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Pensions & Benefits Law

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

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

The Inattentive Fiduciary: When Supervisors Don’t Supervise

Posted in U.S. Pensions & Benefits Law

The United States Department of Labor recently commenced legal action against a plan investment manager who failed to diversify plan investments, then sold the portfolio and left the proceeds uninvested for a period of two months, causing $7 million in losses. The complaint  also named members of the Retirement Committee that retained the manager, and particularly cited them for failing to monitor the investment manager and take action to correct this problem. In addition to seeking restoration of plan losses, the complaint asks the court to remove the committee members and appoint an independent fiduciary in their place.

This complaint serves as a forceful reminder to plan committee members that their responsibilities to monitor investment managers are ongoing and don’t end when the hiring process is completed. Continue Reading

Myth #2: Limiting Employers’ Pension Design Options Means Continued Defined Benefit Plans

Posted in Canada Pensions & Benefits Law, Target Benefit Plans

Last week, we began a blog post series that considers some of the common myths surrounding target benefit plans (TBPs). In this post, we respond to the suggestion by some that if you do not offer employers the option of implementing a TBP, they will simply choose to continue their existing traditional defined benefit (DB) plans.

One of the key flaws with this suggestion is that it appears to overlook the fact that the private pension system is a voluntary one. Subject to notice requirements and/or applicable collective agreements, employers can generally prospectively change or eliminate benefits provided to employees, including pensions as long as accrued benefits are preserved. Employers have been exiting traditional DB pension plans in droves over the last few decades. This shift has been as a result of numerous factors, including employers’ desire for cost predictability, concerns over funding volatility and long term affordability given escalating longevity risks. For single employers, most pension standards legislation provides only one other pension design option for an employer wishing to change from DB – defined contribution (DC) pension plans. Often times negotiations will result in the preservation of DB plans for those employees who have them, with new employees being placed in a DC plan. Sometimes employers will exit the registered pension plan regime altogether in favour of Group RRSPs for new hires. Continue Reading