Header graphic for print

Pensions & Benefits Law

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

Solvency Reserve Accounts – Further Considerations for Alberta and BC Plans (Part I)

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

Last month Alberta Interpretive Guideline #07 dealing with Solvency Reserve Accounts (SRAs) was finalized.  A draft of the Guideline had been released last November for industry/stakeholder comment.

In our December blog post on this topic, we recommended that defined benefit (DB) plan sponsors in Alberta and British Columbia should carefully consider taking advantage of recent (and in the case of BC forthcoming) legislation permitting them to establish SRAs as an effective way of funding their plans and avoiding “trapped capital” concerns that have historically discouraged full funding and undermined DB plan security.  In this regard, sponsors have often been reluctant to fund their plans above the minimum statutory requirements for fear of creating future surpluses that may be subject to withdrawal or contribution holiday restrictions with adverse cash flow and accounting results.

In this two-part series following up on our earlier blog post, we examine several aspects of the SRA rules in greater detail and reiterate our recommendation that plan sponsors seriously consider establishing SRAs as the preferred vehicle in which to make their future plan contributions. Continue Reading

Federal Budget 2015: Changes for Pension and Benefit Plans

Posted in Canada Pensions & Benefits Law, Investments, Target Benefit Plans

On Tuesday, the federal government tabled its 2015 pre-election budget, which included a few announcements that will be of interest to employers. Of particular note are the following announcements:

  • public consultations regarding the federal investment rules;
  • continued assessment of target benefit plans (TBP), including possible amendments of the Income Tax Act (ITA);
  • an initiative to promote harmonization of the requirements for pooled registered pension plans (PRPP) across Canada; and
  • changes to rules regarding tax free saving accounts (TFSA) and registered retirement income funds (RRIF).

Continue Reading

The Estopped Fiduciary: When May Participants Rely on Incorrect Calculations?

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

Mistakes happen. Even in the best-run plans, occasional errors in estimating and calculating benefits are inevitable and sometimes they are caught only years after payments commenced.  Fiduciaries are required to follow plan terms, so improper payments are typically cut off.  Plans may also seek to recoup past overpayments once the mistake is discovered.

In the Mistaken Fiduciary, I described a situation in which Gabriel, a retiree who had never qualified for benefits at all, sued a plan to prevent it from cutting off his benefits.  His suit claimed fiduciary breach and sought to estop the plan from applying its terms to him. The retiree also sought other forms of relief for fiduciary breach.

Gabriel lost his estoppel claim at the district court level, and this result was subsequently affirmed by the U.S. Court of Appeals for the Ninth Circuit.  The Ninth Circuit decision clearly states that estoppel is not available where relief, as in Gabriel’s case, would contradict the written plan provisions.   However, we have just had another decision in Michigan in which a retiree named Paul successfully sued to estop a plan from correcting pension overpayments. Why did Paul succeed and should plan fiduciaries be worried about this decision?  Continue Reading

Double Jeopardy for Pension Plan Sponsors Selling Businesses: Have You Provided Spinoff Notices?

Posted in Benefit Plans, Sale of Business, U.S. Pensions & Benefits Law

There are many benefits issues that must be dealt with when businesses are sold, including the potential involvement of the Pension Benefit Guaranty Corporation (“PBGC”)    See, e.g,  my prior blog post.  Not all of these issues are resolved at the time of sale.

It is becoming increasingly common for plan sponsors who have sold businesses to hear from former participants who were spun off to a buyer’s plan, but who claim to still have benefits owing under the seller’s plan. Sometimes this is because the buyer has gone into bankruptcy or attempted to pass its plan on to the PBGC, but one very frustrating aspect of these former employee requests is that they arrive almost always many years after the sale. Sellers typically respond that no benefits are owed because the buyer assumed full responsibility for their pensions. But is this sufficient?  Maybe not, as a federal district court in Utah has ruled that former participants are entitled to benefits under both their original plan and their new plan for the same period of service because they were not notified of the transfer of their benefits.  Here is the decision. Continue Reading

Boomerangs and the PBGC, or When a Sale is Not a Sale

Posted in U.S. Pensions & Benefits Law

The surprising thing about a boomerang is that just when you think you have tossed it away, it suddenly comes back to you.  The same result can happen under Section 4069 of ERISA, a rarely applied provision that holds a seller liable for underfunding and other Title IV liability when a buyer terminates an assumed plan within 5 years following the sale. The key is that a principal purpose of the transaction must be to evade  liability.  Such a transaction can be ignored and the seller pursued as if the transaction had not occurred.

The Pension Benefit Guaranty Corporation (PBGC) has just cleared a big  hurdle in its attempt to hold The Renco Group liable under Section 4069 and possibly make new law on when Section 4069 can apply.  Continue Reading

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. Fiduciaries, 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. Fiduciaries, 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