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Pensions & Benefits Law

A Discussion of Canadian and U.S./Cross-Border Pension & Benefit Legal Issues

IRS Simplifies Rules for Participants in Canadian Plans – Or Does it?

Posted in Canada Pensions & Benefits Law, U.S. Pensions & Benefits Law

Under the US-Canada Income Tax Treaty, U.S. taxpayers who participate in Canadian registered retirement savings plans (RRSPs) and registered retirement income funds (RRIFs) (the Canadian Plans) are not required to pay tax on the annual income and investment gains on their accounts. Tax is owed only when distributions are received from the accounts. However, this tax deferral has not been automatic. In order to claim this special tax treatment, participants in Canadian Plans were required to file Form 8891 annually (providing information about contributions, income and distributions) by attaching it to their U.S. federal income tax return.

The Problem: Many taxpayers who should have filed these forms did not do so, and the requirement to provide information about participation in the Canadian Plans applies even if the treaty deferral is not claimed. In order to claim the tax deferral retroactively if timely filings were not made, taxpayers had to obtain a private letter ruling from the U.S. Internal Revenue Service with its attendant cost. And, of course, those individuals subject to U.S. filing requirements who weren’t filing returns at all or for particular years, perhaps on the mistaken theory that if they owed no U.S. tax, no penalties would apply, haven’t claimed the relief. Continue Reading

How to Maximize Value out of Your DC Plan – Consider These (Non-Decumulation) Strategies (Part IV)

Posted in Canada Pensions & Benefits Law, DC Plans

In Part II and III of this series, we focused on how decumulation strategies can increase DC plan value. In this Part IV, our final instalment in this series, we will focus on other methods through which DC plan value can be increased.

Any strategy aimed at maximizing DC plan value should be sensitive to the particular needs and circumstances of plan stakeholders. For example, where, as is most often the case, the majority of an employer’s workforce are not sophisticated investors, pooled, administrator managed DC investments may be seen as a considerable value-add, increasing DC benefit security. By contrast, this strategy may be viewed as overly “paternalistic” to participants in an institutional investors’ DC plan. More on this particular strategy below. Continue Reading

DC Decumulation Strategies and Plan Administrator/Sponsor Considerations (Part III)

Posted in Canada Pensions & Benefits Law, DC Plans

In our last post in this series, we considered whether the development of decumulation strategies for defined contribution (DC) plans may be a matter of good DC governance. In this post, we review decumulation strategies in more detail, as well as specific considerations for plan administrator and plan sponsors.

We read Jean-Daniel Cote’s excellent August 26, 2014 article in Benefits Canada  and found his list of example steps a DC plan sponsor/administrator might take with respect to decumulation to be very helpful, regardless of whether variable DC pensions are payable from the plan. We have included Jean-Daniel’s list below: Continue Reading

Decumulation – Increasing DC Plan Value and Ensuring Compliance with Best Practices (Part II)

Posted in Canada Pensions & Benefits Law, DC Plans

In Part I of this series, we considered ways in which the “traditional” accumulation driven defined contribution (DC) plan design fails to maximize value. In this post, we discuss variable pensions as well as the role of governance considerations in decumulation strategies.

The interesting opportunity for plan sponsors to consider is how they might significantly increase the overall value of their DC plan through effective decumulation strategies, while doing so at an acceptable cost and without taking on an unacceptable amount of increased administration or fiduciary responsibilities as plan administrator. In this regard, there may be a number of ways to enhance DC plan value, and member appreciation of such value, without any material increase in fiduciary liability. Continue Reading

The First Step to Maximizing DC Plan Value is to Understand the Problem (Part I)

Posted in Canada Pensions & Benefits Law, DC Plans

These days when people who work in the pension industry talk about the various options available to develop an effective pension risk management strategy, they are fond of pointing out that when it comes to looking at the range of plan design options, the discussion is about a lot more than traditional defined benefit (DB) verses defined contribution (DC) arrangements. Increasingly, plan sponsors are expressing interest in considering target benefit/shared risk plan (TBP) alternatives to the extent such arrangements are, or appear soon to be, authorized under enabling legislation in their pension jurisdiction.

The legislative changes to date to accommodate TBP alternatives should be applauded – in the right circumstances, conversion to a TBP can be beneficial for all stakeholders involved. (For more information on TBPs, see our prior posts: “The ABC’s of Target Benefit Plans” Part I, Part II and Part III, and “C.D. Howe Paper: Target Benefit Plans in Canada – An Innovation Worth Expanding“.) However, TBPs are not intended as a “one size fits all” pension risk management solution and may not be a viable option for all employers and their employees. For some employers, a better “balancing” of pension risk with employee compensation and retirement savings goals may be achievable through finding new ways to maximize value out of their DC plan design.

In a four part blog series, we will first examine various ways in which the “traditional” accumulation driven DC plan design fails to maximize value (Part I) and then explore methods to increase DC plan value and ensure compliance with administration best practices (Parts II, III and IV). Continue Reading

401(k) Plans and the Free Market: Is Your Vendor Ever a Fiduciary?

Posted in U.S. Pensions & Benefits Law

The Department of Labor and plaintiffs class action lawyers have been urging the courts to find that 401(k) vendors are fiduciaries when they design investment platforms or have contract provisions permitting them to adjust their fees. This is an important issue in pursuing vendors for “excessive” fees, because under U.S. pension law, fiduciaries may not engage in self-dealing or use discretion to increase their fees. Fiduciaries may also be personally liable for losses resulting from fiduciary breaches.

While there have been some contrary decisions (see, e.g., Mass Mutual Crosses the Line), many courts have been reluctant to extend fiduciary responsibilities and remedies to vendors who simply market plans and recordkeeping services. After a loss at the Seventh Circuit Court of Appeals in Leimkuehler v. American United Life Insurance Company, advocates of fiduciary status suffered another major setback when the Court of Appeals for the Third Circuit recently found in Santomenno v. John Hancock that John Hancock was not a fiduciary under its plan arrangements. Continue Reading

Federal Government Releases Next Round of Proposed Regulatory Amendments

Posted in Canada Pensions & Benefits Law, DC Plans, Investments, Pension Reform

Last Friday, the federal government released the next round of proposed amendments to the Pension Benefits Standards Regulations, which will change or enact new provisions regarding plan investments, defined contribution (DC) pension plans, and disclosure to plan members.

The proposed regulations, which have been released for public comment, with a 30 day consultation period commencing on September 27, 2014,  include the following proposed amendments: Continue Reading

Proposed Changes to the Pension Investment Rules

Posted in Canada Pensions & Benefits Law, Investments, Pension Reform

The Minister of State (Finance) Kevin Sorenson today proposed new regulations which will amend the Pension Benefits Standards Regulations, 1985 (the Regulations). Among other things the proposed regulations include amendments to the pension investment rules in Schedule III to the Regulations. The proposed amendments have been released for public comment, with a 30 day consultation period commencing on September 27, 2014. Continue Reading

The Ambushed Fiduciary: Does Authority over a Corporate Account Cross the Line?

Posted in U.S. Pensions & Benefits Law

Corporate officers can wear two hats under ERISA: the corporate officer hat or the ERISA fiduciary hat. Actions taken wearing the corporate officer hat are traditionally not fiduciary functions.

The courts recognize that ERISA’s protections were not intended to apply to business decisions such as whether to adopt, merge or terminate plans or set the level of benefits. However, a recent decision from Florida, Perez v. Geopharma, Inc., crafted an interesting but flawed argument that mere authorization to sign on a corporate bank account could make an officer a fiduciary.  It followed that the officer could be liable for fiduciary breach for not transmitting employee contributions from the account to the Geopharma Group Welfare Plan.

This decision could have a chilling effect on corporate officers routinely doing their jobs. Continue Reading

Alberta Pension Reform: Getting Started on Plan Compliance Amendments

Posted in Canada Pensions & Benefits Law, DC Plans, Pension Reform, Plan Administration

Effective September 1, 2014, the new Alberta Employment Pension Plans Act (New EPPA) and Employment Pension Plans Regulation (New Regulation) came into force. Pension plans registered in Alberta, as well as plans registered in other jurisdictions which have Alberta members, will need to review their plans and make any necessary amendments to ensure compliance with the new requirements.

In this post we highlight the key amendments that administrators of single employer pension plans will have to make to their plans, however, it is not an exhaustive list of all required compliance amendments under the New EPPA.

We recommend a comprehensive review of each pension plan’s specific provisions in order to confirm compliance with the New EPPA and the New Regulation. Continue Reading