Quebec is no stranger to liability claims in the pension arena. In fact, three current cases may help define the rules applicable to liability for pension plan investments in Canada.
The first case is a class action against the members of the pension committee, the investment manager and the actuary. Plan members argue that the defendants breached their fiduciary duties by allowing almost 75% of the plan assets to be invested in equities, even though more than two-thirds of the plan members were retirees.
Second, a union is suing a subcommittee of the pension committee for losses sustained from a bad investment in a hedge fund.
Finally, the pension committee of a third plan has recently filed against an actuarial firm, arguing that it was negligent in recommending an investment in another hedge fund.
Committee members are also seeking additional protection from employers. Although Bill 30 allows committee members to be indemnified from the pension fund in certain circumstances (e.g., to pay for the insurance deductible), they are still at risk for losses not covered by their fiduciary liability insurance. The result is increased pressure on employers to grant contractual indemnities to all committee members, not just those they have appointed.
For multi-jurisdictional pension plans with members in Quebec, administration and maintenance continue to be complex. However, the Canadian Association of Pension Supervisory Authorities expects to submit its new reciprocal agreement between pension regulators to the pension industry before the end of this year.
Finally, plan sponsors should be ready for Bill 30’s provision for adverse deviations in solvency and the funding of amendments on a solvency basis, which will come into effect in 2010. The new rules governing the funding of amendments from the surplus will come into force at the same time. Beginning Jan. 1, 2010, any amendment to a plan that is intended to be funded from the surplus must be established “in a manner that is equitable for both the group of active members and the group of non-active members and beneficiaries.” This measure is, essentially, the Quebec government’s response to pressure from retiree groups resulting from the decision of the Quebec Court of Appeal in the Hydro-Québec case. The Court of Appeal ruled that the employer was not required by law to act equitably toward retirees when it negotiated benefit improvements with its unions. With this concept of equity in place, employers may have to negotiate in situations where they had not previously had to do so. Recently, the Régie des rentes du Québec indicated that “establishing a dialogue with the various parties…is surely the most prudent approach, and the approach that should be favoured, for meeting the new legal requirement.” Currently, no mandatory action is required from plan sponsors. But to prepare for the future, sponsors could ensure that they have the plan’s entire historical documentation, and list and document all prior employer contribution holidays and use of surplus to fund benefit increases.
Although it has been quiet on the Quebec legal front, plan sponsors will need to prepare themselves for the regulatory obstacles that lie ahead.
Martin Rochette is a senior partner with Ogilvy Renault LLP and is co-chair of Ogilvy’s pension and benefits plans practice in Montreal. mrochette@ogilvyrenault.com
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