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Witness the Creation of Ontario’s Modern Pension Regulator

To remain relevant and effective, industry regulators need to stay current. They must be attentive to economic realities, adapt to new technology and evolve with the industries they regulate. Ontario’s pension regulator is overdue for a major overhaul that will bring it into the 21st century.

Ontario’s Fall 2016 Economic Statement announced that government’s intention to introduce a new financial services regulator which will be known by the acronym FSRA (Financial Services Regulatory Authority). The FSRA announcement came shortly after the release of the Final Report, of the Ontario Expert Advisory Panel mandated to examine the Financial Services Commission, Financial Services Tribunal and Deposit Insurance Corporation.

The March 31, 2016, cover letter that accompanied the Panel’s Final Report stated that its recommendations for a ‘world-class regulatory system’ were prepared with “both the present and future in mind, and in light of industry and regulatory trends here and around the world.” It also recognized the rapid pace of change in the financial and pension sectors and concluded that the agencies under review had to be modernized and sufficiently independent, flexible, innovative and expert to facilitate the changes in governance, structure and accountability necessary to achieve the desired result.

Panel recommendations of particular relevance to the pension industry include:

  • FSRA should operate as an integrated financial services regulator with responsibility for, among other things, consumer protection (referred to as ‘market conduct’), prudential oversight and pension plans;
  • FSRA should be directed to protect beneficiaries while promoting a strong sustainable pension system that would operate in an efficient and fair manner, balancing the interests of all parties;
  • FSRA’s mandate should require it to use its authority to adequately, firmly and consistently discourage fraudulent activities or behaviours that mislead or harm consumers and pension plan beneficiaries;
  • FSRA’s mandate should require that it undertake its activities in a proactive manner;
  • to remain relevant and flexible, FSRA’s mandate should include a commitment to innovation and transparency – to stay abreast of those issues that could compromise its ability to satisfy its mandate;
  • the existing Financial Services Tribunal, which is housed within the current Financial Services Commission and, therefore, subject to potential conflicts, should be established as an independent tribunal with its own budget funded by government; and
  • the Financial Services Tribunal should have authority to adjudicate matters clearly articulated in its enabling statute, including appeals from certain decisions of FSRA.

Bill 70, Building Ontario Up for Everyone Act (Budget Measures), 2016, was introduced by the Ontario government on November 16, 2016, and passed ‘First Reading’ in the Legislative Assembly. Among other things, this omnibus legislation would:

  • enact legislation establishing FSRA, replacing both the Financial Services Commission and Deposit Insurance Corporation; and
  • amend the Pension Benefits Act (Ontario) (PBA) to provide the Superintendent of Pensions with authority to impose significant administrative penalties for contravening or failing to comply with the PBA.

It is too soon to tell whether all aspects of the Panel’s recommendations will be implemented by the Ontario government. The proposed legislation is bare bones and creates only the framework for the FSRA. It does not set a clear mandate other than the fact that FSRA will regulate specific financial sectors of the Ontario economy.

On the other hand, proposed changes to the PBA clearly demonstrate a new regime involving administrative penalties – a hallmark of modern regulatory systems, providing the muscle to enforce compliance. If adopted, the amendments will enable the Superintendent to quickly impose meaningful administrative penalties (up to $25K for corporations and $10K for individuals) to ensure compliance with legislative requirements, orders and undertakings. As an added jolt, administrative penalties may not be paid from the pension fund of an offending administrator.

While there is a right to a hearing if an administrative penalty is proposed by the Superintendent, the process is swifter and more appropriate than current regulatory measures that require Crown prosecution under the Provincial Offences Act (Ontario). The difference between an administrative penalty and offences prosecution can be likened to the difference between a speeding ticket and a drunk-driving charge. Both involve motor vehicles, but in the former case you can pay your fine and drive away, while in the latter you’re obliged to spend time in court and will likely want a lawyer.

Bill 70 represents an initial response to the Panel’s numerous recommendations. Nevertheless, with just these preliminary changes, pension administrators and their agents should brace for more fines and greater enforcement in the future. Industry professionals expect the Ontario government to implement more Panel recommendations in 2017 and sense that they are witnessing the creation of a modern, responsive and far more dynamic pension regulatory system for Ontario.

Witness the Creation of Ontario’s Modern Pension Regulator

Getting Your Act Together – B.C. & Alberta Triennial Pension Assessments

In November 2008, the Alberta/British Columbia Joint Expert Panel on Pension Standards (JEPPS) released its report on pension standards in the two provinces. The report, Getting Our Acts Together, encouraged the two provincial governments to take a leadership position in pension reform and forge harmonized pension standards legislation which would provide a solid foundation for private sector pension plans and facilitate inter-provincial labour mobility.

The JEPPS’ vision of a fully harmonized joint-regulatory environment for Canada’s two westernmost provinces failed to materialize. The vision was left on the cutting-room floor, so to speak, as Alberta adopted its reformed pension standards legislation in 2014 and BC followed-suit with its own in 2015 – absent any joint regulator, joint tribunal or joint policy advisory council, as recommended in the JEPPS report.

That said, the new Acts themselves are principles-based, as opposed to rules-based, and there is a great deal of harmonization between the two, including the requirement for plan administrators to complete a triennial administrative assessment (TAA) for their pension plans.

TAA Timing

For private sector BC and Alberta pension plans with a calendar year-end, the first TAA must be undertaken with an effective date of December 31, 2016, and a written assessment completed by December 31, 2017. The exercise is to be repeated triennially thereafter.

Topics for Assessment

The TAA requirement is designed to force a plan administrator to do some soul-searching about how well it is administering the pension plan. At a minimum, TAA requires a review of the following:

  • Legislative Compliance
  • Plan Governance
  • Plan Funding
  • Plan Investments
  • Trustee Performance (if any)
  • Administrative Staff and Agent Performance

Administrators must retain a copy of the written assessment and make it available to the provincial pension regulator on request. There’s little doubt that regulators will undertake spot audits early in 2018 to confirm that the TAA requirements have been satisfied.

Where’s the stick?

The BC and Alberta pension legislation introduced a new enforcement tool to ‘encourage’ plan administrators to complete required tasks on time. The legislation empowers the Superintendent to order administrative penalties on corporations and administrators for contraventions of legislative provisions.  The maximum penalties range from $50K to $250K for corporations or administrators and from $10K to $50K for individuals, depending on which administrative provisions have been contravened. FICOM, the BC pension regulator, issued guidelines in June of this year suggesting that the higher penalties, which are discretionary in nature, will only be imposed where there has been significant delay in completing required legislated tasks.

Even without the administrative penalty provisions, plan administrators are required to comply with applicable legislation and regulatory requirements. Failure to do so, especially if the failure leads to significant losses to the pension fund, might be viewed in subsequent court proceedings as a breach of fiduciary duty.

Penalty and fiduciary implications aside, plan stakeholders and administrators should embrace the TAA as an opportunity to assess their administrative processes. While there’s never a good time to do soul-searching of this nature, if not on a triennial basis, when would be an appropriate time to ensure that employee pensions are being properly looked after?

Start now while there’s still time

Although plan administrators have until the end of 2017 to complete their written assessments, stakeholders need to recognize that a snapshot of administrative efficiency is to be taken at year-end, so there’s little time left in 2016 to ‘right-the-ship’. They need to determine if current administrative processes sufficiently address the enumerated list of assessment topics – for example, ensure that an updated Governance Policy, Funding Policy and Statement of Investment Policies and Procedures are in place – and, if not, take steps to address any shortfalls.  Failure to fill the ‘gaps’ now might lead to a failing grade when the assessment begins in earnest at year-end.

Getting Your Act Together – B.C. & Alberta Triennial Pension Assessments

New Court Decisions Reinforce Need for Benefit Communications Policy

In my last post to this blog I extolled the virtues of a benefit communications policy for HR professionals who communicate pensions and benefits to fellow employees. I pointed out that years of benefit miscommunication has an overwhelming impact on an organization’s potential legal liability. I also highlighted the fact that court decisions demonstrate time and again that important cost-savings measures, such as reducing post-retirement benefits or eliminating future pension accruals, can be derailed by ambiguous communications.

Canadian case law demonstrates how widely courts and arbitrators are prepared to cast their nets when awarding damages for benefit miscommunication. Cases involving negligent misrepresentation, for example, have resulted in awards for retiring employees, terminated employees, spouses of deceased employees and future employees. Two recent cases dealing with employee benefits and pensions demonstrate how a benefit communications policy can make a difference to employers.

In Feldstein v. 364 Northern Development Corporation, the B.C. Supreme Court awarded more than $93,000 in damages to a 364 employee, Feldstein, in respect to inaccurate information provided to him about the company’s long term disability (LTD) program during the hiring process.

During pre-employment interviews Feldstein disclosed that he suffered from a condition that could require him to apply for LTD benefits at some future date and, understandably, asked pointed questions about 364’s LTD program. The hiring manager misrepresented how the program operated and when Feldstein ultimately applied for benefits, he was denied full coverage. The court confirmed that the law required 364 to ensure that representations made to Feldstein about the LTD program were accurate and not misleading.  It concluded that Feldstein, to his detriment, had accepted employment on the strength of the company’s negligent misrepresentation and was entitled to recover damages.

Among the features of a benefit communications policy is the thorough vetting of all communications that may be relied upon by potential and current employees to make important decisions. With Feldstein’s disclosure of a pre-existing medical condition and pointed questions about 364’s LTD program, it would have been obvious to even the most casual observer that he intended to rely on the company’s explanation in making his employment decision. That alone should have spurred the hiring manager to refer to 364’s benefit communications policy (assuming it had one) which, one hopes, would have required the explanation to be thoroughly vetted before being delivered to Feldstein.

While the Feldstein case addresses communications to future employees, a more recent Quebec Superior Court decision deals with communications to current employees.

In Samoisette v. IBM Canada the employer amended its defined benefit (DB) pension plan to eliminated bridge benefit entitlements for its employees in respect of their future retirement benefits and unilaterally terminated health insurance coverage for certain employees over age 65. Affected employees challenged IBM’s right to make those changes.

The court upheld IBM’s right to unilaterally modify its health plan on the basis that all benefit communications to employees had clearly reserved to IBM the right to amend those benefits at any time. However, the bridge benefit amendment was held to be invalid on the basis that employees had relied on IBM’s unqualified representations about that benefit, which said nothing about possible future changes, when making the important decision to remain in the DB plan when an alternate (defined contribution) plan was introduced by the company. The court found that most employees who chose to remain in the DB plan did so to take advantage of the bridge benefit and, hence, IBM was prohibited from amending the bridge benefit notwithstanding that it had reserved the right to amend its pension plan in the future.

IBM was ordered to pay more than $23 million plus interest to active and retired employees a decade after the original bridge benefit amendment. Keep in mind that the Quebec court’s decision may be appealed.

While IBM effectively reserved the right to amend or terminate its health insurance coverage, it appears that its pension communications were not sufficiently explicit to overcome the expectations of employees who elected to remain in the DB plan to take advantage of the bridge benefit feature. An effective benefit communications policy will recognize when representations will be relied upon by employees to make important decisions and, among other things, will ensure that such representations include language highlighting the employer’s right to implement future changes to benefit programs.

As noted in my earlier post, a benefit communications policy should become an integral part of an organization’s risk management strategy and be aligned with existing procedures and human resource capabilities. There is no guarantee that phantoms of past benefit communications will not haunt an employer in the future.  Nevertheless, a benefit communications policy can significantly decrease the risk of future legal claims against an employer and increase the likelihood that upcoming cost-saving measures, which include changes to pension and benefit programs, will not be derailed by ambiguous employee communications.

Ensure that your organization adopts a benefit communications policy as soon as possible. If you require assistance, speak with one of our experienced pension and benefits lawyers.

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New Court Decisions Reinforce Need for Benefit Communications Policy

Why HR Professionals Should Demand A Benefit Communications Policy

If your job description includes responsibility for communicating pensions and benefits to fellow employees, then you must already know that with each new communication comes increased potential legal liability for your organization. However, unlike the production of a defective widget, where each new sale increases potential liability by one, each defective benefit communication increases potential liability by a multiple equal to the number of recipient beneficiaries.  Hence, years of benefit miscommunication has an overwhelming impact on an organization’s potential legal liability.

Canadian courts and arbitrators have shown an increasing propensity to award damages, or provide restitution, to employees where it can be shown that employer communications are untrue, inaccurate, misleading, ambiguous or omit important details otherwise relevant to those being asked to make important (often irrevocable) decisions related to health, welfare or retirement.

Benefit miscommunications can cost your organization in other ways too. Numerous court decisions in Canada demonstrate time and again how employer cost-savings programs, based on reducing post-retirement benefits, can be derailed by ambiguous communications about the employer’s right to change those benefits following retirement from employment.

While eliminating all benefit communications might appear to be a logical means of reducing potential legal liability, there are many sound business and legal reasons for regular communications to employees about their benefits. Your employer’s pension and benefit programs are expensive and were implemented, in part, to attract and retain valuable employees. If you don’t tell employees about your excellent programs, why bother having them in the first place?  In some cases you have no choice and must issue benefits-related communications.  For example, the law imposes on pension plan administrators an obligation to provide on-going and ad hoc communications to plan members about their entitlements.

The challenge for employers, therefore, is how best to effectively communicate the excellent pension and benefit programs available to employees while minimizing potential legal liability and ensuring that proposed future changes to those programs won’t be hampered by the phantoms of past communications.

While there is no single step that will cure all past benefit miscommunications, the path to overcome the benefit communication challenge must first be paved with a comprehensive Benefit Communications Policy (BCP) based, in part, on past court decisions which highlight the legal hurdles to be surmounted.

An effective BCP must ensure that future benefit communications that may be relied upon by employees to make important decisions:

  • are thoroughly vetted so as to eliminate any untrue, inaccurate or misleading statements (or omissions);
  • are clearly written and devoid of ambiguous or vague terminology;
  • do not predict future events, unless thoroughly qualified;
  • do not project future investment outcomes, unless thoroughly qualified; and
  • where appropriate, include customized language, unique to each organization, reserving to the employer the right to make future changes to its benefit programs, even following retirement.

A BCP should become an integral part of your organization’s risk management strategy and should align with existing procedures and human resource capabilities. Of course, your BCP will not be worth the paper it’s written on if there is no C-suite buy-in. A Board of Directors stamp-of-approval may, therefore, be essential to the success of your policy and a single executive should be made accountable for the BCP to ensure that necessary resources are allocated to its implementation and adherence.

While a well-designed, successfully implemented and strictly enforced BCP will not cure past benefit miscommunications, it should significantly decrease the risk of future legal claims against your organization and increase the likelihood that upcoming cost-saving measures, which include changes to pension and benefit programs, will not be derailed by ambiguous employee communications.

Why HR Professionals Should Demand A Benefit Communications Policy

British Columbia: A guide to B.C.’s new pension legislation for HR professionals

On September 30, 2015, British Columbia’s new Pension Benefits Standards Act (PBSA) and Regulation came into effect.  The PBSA has wide-ranging implications for HR Professionals who oversee BC-registered pension plans and certain non-BC-registered pension plans with BC members. Among other things, all provincially regulated pension plans with BC members must be administered in a manner consistent with the PBSA effective September 30, 2015, including immediate vesting and locking-in for all service and new portability provisions for BC members. Compliance amendments to bring pension plans in-line with the PBSA must be filed with applicable regulators by December 31, 2015.  In addition, administrators of BC-registered pension plans must file a Contribution Schedule with the plan’s fund holder by the end of October, 2015, and prepare written Governance, Funding and Records Retention policies by the end of 2015.  The PBSA authorizes the Superintendent to impose administrative penalties on corporations and individuals for non-compliance and increases financial penalties, to a maximum of $500,000, for offences under the Act.  To read more about these and other requirements of the PBSA and Regulation, please follow this link: A Guide to BC’s new pension legislation for HR Professionals.

British Columbia: A guide to B.C.’s new pension legislation for HR professionals