Guardian of the sacred trust

The employer’s obligations as pension plan administrator

After a lifetime of work, most people want to be free of the chains of the daily grind — early mornings and long, stress-filled days — and left to pursue life on the links and other leisurely activities at as early an age as possible.

But to achieve this, workers need more than just a great golf swing. They need financial security. Consequently saving and contributing to a pension plan is a critical step in achieving this objective.

In the recent case of Huus vs. Ontario (Superintendent of Pensions), Justice MacPherson recognized the importance of pension plans, stating, “... pension plans are for the benefit of the employees, not the companies which create them. They are a particularly important component of the compensation employees receive in return for their labour. They are not a gift from the employer; they are earned by the employees.”

Most employers and employees contribute to a pension plan, and in many cases the employer is also the administrator of the plan. In this role the employer is subject to a higher duty of care to its plan members because of the nature of the power relationship between an employer and employee. Because of this the employer takes on the role of a fiduciary and must act with special care when administering the pension plan.

The duties of a pension plan administrator are outlined in both the provincial and federal statutes and under the common law. In Ontario, without pension plan documents establishing certain fiduciary duties, fiduciary duties arise from the Pension Benefits Act (R.S.O. 1990, c. P-8) and the common law. Other provinces have similar legislation where the duties of the pension plan administrator are outlined. In the federal domain fiduciary duties of pension plan administrators are found in the Pension Benefits Standards Act (R.S.C. 1985, c. 32 (2nd supp) s.1). In the absence of express statutory language, a fiduciary duty may still arise under common law.

In Hodgkinson v. Simms, the Supreme Court of Canada outlined three factors which must be present to show a fiduciary relationship:

•scope for the exercise of some power or discretion;

•the power or discretion can be exercised unilaterally so as to affect the beneficiary’s legal or practical interests; and

•a peculiar vulnerability on the part of the beneficiary to the exercise of that power or discretion.

Usually an employment relationship will satisfy all three criteria, particularly in a pension context. Due to this higher standard of care attributed to an employer, courts will scrutinize the manner in which an employer as a pension plan administrator operates its pension plan.

In its administration one of the most important duties a fiduciary can have is the duty to communicate. Consequently fiduciaries are charged with a duty to communicate to employees clearly and effectively any information surrounding the plan or amendments. Failure to do so can leave plan administrators liable for miscommunication of information provided to pension plan members through pension plan booklets and other communications.

In a recent case of the New Brunswick Court of Appeal, Gauthier v. Canada, the Royal Canadian Mounted Police was found liable for pension-related miscommunication. The pension plan member’s entitlement had been overstated by $3,000 per year. When Gauthier retired he began to receive the overstated pension amount which was reduced after a routine audit noted the error. Gauthier was asked to reimburse the pension overpayment, which had accumulated to more than $32,000. Gauthier started an action against the federal government alleging negligent misrepresentation. At trial his claim was dismissed on the basis it was an honest mistake. But the appeal court ruled this was not an excuse. It found the employer owed a higher duty to its pension plan members

In the Ontario Court of Appeal’s decision of Ford vs. Laidlaw Carriers Inc. the plan trustee provided inaccurate information to employees regarding the terms of a group retirement savings plan to induce employees to take early retirement. The court found the plan trustee owed a duty to the employees to provide accurate information regarding the plan and found a breach of fiduciary duty.

In Deraps v. Labourer’s Pension Fund of Central and Eastern Canada, the Ontario Court of Appeal found the duty of disclosure may extend beyond the mere requirement information be accurate. It said a certain level of disclosure is necessary in some circumstances beyond what is merely asked for. In Deraps the court decided the case on the principles of negligent misrepresentation and held the agent of the administrator of the pension plan had misrepresented the consequences of a decision to waive the joint and survivor pension benefit by failing to explain the waiver properly.

Generally decisions of Canadian courts indicate pension plan administrators must provide plan members with all relevant information in a clear and consistent manner. If the administrator fails to do so, courts have indicated they will not hesitate to find a breach of fiduciary duty.

Grave consequences

If the court finds there has been a breach of the employer’s fiduciary obligations to its pension plan members, the consequences can be grave. Section 109 of Ontario’s Pension Benefits Act provides that any person who contravenes the act or an order under the act is guilty of an offence. Directors and officers may be subject to personal liability for breach of fiduciary duties. Under the common law, the consequences of a breach can be even more significant. If a court finds a breach of this duty, remedies include setting aside the administrator’s actions with respect to a plan, ordering an administrator to comply with its duties under the plan or ordering restitution or damages.

Minimizing liability

While employers cannot absolve themselves of all liability in the administration of pension plans it is important to take certain steps to minimize liability:

•ensure the employer has knowledge of its statutory disclosure requirements;

•ensure such disclosure is made to all pension plan members in a clear and understandable manner;

•ensure pension plan information is in written form and is immediately available to all pension plan members; and

•ensure anyone answering questions regarding the pension plan or its amendments has a good understanding of the plan and provides responses consistent with the plan or its amendments.

Taking these steps cannot guarantee an employer will not be exposed to liability for miscommunications, but they will assist in minimizing potential exposure for the pension plan administrator. With this in mind, employers must act with care, diligence and skill at all times as guardian of this most sacred trust.

For more information see:

Huus v. Ontario (Superintendent of Pensions) (2002), 58 O.R. (3d) C.A. 380 at 386.

Hodgkinson v. Simms, [1994] 3 S.C.R. 377.

Gauthier v. Canada, [2000] N.B.J. No. 143.

Ford v. Laidlaw Carriers Inc. (1993), 1 E.C.R. (2d) 117 Ont. Gen. Div., varied (1994), 12 C.C.P.B. (Ont. C.A.).

Deraps v. Labourer’s Pension Fund of Central and Eastern Canada, [1999] O.J. No. 3281.

Natalie MacDonald is an associate with Grosman, Grosman & Gale, a Toronto-based law firm specializing in employment law. She can be reached at (416) 264-9599 or [email protected]. Her column appears regularly in Canadian HR Reporter’s Guide series. Look for the Guide to HR Technology in the March 10 issue.

To read the full story, login below.

Not a subscriber?

Start your subscription today!