Alberta and British Columbia have also established an expert panel to look into possible reforms to pension legislation in those provinces. Co-chaired by Chris Brown and Scott Sweatman, the panel will conduct hearings and receive submissions during the first half of 2008, with the goal of releasing a report by Sept. 1, 2008. Nova Scotia recently announced the creation of an advisory panel to review its pension legislation as well.
Although reforms to pension legislation will continue to be a hot topic in 2008, it’s unlikely that we’ll see any changes until at least 2009. But when they do occur, the changes will be significant. The economic environment and the nature of the workplace and pensions have changed, but pension legislation has not kept pace.
Pension Fund Investments – Economic globalization, the search for better returns and the proliferation of new investment products all contribute to the complexity and risks involved in investing pension assets. The Ontario regulator has committed to more closely regulating pension plan investment activities and is demanding an increased level of diligence and oversight from those responsible for pension fund investment. Also, the federal government’s proposal to regulate certain foreign investments through its proposed non-resident trust rules could create significant tax issues for Canadian pension funds investing outside of Canada.
And that’s on top of the increased scrutiny likely to follow from the recent seizing up of the asset-backed commercial paper market. It’s not yet known how widespread the impact on pension funds will be, but it’s almost certain that some will incur losses. Regulators and plan members will be looking to the plan administrator, asking: Did you comply with the legal standards of prudence when entering into these investments? How well did you understand the risks involved? If significant losses result, expect these investment decisions to be challenged in court.
Legal Duties of Agents and Advisors – Increased regulatory scrutiny and court actions over investments will draw attention to the legal relationships between employers, administrators and the experts they appoint to assist them with plan administration and investment. We’ve already seen cases in 2007 examining the legal role and responsibilities of the actuary. In 2008, we’ll likely see a similar focus on the roles and legal duties of investment managers and investment consultants. Also, learning from the experience with Quebec’s latest pension reforms (which purported to make void any attempts by investment managers and other agents to contractually limit their liability), plan administrators will have to insist on opening up negotiations with investment managers, third-party administrators, consultants and other parties. We may even see new legislation clarifying the liability of those responsible for investing pension assets.
Fees and Expenses – Court challenges over the use of defined benefit surplus to pay plan administration expenses will likely continue, but charging fees and expenses to defined contribution (DC) plan members is the emerging issue. In the U.S., there’s a new focus on the types of fees being charged to members in DC arrangements and court challenges over fees and expenses that are allegedly not reasonable. Expect similar issues to come to the forefront in Canada, with an emphasis on full disclosure of all fees borne by plan members and closer scrutiny of fee-sharing arrangements.
Legal prognostication is never easy. But in the pension industry, it’s essential to anticipate new developments and take pre-emptive action before they become litigious matters.
Paul Litner is a partner with Osler, Hoskin & Harcourt LLP. plitner@osler.com
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