Liability of the pension plan administrator

Like all those who manage other people's property, the plan administrator must meet the obligations that arise while carrying out its duties.

Not respecting the obligations constitutes a breach that could justify a claim for damages against the administrator if a person can demonstrate that he or she suffered losses or damages.

The administrator has an obligation of means but not one of results. It must act as a reasonable person would in similar circumstances. If it does not, and losses are incurred, it could be sued.

A helpful example...

With the assistance of an expert, a pension committee establishes an investment policy that takes into account the characteristics of the pension plan and prudent practices concerning investments. And, with the expert, it monitors the investments and revises the policy on a regular basis. Unfortunately, the pension fund's performance is less than expected.

Since the committee's means for establishing the investment policy and ensuring it was monitored were adequate, it cannot be held liable for the fund's poor performance. The Supplemental Pension Plans Act does not require the committee to obtain pre-determined results, but does require that the committee act as a reasonable person would.

The same liability for all types of plans

Even though there is a difference between the duties carried out for a defined benefit plan and a defined contribution plan, the administrator has the same obligations and responsibilities.

In a defined contribution plan in which the plan members make the investment choices, the administrator must ensure that the pension plan gives them at least 3 investment choices, each having a different degree of risk and expected rate of return, thereby creating a portfolio that is generally well-adapted to the members' needs. In addition, it must provide them with the information provided for in the Supplemental Pension Plans Act and give them the other information and assistance provided for in the Guideline No 3 for Capital Accumulation Plans from the Canadian Association of Pension Supervisory Authorities (CAPSA) .

Liability regarding investments that are not in conformity with the law

A pension plan administrator who approves an investment that is not in conformity with the law is, for that reason alone, and with no other proof of wrong doing, responsible for any resulting losses unless it acted in good faith and made the decision on the basis of advice from an expert.

Note that...

The administrator remains responsible for the actions of individuals to whom it has transferred duties. It must, therefore, ensure that they are competent, provide them with clear instructions and properly monitor their work.

However, its liability is mitigated when it delegates duties or grants a discretionary power to an individual. The administrator is not responsible for the person's actions if it has chosen a person who is competent, given him or her clear instructions and ensured adequate supervision of his or her work.

Liability of pension committee members

Where a pension committee administers the plan, the committee members having the right to vote are personally liable for the plan's administration.

Protecting the administrator and the pension fund

Considering the administrator's liability, there are several ways of protecting both the administrator and the pension fund.

To find out more...

Instalment 2 of the collection Administering a pension plan well