Firms in trouble over pension filings

By Mark Rowbotham
|Canadian HR Reporter|Last Updated: 03/29/2001

Employers who administer pension plans are at risk of being charged and prosecuted for breaching pension laws for simply failing to make standard filings with the Financial Services Commission of Ontario.

Failure to make such filings was generally not viewed as a serious and prosecutable matter by human resource professionals, compared to an egregious breach of pension laws by failing to make required contributions or by improperly withdrawing assets from a pension fund for which a company could be charged under the offence provisions of pension legislation. But within the last few months several Ontario companies have been prosecuted under Ontario pension legislation for failing to make standard filings.

Since May of this year, several companies have been charged under the Provincial Offences Act (Ontario) for failing to file financial statements, actuarial valuation reports and annual information returns, required filings under the Ontario Pension Benefits Act. Financial statements and annual information returns must be filed annually, and actuarial reports are required at least triennially.

It’s not uncommon for pension plan sponsors to be late in making these filings. It’s sometimes difficult to obtain the necessary information from the trust company, or insurance company involved in the plan funding. In some cases the filings aren’t done simply because the employer mistakenly believes that another person, such as a consultant, a trust company or insurance company, is responsible for the filings, and neglects to ensure that they’re made.

Regardless, the prosecutions are serious. The defendant companies must appear in court, and face the possibility of a trial. It may be possible to avoid a trial by pleading guilty at the outset, and attempting to persuade the court to levy a small fine. The potential fines upon a conviction are huge: $100,000 for the first conviction and $200,000 for each subsequent conviction. Each late filing is treated as a separate charge and potential conviction.

So far, the companies that have been charged have not been able to persuade the Crown to withdraw the charges on the basis that the filings were made soon after the charges were laid. These prosecutions have been proceeding even though the defendant companies brought the filings up to date after being charged.

In all of the recent legal proceedings, the Financial Services Commission of Ontario sent warning letters to the pension plan administrators. In some cases the filings were five years late, in others they were a year or two late. The defendant companies did not heed the warning.

A few of the charged companies have been convicted and have been ordered to pay fines to the Ontario Court (Provincial Division). The fines have been modest (only a few thousand dollars). However, the legal costs, time and embarrassment involved in going to court as a defendant may prove to be the more serious repercussions of these prosecutions. Some companies may also have to deal with insurance and other reporting requirements, as a result of having been convicted of an offence under a provincial statute.

What can the human resource professional do to ensure that their employer is not prosecuted for late filings? First, pay attention to the warning letters. As always, implementing a proper pension plan governance structure is essential.

Identifying a strategy that enables the right parties to perform the right duties at the right time is the end goal. As the Office of the Superintendent of Financial Institutions has stated in its Guideline for Governance of Federally Regulated Pension Plans, “good governance requires appropriate control mechanisms that encourage good decision-making, proper and timely execution, and regular review and assessment.”

With respect to reporting requirements under applicable pension legislation, the following should be attempted:

•identify the employee or outside party that is to be responsible for preparing and filing required reports;

•ensure that timelines for the completion of these tasks are clearly identified in writing and are clearly understood and identified by those who are involved in the reporting function;

•identify an individual or outside party to review and ensure that filings are done; and

•if required reporting is not on schedule, notify regulators ahead of time of the potential failure to file on time. This may not work, given that applicable regulators may not have the power to waive legislated time frames for filing, however, it may go a long way to avoiding the laying of a charge against the employer. Further, draft documents can always be filed and replaced at a later date.

It would be wise for pension plan administrators to review the status of their current and prior filings to ensure that they are up to date and in compliance with applicable legislation. If not, it would be advisable to act before any charges can be laid.

Mark Rowbotham is a pension and benefits specialist and associate with Fraser Milner Casgrain. He may be contacted at (416) 367-6757 or mark.rowbotham@fmc-law.com.

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