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Pensions & Benefits Law

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

The Blindsided Fiduciary: Ignorance is Not Bliss

Posted in U.S. Pensions & Benefits Law

Alliance Bernstein recently released the shocking result of a survey it had taken of plan sponsors: a whopping 37% of those fiduciaries surveyed didn’t know that they were fiduciaries.

Obviously, it is unlikely that these individuals are fulfilling their fiduciary responsibilities if they are unaware of their status.  And we wonder what will happen if the plans of these oblivious fiduciaries are selected for a Department of Labor audit, though we are sure that it won’t be a pretty picture.

It is possible to be an ERISA fiduciary and not know it, because no acknowledgement of fiduciary status is required.  ERISA has a functional definition of fiduciary, which means that you become a fiduciary based on what you do.  Administration, investment control and giving investment advice for a fee are the activities that trigger fiduciary status. ERISA also provides that there must always be at least one named fiduciary to manage a plan,  and this will be the Company and its directors if no other designation is made. Continue Reading

The Uninsured Fiduciary: Have You Read the Fine Print in Your Policy?

Posted in U.S. Pensions & Benefits Law

If you are a plan fiduciary and your company has purchased fiduciary liability insurance, you and your board may have simply assumed that the policy would cover any fiduciary breach. You may have even congratulated yourselves on understanding that the plan’s ERISA bond provides reimbursement only to the plan, so separate protection for fiduciaries is a good practice. However, a decision just issued by a Pennsylvania court denying coverage to CIGNA is a wakeup call to carefully review such policies to determine what they do and do not cover.

In December, in the probable coda to a lengthy case that went up to the U.S. Supreme Court, the Second Circuit Court of Appeals upheld a district court decision that CIGNA’s misleading communications about “wearaway” ( a period during which no benefits would be earned by plan participants) were deliberately misleading and fraudulent.

CIGNA had previously filed an action for a declaratory judgment that its policy covered the actions which were the subject of the lawsuit, under a clause that covered “wrongful acts”, which were defined as “any actual or alleged…misstatement, misleading statement, act, [or]omission” by the insured. However, the Pennsylvania court agreed with a lower court that the policy needed to be construed as a whole, and that the exclusion for fraudulent or criminal acts overrode the wrongful act provision. CIGNA is now a two time loser; once under the class action and a second time under the policy. Continue Reading

Ontario Retirement Pension Plan: Implications for Employers

Posted in Canada Pensions & Benefits Law, Innovation & Plan Design, Legislation & Regulations

The Ontario government is continuing to move forward with its plan to implement an Ontario Retirement Pension Plan (ORPP) for Ontario workers, introducing “framework” legislation and a series of consultation papers late last fall.

The ORPP would be a “defined benefit (DB) type of plan” with an employee/employer contribution rate of up to 1.9% each, requiring mandatory participation, subject to exemptions for workers who already participate in a “comparable” workplace pension plan.

While the meaning of comparable workplace pension plan is yet to be finalized, the Ontario government has indicated that its preference is for only DB plans and target benefit multi-employer pension plans (TB MEPP) to be considered comparable. Thereby, employers with defined contribution (DC) plans and/or group registered retirement savings plans (RRSP) would not be exempt.

If you are concerned about this, and think DC plans and group RRSPs with employer contributions that match or exceed those proposed in the ORPP should also be exempt, you should make your views known to the government by February 13, 2015. Continue Reading

Are You Selling or Downsizing a U.S. Business? Congress Reins in the PBGC

Posted in U.S. Pensions & Benefits Law

Section 4062(e) of ERISA was a forgotten and largely unenforced provision of ERISA until the PBGC (the U.S. agency that insures unfunded pensions) issued regulations and began aggressively pursuing plan sponsors for liability during routine corporate transactions.

What the Statute Said

The statutory section was deceptively simple. It required a plan sponsor of a defined benefit plan that suffered a 20% reduction in participants as a result of cessation of operations at a facility to post a bond or escrow funds based on the plan’s unfunded termination liability (though the calculation method really wasn’t clear.) The intent was to shore up plans where the sponsor might be in financial difficulty, as evidenced by a related event such as closing a plant. These events were thought to be warnings that a plan might be headed for takeover by the PBGC. However, if the plan didn’t terminate within five years of the “plant closing”, the bond was no longer required and any escrow could be returned. Continue Reading

The “Reformed” Fiduciary: Another Cautionary Tale About Explaining Your Plan Amendments

Posted in U.S. Pensions & Benefits Law

“We are pleased to inform you about new improvements to our plan.” How many times have you sent out notices like this (perhaps drafted by your vendor) without thinking about whether they are incomplete or misleading?

We have just had another reminder from the Second Circuit Court of Appeals of the potential consequences of inaccurate plan communications. This came on December 23, 2014 in the form of a decision upholding class relief to participants who challenged CIGNA’s conversion of its defined benefit pension plan to a cash balance plan.  The relief in effect rewrote the plan to eliminate “wearaway”, a technical term referring to the period when a participant might accrue no benefits because future accruals were less than the minimum benefit that had been earned under the plan before its conversion.

Why the Plaintiffs Won. The basis for the relief was not that the plan violated any plan qualification rule then in effect by providing for wearaway, but that participants had not been adequately warned about it in CIGNA’s communications and the summary plan description. In fact, they had been told that “your benefit will grow steadily throughout your career” and that the new plan would “significantly enhance” CIGNA’s retirement program. Continue Reading

Pension Holiday Wish List

Posted in Canada Pensions & Benefits Law, DB Plan Funding, DC Plans, Innovation & Plan Design, Pension Reform, Target Benefit Plans

As policy makers across the country implement pension reform and address priorities, we wanted to highlight a few of the recent reforms impacting private sector registered pension plans that, in our view, are positive steps, warranting consideration in the other jurisdictions:

Optional Tool Box Stocking Stuffers

  • Solvency Reserve Accounts
  • Target Benefit Plans
  • Variable Payments from Pension Plans

Under the Tree Discharge Item

Alberta Solvency Reserve Accounts: An Answer to Trapped Capital?

Posted in Canada Pensions & Benefits Law, DB Plan Funding, Innovation & Plan Design, Pension Reform

Defined benefit plan sponsors in Alberta (and soon British Columbia) should carefully consider taking advantage of recent (and forthcoming) legislation in those provinces permitting them to establish solvency reserve accounts (SRAs) as an effective way of funding their plans and avoiding the much dreaded “trapped capital” concerns that have often undermined defined benefit (DB) plan security over the last several decades.

Sponsors have traditionally viewed themselves as being vulnerable to the risks associated with restrictive surplus withdrawal rules and accounting treatment if their DB pension plans are more than 100% funded on a wind up basis for any significant period. To better manage these surplus-related concerns, many sponsors prefer to run their plans at a slight deficit, or where allowed, to partially replace traditional plan funding with an expensive letter of credit security.

The irony is that the desire to avoid trapped capital risk may produce results which are completely at odds with one of the primary goals of pension legislation – the adequate protection of member benefits. Continue Reading

New Ontario Requirements re SIPPs and Former Member / Retiree Pension Statements: Are You Ready?

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

As discussed in a previous blog post, the Ontario government is continuing its ongoing pension reform initiative by amending the Pension Benefits Act (Ontario) (the PBA) and its accompanying Regulations. On November 27, 2014, new amendments to the Regulations under the PBA came into force, revising the rules related to Statements of Investment Policies and Procedures (SIPPs), and adding a new requirement to send pension statements to the plan’s former members and retired members. We summarize these changes below, and explain what they mean for plan administrators. Continue Reading

Myth #4: Defined Benefit Plans are “Guaranteed”

Posted in Canada Pensions & Benefits Law, Target Benefit Plans

In this final post of our series on the myths surrounding target benefit plans (TBP) and defined benefit (DB) plans, we address probably one of the biggest myths surrounding DB plans – that their benefits are guaranteed.

What is truly guaranteed in life other than death and taxes?

The answer is “nothing”. The traditional DB pension plan – where the employer “guarantees” the pension benefits – may not be sustainable in some public and private sector cases and could lead to crisis situations that TBPs could help avoid. Generous DB plans may, in adverse circumstances, put both the members and the employer at risk. There have been many high profile instances over the last decade or so where the pension solvency issues threatened the continued operation of an organization. And, there have been other high profile instances where a company has gone under and pensions have been permanently reduced. Ultimately, the so called “guarantee” comes down to the employer’s willingness and ability to pay. Continue Reading

Myth #3: Unions and Employees are Opposed to Target Benefits

Posted in Canada Pensions & Benefits Law, Target Benefit Plans

In our posts over the past two weeks, we discussed some of the myths surrounding target benefit plans (TBPs), clarifying that:

In this post, we consider another myth – unions and employees are opposed to target benefits. Continue Reading