Pensions & Benefits Law : Canada Pension & Benefits Lawyers & Attorneys : Osler Hoskin & Harcourt Law Firm: Post-Employment Benefits & Defined Benefit Plans : Toronto, New York

In prior posts (June 15, 2010 and December 17, 2009), I pointed out that even though plaintiffs were losing their lawsuits challenging 401(k) plan fees, the legal issues were still far from settled. The Court of Appeals for the Eighth Circuit reinstated claims against the huge WAL-MART 401(k) Plan, challenging the use of retail instead of comparable institutional class mutual funds for the plan, and new law and regulations could be forthcoming.

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As described in a recent Osler Update, on July 21, 2010, sweeping financial reform was signed into U.S. law by President Obama. The new law affects more than just Wall Street financial institutions and contains new requirements on corporate governance, federal securities law and executive compensation provisions.

In the Dodd-Frank Wall Street Reform and Consumer Protection Act, there are lots of new goodies on the executive compensation front. While most of the new compensation rules would not seem to apply to Canadian issuers (unless they are voluntarily complying with U.S. compensation disclosure rules instead of Canadian rules), they may indeed set a new standard for best practices because U.S. institutional investors will become accustomed to these requirements:

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Earlier this year, we did a post on the Financial Services Commission of Ontario’s (FSCO) consultation policy on pension record-keeping . FSCO has recently released the final version of this policy, “Management and Retention of Pension Plan Records by the Administrator” (the Policy).

The Policy is important reading for pension plan administrators as it imposes a new requirement to create a document management and retention policy. It also contains requirements impacting other documents such as pension plan services agreements and even purchase and sale agreements. The Policy applies to all plans, big and small, defined benefit and defined contribution, single employer and multi-employer, etc.

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The Pension Protection Act of 2006 required faster funding of defined benefit plans, generally funding shortfalls over 7 years. These new requirements began to phase in just as asset values plunged and employers became strapped for cash in the recession. Employer groups have been pressing Congress to provide relief since the new rules became effective.

The Preservation of Access to Care for Medicare Beneficiaries and Pension Relief Act of 2010 (the Act) was finally signed by President Obama on June 25, with a significant catch that ties funding relief to expenditures for taxable executive compensation over $1 million and payments to shareholders. In general, to use the funding relief, extra pension contributions will be required equal to the amount of these payments.

Canadian companies with U.S. subsidiaries need to know that the Act does not look only at compensation and shareholder payments of the U.S. entities, but also at all affiliated entities – generally, the parent and all subsidiaries, which are at least 80% owned. For example, taxable compensation paid to U.S. citizens outside the U.S. may trigger additional contribution requirements in the Act.

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On December 2, 2009, the Ontario Financial Services Tribunal released its decision in Imperial Oil which held that pension administrators are not required to purchase annuities in respect of partial wind up benefits remaining in the plan following member portability elections. On June 30, 2010, FSCO posted a new policy (effective March 10, 2010) confirming the result in Imperial Oil, and outlining the procedure to be followed regarding the “distribution” of such benefits by transfer to the ongoing portion of the plan when the administrator chooses not to distribute by way of annuity purchase.

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