“If I had more time, I would have written a shorter letter.” — Blaise Pascal
Member communications are the most difficult part of pension and benefits administration. A pension or benefits plan administrator has to condense complex legal, actuarial, investment and insurance concepts into candid, concise and digestible wording. In fact, pension plan administrators have a fiduciary duty—the highest duty known to law—to do so. While not as clear, health and welfare benefits plan administrators may have a similarly heightened duty, depending on the circumstances.
Whenever I work with administrators to develop member communications—whether employee booklets, notices describing one-off changes such as downsizings or restructuring programs, or descriptions of investment options under a capital accumulation plan (CAP)—I’m reminded of Pascal’s wisdom above.
There are countless full-length books devoted to developing a prudent investment portfolio, assessing risk tolerance and minimizing investment management fees. Similarly, actuarial reports and other technical documents (including legal opinions, which I promise that I try to keep short) are often many, many pages in length.
As a plan administrator, however, you can’t give your plan members a book or an actuarial report and tell them to read it. You have to provide them with clear and concise—and yet still complete—communications, from compact brochures to FAQs or Q&A info sheets to PowerPoint presentations. To paraphrase Pascal, you have to write a shorter letter.
The legal stakes are high. Over the past 20 years, the case law involving what the courts call “negligent misrepresentation” has evolved to hold employers and administrators liable for misstatements, incomplete statements and outright omissions in their pension and benefits communications.
For example, in 1999, the Ontario Court of Appeal upheld a finding of liability against a union-sponsored pension fund because an employee of the union had failed to explain to a terminally ill retiring member and his spouse the ramifications of the spouse waiving her joint and survivor pension. The spouse had signed the waiver and the member died shortly after retirement, which left the spouse without any survivor pension. As a consequence of the court’s holding, the pension fund was required to “reinstate” the survivor pension at its own expense. (The decision, Deraps v. Coia, is available online.)
More recently, in 2011, the Ontario Court of Appeal found a company liable for negligent misrepresentation based on a customized form it had prepared in order for members and spouses to waive the automatic joint and survivor form of pension. The evidence showed that both the plan member and his spouse had very limited financial education. The member apparently had his spouse sign the waiver on his lunch break on a workday. There was no evidence that the spouse had even read what she was signing, although, had she done so, the wording on the waiver form was reasonably clear. The member died shortly after retirement.
The Government of Ontario has prescribed a specific form for purposes of waiving survivor benefits. A comparison of the company’s customized form and the prescribed form revealed very few differences, but what differences there were prompted the court to find in the spouse’s favour—even though she had not read the form. The company had to begin paying a survivor pension, at its own additional expense. (The decision, Smith v. Casco Inc., is also available online.)
Many commentators, myself included, believe that CAP communications will be the next chapter in the developing law of negligent misrepresentation. Just as in the cases that I described above, CAP communications are often directed to members of limited or average financial education. At the same time, CAP sponsors are supposed to help these members develop sustainable, prudent investment portfolios sufficient to produce adequate income in retirement. This can sometimes be a tall order.
The legal risk for employers and administrators is that, if plan beneficiaries can claim that they insufficiently understood the effect of a spousal waiver, how many of them could also claim that they insufficiently understood the difference between equities and bonds, the effect of investment management fees and inflation on their investments’ rates of return, the default fund and why it is not always a good idea, and many of the other nuances and complexities that come with managing one’s own investment portfolio?
As the current generation of boomers begin to retire from DC plans, some of those who find that their retirement income is less than they thought it would be can be expected to bring claims against their former employers. What the employer/administrator said and failed to say in its communications will be front and centre. As a consequence, member communications, from printed booklets to intranet sites, and from Q&As to PowerPoints, should be carefully reviewed, with professional assistance if necessary.
Given the recent case law and emerging legal risks, it may be time to update my earlier allusion to Pascal to something more modern: the Tom Petty and the Heartbreakers’ song “The Waiting (Is the Hardest Part)”. As a pension and benefits lawyer, I can say, with apologies to Mr. Petty, that “The Communicating Is the Hardest Part.” The next time you and your advisors are fretting over the wording in a member booklet or PowerPoint presentation and it feels as if it’s taking longer to finish than the last service provider contract that you negotiated, don’t feel bad. In many cases, it’s supposed to.