Plan Communications: The New Battleground for Pension Disputes
Recent legal developments have reinforced the need for employers and plan administrators to make accurate and timely pension plan member communications a top priority in plan governance and risk management.
Over the past year, there have been at least four reported court cases where the determination of an employer’s (or plan administrator’s) potential liability in relation to a pension plan was based largely on its communications with plan members.
In Kraft Canada Inc. v. Pitsadiotis, the administrator was able to successfully use evidence of its past communications with members regarding the plan terms to support a claim for rectification of the plan text with the intended pension promise. Specifically, the court found that past communications to members supported the administrator’s claim that a change to the plan text was made in error, and as a result ordered that the error should be corrected to reflect the intended plan terms, as communicated to members.
In Desjardins v. General Motors du Canada Ltée, a Quebec court noted that the plan administrator had held information sessions and distributed brochures explaining certain plan amendments to plan members. Based on this evidence, the court concluded that the administrator had not breached its duty to inform certain members about amendments permitting the buyback of past service.
In two other cases, employers were found liable for providing incorrect information or failing to provide necessary information about the plan to its members.
For example, in McLean v. Alberta (Minister of Justice), the employer mistakenly told a prospective employee that he could transfer pensionable service with his former employer into the employer’s pension plan. The Court ruled that the employee had been employed on the basis of the employer’s pension representation and awarded him damages, amounting to almost $300,000, in lieu of crediting him with the pensionable service with his previous employer. While such claims are typically based on negligent misrepresentation, the ruling in this case suggests that there are different legal remedies that courts may invoke to ensure that representations made by employers to their employees in relation to pension plans are legally binding.
Finally, in Health Employers’ Assn. of British Columbia and B.C.N.U., an arbitrator held that the employer had breached its duty under the collective agreement, as well as its duty of care, when it failed to tell an employee that she was eligible to join the plan once she began working part-time. The employee was awarded an amount as damages which was equivalent to the sum she had paid for the purchase of past service when she was a part time employee but not a member of the plan.
Concerns about plan member communications have not escaped further scrutiny by legislatures as well. Most recently, the federal government’s announcement regarding pension reform included a proposal to enhance the disclosure requirements for plan members. Specifically, the government intends to require pension plan administrators to provide additional information in annual statements and to expand the recipients of such statements to include former members and retirees.
Employees and plan members will typically rely on communications they receive from their employer (or the plan administrator) for information about their pension plan. Accordingly, it should not be surprising to note the trend in the case law towards increased litigation based on such communications and/or the duty of an employer/administrator to communicate information about the plan in a timely and understandable way.
Although defined benefit plans were the focus of much of the legislation and case law discussed above, these general legal principles applicable to plan communications will equally apply to capital accumulation plans, including defined contribution plans and group RRSPs.
What can employers and/or administrators do to improve their governance practices and fulfill legal duties in relation to plan communications?
First and foremost, plan administrators and employers will have to ensure that they meet whatever disclosure requirements are set out in the applicable pension standards legislation (as noted above, in certain jurisdictions such requirements may soon become more onerous). However, as evidenced by the recent case law, an employer’s (or administrator’s) legal obligations do not end with the legislation, as plan member communications (whether they be annual statements, member booklets or verbal representations) can form the basis for a legal action (as can a failure to communicate information about the plan).
Accordingly, those persons vested with responsibility for overseeing the operation of a plan should consider making a legal review of communications a regular part of their governance and risk management processes.
