In Part I of this series, I discussed the Financial Services Commission of Ontario’s (FSCO) Investment Guidance Note IGN-003 which provides guidance on the preparation of a Statement of Investment Policies and Procedures (SIPP) for a member-directed defined contribution (DC) pension plan, in response to recent changes to federal pension standards legislation that is incorporated by reference into the Ontario pension standards legislation.
In this post, I will focus on FSCO Investment Guidance Note IGN-004, which provides guidance on the incorporation of environmental, social, and governance (ESG) factors into the SIPP.
Effective January 1, 2016, SIPPs for Ontario-registered pension plans will have to include information on whether ESG factors are incorporated into the SIPP and, if they are, how they are incorporated. This requirement will be found in subsection 78(3) of the Pension Benefit Act (PBA) Regulations. Continue Reading
Pension plan design possibilities are evolving in various jurisdictions across the country. This is happening at a time when many plan sponsors have been considering pension risk management and recognizing plan design as a key risk management tool.
Over the past several years, single-employer defined benefit (DB) plans have become increasingly unpopular among private sector employers as their sponsors respond to funding, investment, longevity and other risks associated with the traditional DB model. In view of these risks, legislatures across Canada have made some changes to facilitate pension design changes and innovation. This blog post will discuss some of these recent legislative changes. Continue Reading
Plan fiduciaries have become more aggressive in their attempts to recover mistaken overpayments to retirees. The plan may elect to recoup the overpayments by reducing future pension payments, but what if the participant received a lump sum or the recoupment method will not work, for example, because the retiree is elderly and the value of the future payments is not large, or because the payee wasn’t really entitled to any vested pension?
As we noted in a previous blog post, effective January 1, 2016 pension plan administrators must file their Statement of Investment Policies and Procedures (SIPP) with the Financial Services Commission of Ontario (FSCO).
- Existing pension plans will have to file their SIPP by March 1, 2016.
- Plans registered on or after January 1, 2016 will have to file the SIPP within 60 days of registration.
Prior to this, while every pension plan registered in Ontario was required to have a SIPP, the SIPP did not have to be filed with the regulator.
In addition, the new legislative provisions require that all SIPPs must now include information about whether environmental, social, and governance (ESG) factors are incorporated into the SIPP and, if so, how the ESG factors are addressed in the plan’s investment strategy.
FSCO recently published two Investment Guidance Notes that will assist plan administrators in the preparation of their SIPP:
- Investment Guidance Note IGN-003 provides guidance on the preparation of a SIPP for a member-directed defined contribution (DC) pension plan, in response to recent changes to federal pension standards legislation that is incorporated by reference into the Ontario pension standards legislation.
- Investment Guidance Note IGN-004 provides guidance on the incorporation of ESG factors into the SIPP.
In Part I of this two-part series, I will discuss Investment Guidance Note IGN-003. Continue Reading
Will that insurer your company has been paying premiums to for all of these years stand behind you if you are sued for ERISA violations? Have you just been relying on a broker to give you the coverage you need?
I previously wrote about a decision in which CIGNA’s insurer was permitted to deny coverage for fiduciary breach due to a fraud exclusion in its policy. We have just had another decision from an appeals court in Louisiana in which fiduciaries being sued by the U.S. Department of Labor were denied coverage under each of three separate policies they thought would provide them with legal defense costs and cover any awards assessed against them. Again, the reason was buried in the policy fine print, which even the brokers didn’t seem to understand, if the facts set out in the decision are any indication.
The facts boil down to the following: Plaintiffs had three policies: a D&O policy, fiduciary liability insurance and excess fiduciary coverage. They were sued by the DOL following a formal investigation for selling stock to an ESOP at an inflated price, but the court ruled that the policies didn’t cover the plaintiffs for the following reasons:
- The policies didn’t cover actions taken before the effective date.
- The D&O policy didn’t cover ERISA claims at all.
- Plaintiffs failed to give notice of the claims during the policy period, where the claim was specifically defined as including an investigation by the Department of Labor or the Pension Benefit Guaranty Corporation.
- The excess coverage didn’t kick in until the policy limits in the basic policies had been reached (which was not possible given the court’s other rulings.)
Can plan fiduciaries sue to recover overpayments made many years ago? As plan audits have uncovered more and more payment errors, many plans have acted as if no time limits or other restrictions applied to their repayment demands. However, a recent decision involving a Pfizer pension plan illustrates that even though the case law has recognized a fiduciary’s right to recover overpayments, lawsuits against retirees who don’t respond to demands for repayment may face some obstacles.
The retiree in this case had elected to receive her pension over a three year period ending in 2005. However, her monthly payments kept coming, and when she and her financial adviser called Fidelity, which was responsible for pension check disbursement, they were told that she had taken out an annuity that would continue for life. It was not until 2009 that Pfizer found the mistake and cut off future monthly payments. The plan and Pfizer did not commence the suit to recover over $1.3 million in overpayments until 2014. Continue Reading
Many plan administrators will soon have to meet a number of new requirements aimed at facilitating the formation and operation of pension plan advisory committees.
The Ontario Pension Benefits Act (PBA) has for some time provided for the formation of advisory committees by pension plan members. Members and retired members can, by majority vote, establish an advisory committee. The PBA provides that the purposes of such a committee are to monitor the administration of the plan, make recommendations to the administrator regarding the plan administration, and to promote “awareness and understanding” of the plan among the membership.
Such committees have rarely been established, however, perhaps due to the fact that the members are not entitled to any assistance from the administrator in organizing the vote, nor are they entitled to any reimbursement from the pension fund or from the administrator for any costs incurred in operating the committee. This is all about to change. Continue Reading
Sometimes you appreciate confirmation that actions – you always thought were permissible – continue to be viable options. We have just received confirmation from the U.S. Court of Appeals for the Fifth Circuit that the long-standing practice of de-risking by purchasing annuities from insurance companies remains permissible.
In 2012, Verizon decided to annuitize the benefits of current retirees by purchasing annuities from Prudential. A group of those retirees attempted to stop the transaction from going forward, and when that failed, proceeded to attempt to undo the transaction on the grounds that it involved fiduciary breaches and violated various provisions of ERISA.
The plaintiffs lost repeatedly at the district court level, which ruled that they had no causes of action, but they kept coming back. Remaining participants in the plans were even added as another potential class of plaintiffs to challenge the impact of the purchase on the ongoing plan. Readers of this blog know that I have predicted that the plaintiffs would likely lose because their claims were inconsistent with existing interpretations of ERISA. In an unpublished opinion, the U.S. Court of Appeals for the Fifth Circuit agreed, upholding the district court’s dismissal of all of the claims of both groups of plaintiffs after de novo review. Continue Reading
Would you bet millions of dollars on your ability to accurately predict how the IRS will interpret the tax code? That’s what a plan sponsor that adopts a plan that isn’t approved by the IRS does. Even though they are not legally required to obtain determination letters, virtually all plan sponsors with their own plan documents apply regularly for favorable determination letters approving their plan language.
The Internal Revenue Service has just announced that it is not only discontinuing its requirement that individually-designed plans seeking approval be reviewed for new determination letters every five years, but it will no longer review these plans except on adoption and termination. The excuse given is lack of manpower and resources, but the decision leaves adopters of individually-designed plans in a quandary.
How are they to make sure that their plans are in compliance, given the seemingly ever-changing statutory and regulatory requirements and the serious consequences, up to retroactive disqualification, for failure to do it right? Continue Reading
When British Columbia’s Pension Benefits Standards Act comes into force on September 30, 2015, employers that sponsor plans in British Columbia will have more plan design options available to them. Following New Brunswick and Alberta, both of which currently have comprehensive target benefit regimes in place, British Columbia’s pension laws will soon include provisions for target benefits plans (TBPs). Continue Reading