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Pensions & Benefits Law

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

Federal Government Releases Revised Pension Investment Rules and Other Regulatory Amendments

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

Amendments to the Pension Benefits Standards Regulations, 1985 (Canada) (PBSR) regarding pension plan investments, defined contribution (DC) plans and disclosure of information to plan members, among other things, were published in the Canada Gazette this week, and are scheduled to come into force on April 1, 2015 and July 1, 2016, as detailed below.

An earlier draft of the revised Schedule III to the PBSR (the “investment rules”), initially published last fall for comment, raised concern in the pension community that the new investment rules did not fully support modern pension investment practices.  As a result of  industry feedback, the investment rules have been further revised to address many of the concerns raised.

The key changes to  the investment rules as well as the amendments to the PBSR related to DC plans and disclosure of information to plan members are summarized below. Continue Reading

The Great Fiduciary Debate: Will U.S. Brokers Be Held to a Fiduciary Standard?

Posted in U.S. Pensions & Benefits Law

A few years after ERISA was enacted, the U.S. Supreme Court ruled in a case called Manhart  that it was unlawful for pension plans to pay lower monthly benefits to women than to similarly-situated men simply because women on average lived longer.  No one thinks that paying men and women with the same compensation and service and who are the same age, the same monthly benefit is an issue today. In fact, people would be shocked if you said that those men and women shouldn’t receive equal pension checks. However, back in the 1970’s, many benefits professionals said that such compliance would be the end of pension plans.

I think of this dispute every time I read arguments citing a report commissioned by financial services organizations finding that holding brokers to a fiduciary standard under new Department of Labor (DOL) regulations will make 30% of surveyed plan sponsors “at least somewhat likely” to just stop offering plans, and almost 50% of those without a plan less likely to adopt new plans.  We are also hearing that brokers will become unwilling to provide advice to smaller accounts if a fiduciary standard is adopted. Continue Reading

Ontario Retirement Pension Plan Committee Hearings

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

Earlier this year, we had written about the Ontario government’s plan to implement an Ontario Retirement Pension Plan (ORPP) for Ontario workers and its potential implications for employers.

Briefly, 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 to be considered comparable.  Under this approach, employers with defined contribution plans and/or group registered retirement savings plans would not be exempt.

Bill 56, which sets out the framework legislation for the ORPP, passed second reading and has been referred to the Standing Committee on Social Policy (the Committee).  The Committee intends to hold public hearings on Bill 56 – offering concerned employers another opportunity to share their views on the ORPP with the government.

The hearings will take place in Toronto on March 23, 24, 30 and 31. If you are interested in making an oral presentation on the bill, you need to contact the Clerk of the Committee by 12 noon on Thursday, March 19. Written submissions can be submitted to the Clerk of the Committee by 6 p.m. on Tuesday, March 31.  More detailed information regarding the process for making submissions is contained in the Committee’s Notice of Hearing.

For more details on the ORPP, please see our earlier blog post.

C.D. Howe Paper: The Taxation of Single-Employer Target Benefit Plans – Where We Are and Where We Ought To Be

Posted in Canada Pensions & Benefits Law, Target Benefit Plans

Jana Steele, Ian McSweeney, Barry Gros and Karen Hall recently co-authored the C.D. Howe Paper, The Taxation of Single-Employer Target Benefit Plans – Where We Are and Where We Ought To Be.  The paper offers a blueprint of how tax rules can be changed to better accommodate single-employer target benefit plans (TBPs).

Many employers have been looking for alternatives beyond traditional pension arrangements to better manage their pension risks. TBPs are an attractive hybrid of traditional defined-benefit and defined-contribution plans since they combine fixed contributions with targeted pension payments.  (For more information on TBPs, see our series the ABC’s of TBPs, Part I, Part II and Part III.)

Policymakers and regulators across the country are making the required changes to pension standards legislation that would recognize single-employer TBPs.  Yet the current tax regime does not accommodate alternative pension plan designs such as single-employer TBPs. There is a clear need for more certainty about the tax treatment of these plans.

The paper concludes by encouraging the federal government to amend the Income Tax Act to address the evolving Canadian pension landscape and implement the changes required to accompany these TBP reforms.

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