Ontario’s Bill 236, new policy from FSCO wake-up calls for firms with poor policies
Two recent developments are changing the landscape of pension records retention, especially in Ontario, making it imperative for pension plan administrators to develop thorough retention policies.
Bill 236 — Ontario’s Pension Benefits Amendment Act, 2010 — will require administrators to retain “prescribed records” for the “prescribed period of time.” Regulations with more details are expected next year. Nevertheless, even without the finer points, this legislation is a wake-up call for administrators that have erratic or no records retention policies in place.
Additionally, the Financial Services Commission of Ontario (FSCO) recently issued Policy A300-200, Management and Retention of Pension Plan Records by the Administrator. This policy is only supposed to provide guidance for prudent practices but it will likely set the standard for records retention and management should conflicts arise.
FSCO’s approach
Policy A300-200 recognizes distinctions between plan records that pertain to individual members (including actives, inactives and their survivors), records that pertain to legislated requirements and records that pertain to the day-to-day operations of the plan and fund. Retention periods should take into account the different types of records and, where appropriate, extend beyond the period during which the plan is an ongoing entity to include termination and wind-up.
Records pertaining to plan members should be retained for as long as a member retains the pension entitlement in the plan. After that, a summary of information should be kept that allows the member’s entitlement, as well as how and when it was settled, to be confirmed.
Records pertaining to legislated requirements (including, for example, plan texts, trust agreements, insurance contracts, actuarial reports and regulatory filings) must always be available to plan members and their representatives. As long as they have an entitlement in the plan, they have a right to inspect records that make up and support the plan, except for personal information about other individual plan members.
Plan administrators should decide on appropriate retention periods for all other plan records, taking into account whether the records may be required to determine an entitlement under the plan or to complete a regulatory submission.
Retention policies are expected to be detailed, covering at a minimum:
• the types of documents that must be retained and the retention period
• where the documents will be stored
• the form in which the documents will be stored
• how the documents can be accessed
• how private and confidential documents will be treated
• the details of any delegations related to management of the documents
• the individuals (or positions) who are responsible for managing the documents
• the individuals who may access the documents
• the training requirements for those who are responsible for the documents
• the contractual agreements with service provider(s)
• whether there will be an audit of record-keeping processes
• the process for maintaining a backup of the records
• the process for monitoring the documents
• the process for notifying members of the prudence of retaining their individual plan records
• the process for disposing of the documents at the end of their retention period (including the process for the proper disposal of personal and confidential records).
Good for governance
Even though Bill 236 and policy A300-200 only apply to plans registered in Ontario, other jurisdictions are implementing minimum standards in their legislation as well. Arguably, good retention and management policies are necessary for plan administrators to meet the fiduciary standards of care that currently exist in pension legislation in just about every jurisdiction across Canada.
Regardless of what they may be required to do, however, developing and implementing a sound records retention and management policy is simply part of good governance. Administrators should be establishing governance processes and frameworks for all plan needs, including records retention. Once a framework is in place, a records retention and management policy needs to become a component. The key is to effectively integrate the policy into the governance framework.
Finding a balance: Ideals and practicalities
Policy A300-200 provides some clear direction for creating a policy. It even provides a sample schedule containing various types of records and allowing phases of record retention to be recorded. However, administrators must be cautious of wholesale adoption of best practices without careful consideration of their circumstances. Good governance achieves a balance between ideals and the practical realities and costs of administering a plan.
Storage may be an issue, for example. Administrators should decide as part of their policy what will be retained in hard copy versus electronic format, keeping in mind available office space and computer systems. Where they could be the subject of a dispute, electronic documents should be certified as true copies of the originals and backup copies should be made. As technology changes, electronic documents should be transferred or converted to new systems.
Once the administrator has developed the policy, it should consider ways to update the records, including finding missing documents and lost or inactive plan members, and verifying pensioners and survivors are still alive. Record-keeping systems should make it easy for active and inactive members to update their records. In the case of jointly sponsored or multi-employer pension plans, this would also apply to the ability of employers to update records maintained by the administrator.
Administrators should also monitor how well the process of retaining, managing and disposing of records is working. Where good governance is concerned, it’s not enough to just establish the process — there must also be some measure of its success or failure. Prudence would dictate the administrator seek input for this assessment from an outside, independent source.
Third-party involvement
Plan administrators are, ultimately, responsible for records management and should develop their own policies. However, when they use the services of a third party to administer or invest their plans, they can also rely on a service provider’s policy if it is up to standard. If the third party’s policy is not as stringent as the administrator’s, discussions should ensue about bringing it up to the same standard.
Retention policies and third-party agreements should provide a process for managing records when there’s a switch in service providers. Agreements should also address the service provider’s liability for improper record-keeping and indemnification of the administrator for damages it suffers as a result.
A breach of future regulations regarding records retention could bring monetary penalties under Ontario’s Pension Benefits Act. However, pension plan administrators should be motivated by a focus on good governance to create a policy, rather than potential repercussions. Bill 236 has given plan administrators advance warning that minimum standards will be required of them, while FSCO’s policy provides a broader approach and direction. Now is the time to develop and implement a comprehensive, yet practical, policy with respect to pension plan records retention and management.
Sheldon Wayne is a lawyer and senior legal consultant at Aon Hewitt in Toronto. He can be reached at [email protected].
