'A person's pension can be a material piece of their compensation and employee experience'
Thousands of pension plan members in Ontario have lost track of their pension plan, which is estimated to equal over $3 billion in benefits, according to Ontario’s financial services regulator.
Losing track of a pension plan can happen when, for example, plan members earn a small benefit at the start of their career and then after a year or two, change employers and forget about their entitlement.
In the context of a defined benefit pension plan, these individuals become deferred vested members, said Tom Stevenson, partner at Torys LLP.
“The workforce landscape has changed; there’s a lot more mobility, with some people having multiple jobs or careers. Working in a job for 30 years and retiring with a defined benefit pension still exists, but that’s more the exception rather than the rule now.”
DB pension plans are the most common plans to lose track of. Under a DB plan, employees accrue an entitlement based on service and earnings, with a defined benefit guaranteed upon retirement. In comparison, a defined contribution plan guarantees the input contribution rather than the output sum, he said.
“With a defined contribution plan, members are generally responsible for selecting the investments and take on investment risks, as well as a little bit of the mortality risk as well.”.
Missing pension plan members
The FSRA previously reported that there were over 175,000 missing pension plan members in Ontario, who can’t be located by the pension plans they belong to. Collectively, these individuals, or their estates, are entitled to over $3 billion in assets.
Of those 175,000 missing members reported by plans to FSRA, the organization found that:
- 54 per cent are from Multi-Employer Pension Plans (MEPPs)
- 25 per cent are from Jointly Sponsored Pension Plans (JSPPs)
- 21 per cent are from Single Employer Pension Plans (SEPPs).
“The interesting thing is that while nearly 80% of missing members belong to multi-employer plans and jointly sponsored plans, 50% of the assets for missing members are attributable to single employer pension plans, which I think shows us that the missing numbers and single employer pension plans actually have more assets per member,” said Maggie Carmichael, associate at Blake, Cassels & Graydon LLP.
The FSRA’s most recent findings revealed that there are now roughly 200,000 members whom administrators were unable to get in contact with, and the value of these stranded pension benefits is north of $3 billion, according to Andrew Fung, acting executive director of pensions at FSRA Ontario.
Employer obligations around pensions
Administrators have a fiduciary duty and should take appropriate steps to ensure members stay connected with their pension plan, especially after they terminate employment. These steps include managing records consistently, communicating regularly with members and ensuring that member contact information is up to date, Carmichael said.
However, pension plan members are also responsible for ensuring that their pension plan administrator has up to date contact information for them, she said.
In Ontario, Section 27(2) of the Pension Benefits Act requires plan administrators to provide benefits statements to all former and retired members of a pension plan every two years.
“There is a cost on employers for keeping these records up to date; there's a cost in search for missing members. So, it's really a proportionality assessment on the part of the administrator, but there is that fiduciary duty and that standard of care that an administrator has to pension plan members,” Carmichael said.
Keeping track of pension members
Having a standard, documented process to follow up with terminated members is essential for ensuring members do not lose track of their benefits. Carmichael recommends looking for lost plan members right away, as the longer the lapse in communication, the harder those members will be to find.
Additionally, obtaining professional advice or using a third-party service can be beneficial for pension plan administrators that don’t have the in-house capacity to conduct these services.
“We focus a lot on governance when it comes to pension plan administration, and the process for dealing with terminated or missing members is no different when it comes to any aspect of fiduciary duty and standard of care,” she said.
HR needs to understand pension plan details
It is also important to ensure that an HR team is aligned with this process and has access to the information needed to communicate with these members, Carmichael said.
For HR departments, professionals should have a working understanding or knowledge of the company’s retirement savings arrangement —whether it is a defined contribution or defined benefit plan, what the nature of the provided benefit is and what are the fundamental features of the plan.
Being knowledgeable of these topics can help employees get the answers they need or allow HR departments to point employees in the right direction if they don’t have those answers, Stevenson said.
“From an HR perspective, a person's pension certainly can be a material piece of their compensation and is part of the employee experience, so I think it is important for somebody within an HR department to have an understanding knowledge of the pension plan’s details,” Stevenson said.
