The Association of Canadian Pension Management is urging the Ontario government to ensure its proposed amendment to the Succession Law Reform Act doesn’t introduce unintended confusion or ambiguities that would make it challenging for pension plan sponsors, administrators and trustees to carry out their duties.
In an open letter, the ACPM said the language of the amendment, which specifies that a new designation may only be made regarding the “same benefit,” could lead to scenarios where a new designation would be clearly permitted in other provinces, but leave the substitute decision-maker’s authority ambiguous in Ontario, given the requirement that the two benefits must be the same. The language could also cause confusion in instances when one pension plan is merged into another, including mergers of defined benefit plans or when a defined contribution plan is transferred to another DC plan.
“When one pension plan is merged into another, the nature of the benefit is often changed, either in value or in its underlying terms, even though the new plan is the obvious replacement of the former,” said the ACPM.
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It could also cause confusion in scenarios where the record-keeper/custodian for a DC plan changes. “Where there is a change in record-keeper, the provider often requires a new beneficiary designation, particularly if the prior designation had been completed electronically or is otherwise not held or ‘controlled’ by the pension plan’s legal administrator.”
If investment options or other features of the plan change in conjunction with these events, it may be unclear whether the benefit is considered the same. The ACPM recommended changing the wording to “similar” to provide clarity in these areas. “Using language that is analogous to the law in other jurisdictions would also provide more clarity for multi-jurisdictional plans and plan members who have moved between jurisdictions.”
As well, the ACPM noted the amendment’s reference to conversion, renewal, replacement or transfer of the plan wouldn’t apply to transfers of an individual’s benefits under the plan. “Where a beneficiary designation exists for the receiving plan, if the substitute decision maker is empowered to make a new beneficiary designation post-merger that maintains the designation in the other plan, this may result in competing beneficiaries in the receiving plan or a result that is inconsistent with the member’s intent.”
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The association suggested clarifying the amendment’s language so that it won’t apply in situations where the member has already designated a beneficiary under the receiving plan. It also suggested the language be amended to specify that the plan member on whose behalf the substitute decision-maker is acting must be incapable of designating a beneficiary when the designation is made. This would avoid
circumstances where an attorney and a plan member are both in a position to make designations and these competing designations create issues for the plan administrator, it added.
“The determination of capacity for the purpose of the amendment should be consistent with any
method specified in the relevant continuing power of attorney for property, rather than, for
example, a requirement to obtain a certificate of incapacity under the Mental Health Act.”
Additionally, it noted the amendment should also address a plan administrator’s liability in relation to a pre-existing designation that conflicts with any designation made by a substitute decision-maker under the amendment that haven’t been brought to its attention, such as a designation in a will that’s unknown to the administrator.