The Canada Revenue Agency’s (CRA) Registered Plans Directorate (RPD) recently made two announcements that plan sponsors and administrators should be aware of: (i) a project to assess the compliance of DB plans; and (ii) a clarification of the requirements for applications to register a pension plan. Continue Reading
On November 19, 2013, the Province of New Brunswick introduced for First Reading, An Act Respecting Pensions under the Public Service Superannuation Act (the Act). Under the Act, the Public Service Superannuation Act (PSSA) will be repealed and the pension plan under the PSSA will be converted to a shared risk plan in accordance with the Pension Benefits Act (New Brunswick) (the PBA).
A news release, entitled “Union support for pension legislation”, was also published on November 19, 2013 with respect to the PSSA conversion. The news release provides that a memorandum of understanding had been signed “with unions representing two-thirds of the bargaining positions in the PSSA, including several CUPE locals, in advance of pension legislation that the province will table today”. Finance Minister Blaine Higgs commented that “all members of the PSSA will soon have the benefit of a more secure, sustainable and affordable pension plan as a result of this legislation”. Continue Reading
As the U.S. Pension Benefit Guaranty Corporation (PBGC) faces increasing strain on the pension insurance program it runs, it has become more aggressive in pursuing deep pockets after underfunded defined benefit plans are terminated. Companies that do not do business in the United States may have thought that they could not be reached by PBGC’s long arm, but a new decision by the federal district court in Washington, D.C. involving Asahi Corporation has given PBGC’s collection efforts a big boost.
Where is PBGC Authorized to Do This?
Under ERISA’s controlled group rules, all members of a plan sponsor’s controlled group are jointly and severally liable for unfunded benefits and for post-termination insurance premiums. (These rules can be complicated, but in general, a parent corporation and at least 80% owned subsidiaries are in the same controlled group.) Joint and several liability means that 100% of the liability may be collected from any member of the group, but when all members of the controlled group are in bankruptcy, PBGC’s right to collect may be hollow.
What about non-U.S. businesses that will not be part of the bankruptcy? Does PBGC have to go abroad to try to get a foreign court to enforce ERISA? Does the foreign group member need to have offices, employees or assets in the U.S. before the PBGC can pursue liability claims against it here? A federal district court in the U.S. recently said “no” to both questions. Continue Reading
Reform of Canada’s public sector pension plans is no longer limited to active employees – increasingly governments are willing to address expensive components of retiree pensions as a part of their reform initiatives.
Most recently, Prince Edward Island announced that, beginning in 2017, it would only grant cost of living adjustments (COLA) to its public sector retirees if the plan performs well, but otherwise they would be removing the indexing guarantees. While the PEI government pointed to an estimated $400 million pension plan deficit in support of this change, it has also committed to making an annual $25 million special payment into the pension fund for the next 20 years to help ensure that “the plan does perform well”, and thus pay out indexing to pensioners. Continue Reading
The focus of U.S. litigation challenging plan investments has been 401(k) plans, but that may be changing. Defined benefit plan sponsors may have felt that they were immune to these types of claims because the funding rules require them to make up investment losses, but defined benefit plans are now becoming targets in class action litigation.
I recently wrote about an appellate decision permitting participants in the Weyerhaueser defined benefit plans to pursue a class action for equitable relief if they prevailed on their claims that the plans were disproportionately invested in risky alternative investments in violation of ERISA.
Now we have had another complaint seeking class certification, which challenges U.S. Bancorp’s investment of 100% of its assets in equities from 2007 through 2010, allegedly causing the plan to lose over a billion dollars, as well as the way its security lending program was managed. The U.S. Bancorp suit targets a large group of defendants, including the former investment adviser, the trustee, the members of the Compensation and Investment Committees and those members of the Board of Directors who were not on the committees, who allegedly failed to monitor the activities of the appointed fiduciaries. Continue Reading
Ever since the U.S. Supreme Court struck down the central provision of the Defense of Marriage Act (DOMA) defining marriage as between a man and a woman, employee benefit plan sponsors have been seeking guidance on how to recognize same-sex marriage under their plans. The IRS has just issued Revenue Ruling 2013-17 and related FAQs that answer a number of important questions about what administrators must do going forward, but leave open for now whether retroactive relief will be required. Continue Reading
One participant’s investment losses don’t generate recoveries or legal fees sufficient to interest many plaintiffs’ lawyers in filing suit, so often, a class certification is sought in lawsuits challenging plan investments as a breach of fiduciary duty. One of the problems faced in trying to get a class certification is that 401(k) plan participants are invested in the challenged investment for differing time periods and will have had different investment experience.
After the U.S. Supreme Court limited class actions in its decision involving WAL-MART, pension professionals wondered how this would impact 401(k) litigation.
In Abbott v. Lockheed Martin Corporation, the Court of Appeals for the Seventh Circuit sent a message that 401(k) class actions can still be pursued when it overruled the district court and determined that participants could sue as a class to recover investment losses they claimed resulted from an imprudent plan investment option. Continue Reading
Many in the legal community (myself included) have felt for years that the Alberta pension regulator and the Alberta courts got it wrong in Halliburton when they concluded that the employer was precluded from implementing a “hard” freeze on defined benefits (i.e., freezing both service and earnings) when converting to a defined contribution (DC) formula for future service.
The Financial Services Tribunal of Ontario (FST) in Royal Ontario Museum Curatorial Association v. Ontario (Superintendent Financial Services), has rejected the application of Halliburton in Ontario, citing differences between the Alberta and Ontario pension legislation, but also expressing difficulty in following all of the Alberta Court of Appeal’s “reasoning on the core issues”. In addition, the FST stated:
Halliburton is clearly not binding on this Tribunal. Nevertheless, the practical problem before the court in Halliburton was virtually indistinguishable from the practical problem before us: whether the relevant legal limitations on plan amendments which impede retroactive reductions in pension benefits earned by past service under the plan protect the benefit formula in effect at the time the service was acquired, or only the value of the benefit that service would have earned up to the time of plan amendment. Continue Reading
The Issue: Commonly controlled trades or businesses are jointly and severally liable for pension liabilities under the U.S. Employee Retirement Income Security Act (ERISA). This means that the entire liability may be assessed against any member of the group. In the view of the U.S. Pension Benefit Guaranty Corporation (PBGC) a private equity fund is a “trade or business” that could be liable for its bankrupt portfolio company’s unfunded pension liability under these rules. The PBGC’s position caused a shock wave in the investment community when it was issued in 2007.
Only a “trade or business” (regardless of whether incorporated) can be liable for the pension obligations of its ERISA-defined affiliates, but ERISA doesn’t define “trade or business”. As a result, a multi-employer union pension fund had to counterclaim in court to demand pension withdrawal liability from two private equity funds, citing the controversial PBGC position. Continue Reading
The web was on fire this past week with reports from advisers whose clients had received some very unusual letters from a Yale law professor who doesn’t teach an ERISA course. In fact, the controversy hit the mainstream this week when The Wall Street Journal described the letter-writing campaign as “causing a ruckus.”
In various versions of this letter, the Yale professor announces that he is the co-author of a study on 2009 plan fees – that year is not a typo – which will be published in 2014. The professor’s letter goes on to inform the recipient that the company’s 401(k) plan was identified in his study as being in the group of plan sponsors with the highest fees, and that ERISA requires plan fiduciaries to monitor fees. Finally, the professor suggests that paying high fees alone is a violation of ERISA, and threatens to release the Company’s name to the press and on the internet. Continue Reading