the plan members and as part of their duty of care to such members should have provided information about a known “significant risk associated with a category of such RTAs”.

The court determined that there was a misrepresentation on the part of the government that was reasonably relied upon by the members, which was a cause of the loss suffered by them. As administrator, the government should have alerted these members of the potential issues with the Loba plan and their knowledge that CRA had significant concerns.

The Court of Appeal overturned the lower courts determination on the apportionment of liability between the government and the Loba parties. In this regard, the Court of Appeal disagreed with the lower court’s finding that the Loba parties did not owe fiduciary duties to the members until they became members of the Loba pension plan.

The Court of Appeal noted that fiduciary law depends on relationships—the nature of the particular relationship at issue and the surrounding circumstances have to be considered to determine whether the relationship is fiduciary in nature. In this case, there was a relationship of trust and confidence with the actuary that commenced when these members met with the actuary and provided personal information to him, relying upon his expertise as an actuary and expert in the field of pensions.

The Court of Appeal accepted the lower court’s findings that the actuary decided not to share the information about CRA’s concerns with the members “in order to protect his pension portability business,” putting his own interests ahead of the plaintiffs. In addition, the actuary had a financial interest in Loba, which was not adequately disclosed to the members. The court found that the Loba parties’ failure to disclose material information to the affected members was a breach of their fiduciary duties to the members.

This case is a reminder to all involved with pensions that fiduciary duties frequently arise in the pensions context. The question of whether a relationship is fiduciary in nature and therefore gives rise to fiduciary duties is generally determined based on the specific relationship and the circumstances. As pointed out in the case, features such as reliance, trust, confidence and vulnerability in the relationships and dealings underlie fiduciary relationships. And this case illustrates that service providers may owe fiduciary duties to pension plan beneficiaries, depending on the nature of the relationship and the circumstances.

Copyright © 2019 Transcontinental Media G.P. Originally published on benefitscanada.com

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