Law Times

Law Times • augusT 18, 2014 Page 13 www.lawtimesnews.com Defined-contribution pension plans New guidance could mean big liability for employers By Julius Melnitzer For Law Times ension lawyers are warn- ing that the new guidance regarding the adminis- tration of defined-con- tribution plans released in March by the Canadian Association of Pension Supervisory Authorities could portend a minefield of po- tential liability for employers and third-party plan administrators. "By requiring administra- tors to help members make in- formed decisions, the guidance effectively makes them financial planners," says Kathryn Bush of Blake Cassels & Graydon LLP's Toronto office. "In particular, the suggestion that administrators provide es- timates of the value of future benefits will give a lot of people heartburn because these kinds of estimates are always based on assumptions that will probably turn out to be wrong and may produce liability." Still, stakeholders have wel- comed the non-binding guid- ance, which followed no less than 18 months of consulta- tions, because Ontario — un- like the United States — doesn't provide a so-called safe harbour that relieves fiduciaries of li- ability where plan participants control the investment of their individual accounts. "In Ontario, plan admin- istrators now do have some obligation to assist members in figuring out how much they'll be getting on retire- ment," says Mitch Frazer of Torys LLP's Toronto office. "So the guidance amounts to a best-practice education pool for DC sponsors and administrators." For the first time, the guidance expressly recog- nizes that members are re- sponsible for investment decisions and accountable for them. ey're also re- sponsible for notifying the administrator of errors in their personal data and for keeping investment instruc- tions up to date. "What all this amounts to is that if administrators comply with the guidance, the onus on members is higher," says Peggy McCallum of Fasken Martineau DuMoulin LLP's Toronto office. Overall, the association's document summarizes its exist- ing guidance for defined-contri- bution plans; clarifies the rights and responsibilities of admin- istrators, sponsors, employers, service providers, fund holders, and members; provides tools and information administrators can offer to members who are choosing their retirement op- tions; and details what amounts to an adverse amendment. e guideline confirms that plan administrators are respon- sible for the oversight, man- agement, and administration of defined-contribution plans; they have a number of respon- sibilities specific to them in ad- dition to their statutory duties regarding registered pen- sion plans generally; and they should communicate with members "using plain language and in a format that assists in readability and comprehension." Administrators should provide information both during the accumulation phase and as payout ap- proaches, including details on contributions, projected bal- ances, and investment choic- es. "e idea is that the ad- ministrators, whether they are employers or delegated third parties, will send the members off with informed decisions about the regu- lated products that will be available on retirement and essential information about things like protection from creditors and survivor pen- sions," says McCallum. By way of example, contri- bution information should in- clude the formula for member and employer contributions; timing details; the treatment of voluntary contributions if allowed; how the plan credits interest and earnings; details of the vesting or locking in of contributions; transfers and withdrawals into and out of the plan; the amount of payroll deductions; the amount owed by the employer to the fund; and an explanation of the options for maximizing employer matching contributions. e guideline also identifies the responsibilities of employers (as distinguished from admin- istrators and sponsors) relating to the deduction and remittance of contributions and accurate record keeping for service and earnings. Plan sponsors are respon- sible for designing and establish- ing the plan, setting the benefit structure, and ensuring there's an administrator. e document reminds financial institutions that act as fund holders that they hold plan assets "exclusively" for the defined-contribution plan. "It's important to remember, however, that [the association's] fund holder guideline does con- template multiple fund holders," says Bush. With regard to adverse amend- ments, the guideline defines them as any change that adversely af- fects the prospective benefits, rights or obligations of members entitled to payments from the fund. Examples given are reduc- tions of employer contributions or increases for employees as well as changes to expense allocation or retirement age. LT FOCUS Your clients are at different stages in their lives and they rely on you to give them the right financial and tax advice. 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New Edition Wealth Planning Strategies for Canadians 2015 Christine Van Cauwenberghe Maximize your clients' personal tax and estate planning efforts Order # 986166-65203 $64 Softcover July 2014 approx. 750 pages 978-0-7798-6166-8 Annual volumes supplied on standing order subscription Multiple copy discounts available Shipping and handling are extra. Price(s) subject to change without notice and subject to applicable taxes. 00222PC-A45874 Available risk-free for 30 days Order online: www.carswell.com Call Toll-Free: 1-800-387-5164 In Toronto: 416-609-3800 P The guidance effectively makes administrators financial planners, says Kathryn Bush.

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