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Pensions & Benefits Law

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

Alberta’s New Target Benefit Regime

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

Alberta is moving forward with sweeping pension reforms in the new Employment Pension Plans Act (EPPA) and regulations, which come into effect on September 1, 2014. Alberta’s new approach of providing comprehensive and specific rules for various types of pension plan designs is a welcome change from the “one size fits all model” employed in many other Canadian jurisdictions.

Although this article focuses on target benefits, there are numerous other changes in the new EPPA. If you sponsor a pension plan with members in the province of Alberta, a compliance review is in order to ensure that the new requirements are met.

New Design Option

Among the many changes in the new EPPA, is the introduction of a comprehensive target benefit plan (TBP) regime. Alberta is the second jurisdiction, after New Brunswick, to implement comprehensive TBP rules as a design option for plans registered in the province.

Under the EPPA, TBPs will not be limited to collectively bargained workforces, as has been proposed in some other jurisdictions. Continue Reading

The Reckless Fiduciary: When Are Imprudent U.S. Fiduciaries Liable For Plan Losses?

Posted in U.S. Pensions & Benefits Law

“A pure heart and an empty head are not enough.” This is a quote from an early case defining the scope of ERISA fiduciary liability. However, ERISA has always made fiduciaries responsible only for losses caused by their breaches of fiduciary responsibility. It doesn’t make fiduciaries insurers of plan assets.

A recent Fourth Circuit Court of Appeals case has established its own gloss on the ERISA rules to determine when fiduciaries who follow imprudent procedures will have to make up plan losses. The Fourth Circuit rule is based on what a hypothetical prudent fiduciary, who I will call the “prudent shadow”, would have done in the same situation.

Like the recent “Teflon Fiduciary” decision of the Fifth Circuit Court of Appeals, discussed in a prior blog post , the lower court decision seemed to exonerate fiduciaries in situations that may not have been intended by the drafters of ERISA. We will have to see how the new rule is applied in order to determine whether the Fourth Circuit rule does so and whether it is workable. Continue Reading

Are You Selling Or Downsizing A U.S. Business? Plant Closing Liability Relief May Be Coming

Posted in U.S. Pensions & Benefits Law

A long overlooked and long unenforced provision of ERISA sometimes referred to as the “plant closing rule” has caused a stir in recent years as the U.S. Pension Benefit Guaranty Corporation (PBGC) began aggressively pursuing defined benefit plan sponsors to enforce it.

Section 4062(e) has been in ERISA since it was enacted. It was intended to protect the PBGC and the plan if a defined benefit plan sponsor terminated an underfunded plan within five years of a “substantial cessation of operations” at a facility, resulting in termination of the employment of at least 20% of plan participants. Essentially, it was to cover situations in which the plant closing signaled a deterioration of the plan sponsor’s financial condition that might place a plan in jeopardy. However, the PBGC has interpreted this provision broadly so that it potentially impacts insignificant reductions in force, shutdown of facilities for repairs, transfers of operations and even sales of ongoing businesses where the employees continue to work at their pre-sale jobs.

Owners of U.S. businesses with ongoing defined benefit plans could be required to secure the full amount of termination liability if there is a “4062(e) event”, and they ignore this liability exposure at their peril. Apart from the direct financial impact, acquisition agreements today typically contain representations that there is no existing or anticipated 4062(e) liability, and no PBGC liens exist. An untrue representation may trigger purchaser indemnification under the agreement. Credit agreements may have similar representations and default events triggered by PBGC liability, and even in the absence of credit agreements, 4062(e) liability may affect a business’ credit rating. PBGC liability is imposed on the entire controlled group, not just the U.S. plan sponsor, so affiliates of U.S. companies that have had “4062(e) events” located outside the U.S., such as Canadian parent companies, might also be pursued by the PBGC. Continue Reading

Ontario Employers Must Insure Long-Term Disability Benefits

Posted in Benefit Plans, Canada Pensions & Benefits Law, Legislation & Regulations

By: Douglas Rienzo and Laura Stefan

The Ontario Budget introduced by the newly-elected Liberal government on July 14, 2014 includes a proposal for mandatory insurance of long-term disability (LTD) benefits. The Budget was accompanied by Bill 14, Building Opportunity and Securing Our Future Act (Budget Measures, 2014) (the Bill) which amends the Insurance Act (Ontario) to prohibit the provision of LTD benefits unless they are provided through an insured arrangement with a licensed insurer. Continue Reading

PBA Amendments in Response to Carrigan Case Become Law

Posted in Canada Pensions & Benefits Law, Family Law Issues, Legislation & Regulations, Plan Administration

Following the recent provincial election, Ontario’s Liberal government re-introduced the budget bill which had been defeated during the last session of the legislature. With the Liberals’ new majority in the legislature, the budget bill passed easily this time around. Bill 14, the Building Opportunity and Securing Our Future Act (Budget Measures) Act, 2014, received royal assent on July 24, 2014.

Among other things, the budget bill re-introduced changes to the Pension Benefits Act (PBA) to address the October 31, 2012 decision of the Ontario Court of Appeal in Carrigan v. Carrigan Estate. Continue Reading

C.D. Howe Paper: Target Benefit Plans in Canada – An Innovation Worth Expanding

Posted in Canada Pensions & Benefits Law, De-Risking, Innovation & Plan Design, Target Benefit Plans

Jana Steele recently co-authored the C.D. Howe Institute paper “Target Benefit Plans in Canada – An Innovation Worth Expanding” with Mel Bartlett and Angela Mazerolle.

The paper reviews the challenges facing defined benefit (DB) and defined contribution (DC) pension plans, and argues for the need to move beyond the DB versus DC debate towards “a middle-ground option that incorporates some of the positive attributes of both designs.”

Target-benefit plans (TBPs) can deliver the cost predictability of DC plans combined with a defined-benefit-type pension to retirees, with predictable contribution levels, and enable pooling of longevity and investment risks.

The paper discusses New Brunswick shared risk pension plans and considers lessons that can be applied to the design of similar TBP legislation in other Canadian jurisdictions.

Currently, the pension standards legislation in most Canadian jurisdictions do not accommodate single-employer TBPs. In particular, pension legislation generally prohibits reduction of accrued benefits outside of the multi-employer unionized environment – this would have to change, as a key element of TBPs is their ability to let benefits vary as a function of the funding status of the plan. In addition, federal tax rules would have to be amended and accounting guidance would have to be provided in order to facilitate the development of TBPs.

The paper concludes by noting that governments should be encouraged to make the necessary legislative amendments in order “to move outside the pure DB versus DC debate and permit other design options.”

You can also watch Jana interview with BNN, where she discusses the advantages of TBPs.

Osler Makes Submission re Federal Government’s Target Benefit Plan Proposal

Posted in Canada Pensions & Benefits Law, Innovation & Plan Design, Target Benefit Plans

Osler made a submission in response to the federal Government’s consultation paper “Pension Innovation for Canadians: The Target Benefit Plan”.

We provided comments with a view to ensuring that target benefit plans (TBPs) are introduced in a way that puts them on a “level playing field” with other currently available pension options (i.e., traditional defined benefit and defined contribution pension plans), such that artificial barriers are not created which could impede TBP implementation.

In our view, the following are the two biggest disincentives to the adoption and/or sustainability of new TBPs under the current Government proposal:

  • Negotiation/consent requirements for the establishment and amendment of TBPs, particularly in a non-union context; and
  • Governance requirements related to the functioning and representative make-up of the administrator of TBPs − in particular, the proposed requirement that the Board of Trustees be comprised of members, retirees and other beneficiaries.

As we discuss in our submission, neither requirement is necessary to establishing an equitable and transparent TBP framework.

Quebec Proposes Reforms to Municipal Defined Benefit Pension Plans

Posted in Canada Pensions & Benefits Law, DB Plan Funding, Pension Reform, Public Sector Plans

On June 12th, the Quebec government introduced Bill 3 – An Act to Foster the Financial Health and Sustainability of Municipal Defined Benefit Pension Plans in Quebec (Bill 3). Bill 3 replaces Bill 79 – An Act to Provide for the Restructuring of and Make Other Amendments to Municipal Defined Benefit Plans (Bill 79) which was introduced in February 2014 by the previous government, but died on the Order Paper after the last election. For a more detailed discussion of Bill 79, see our previous post. During the election, the Liberal party committed to restructuring municipal pension plans and reigning in the ballooning deficits, currently estimated in the neighbourhood of $3.9 billion.

Bill 3 is a stricter version of Bill 79 and contemplates a significant shift in the structure of municipal sector pension plans. Unlike Bill 79, Bill 3 would make the restructuring process mandatory for all municipal defined benefit pension plans, not just plans that meet certain funding triggers. Another notable difference is that Bill 3 could impact retirees by allowing an employer to suspend the indexation of their pensions.

The key implications of Bill 3 for municipal bodies, plan members and retirees are:

  • Past and future pension plan deficits would be shared equally between the municipal body and the active plan members;
  • The municipal body could suspend indexation for retirees;
  • A stabilization fund would be created to protect plans from future adverse deviation; and
  • The parties could negotiate for one year, after which an arbitrator would be called to settle the dispute.

These proposed changes have triggered resistance from certain plan members. However, the amendments proposed in Bill 3 are consistent with the cost control measures recently introduced in other provinces in relation to public sector pension plans. As provincial governments struggle with limited resources and demographic challenges, changes to public sector plans are increasingly perceived as imperative.

We review the proposed amendments in Bill 3 in more detail below. Continue Reading

The Mistaken Fiduciary: Can You Correct Overpayments to U.S. Retirees?

Posted in U.S. Pensions & Benefits Law

Even the best run pension plans occasionally pay retirees the wrong amount due to errors in employee classification, or calculating participant service or compensation. Correcting underpayments is easy enough – though it is important to remember that interest is required –but what happens after a pension plan discovers an error after paying the retiree too much or even a benefit to which a retiree was never entitled?

The United States Court of Appeals for the Ninth Circuit recently confronted this issue when a retiree, who was found never to have had enough qualifying service to have vested in his pension, sought to enjoin the plan from cutting off his payments. In Gabriel v. Alas. Electrical Workers’ Plan, the retiree claimed that he would never have stopped working if he had known he had not qualified for a pension. He sought equitable relief under the U.S. Supreme Court’s CIGNA v. Amara decision, finding that participants could obtain traditional equitable relief for certain violations by plan fiduciaries. Continue Reading

The Inadvertent Fiduciary: Mass Mutual Crosses The Line

Posted in U.S. Pensions & Benefits Law

Plan fiduciaries are held to the highest performance standards and can be personally liable for breaches of fiduciary responsibility. Because of this potential liability, there should be clear and rational rules enabling those who provide services to plans to know when they have crossed the line.

I recently wrote a post called the “Teflon Fiduciary” in which I argued that the U.S. Court of Appeals for the Fifth Circuit had permitted investment advisers functioning as fiduciaries to avoid responsibility for imprudent or inappropriate advice. By looking to the manner in which the adviser in question was paid rather than whether he was functioning as a fiduciary, that court set the line in the wrong place. The rule may have been clear, but it wasn’t rational and it excluded too many advisers.

We have now had a decision from a federal district court in another part of the country that seems to err in the opposite direction by including as fiduciaries people who the drafters of ERISA probably never intended to cover.

The case is Golden Star, Inc. v. Mass Mutual Life Insurance Company. Continue Reading