Employees who have lost retirement income in defined contribution pensions may have a case to recover their losses if their employer hasn’t shown due diligence in monitoring the plans, says pension and benefits lawyer Mary Picard.
The common belief is that employers should only concern themselves with defined benefit plans, where the company is on the hook for a person’s retirement savings despite changes in the market. However, the Toronto-based Fraser Milner Casgrain LLP partner says employers should also protect against the possibility of lawsuits arising from employees who’ve lost significant retirement savings in plans where the company doesn’t guarantee the benefit.
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“I would see the market events of the past few weeks as being a fire drill for employers of defined contribution plans,” she says. “Those employers should be comforted by the fact that so far, [there’s] no litigation that I am aware of where employees are suing because they are dissatisfied with the investment return on their defined contribution account.
“But is that litigation coming? Possibly.”
Employers should remember that if they use a third party to administer their plan, whatever that third party says to their employees can be seen, in essence, as coming from the employer. This could be dangerous if the plan administrator is not following proper guidelines.
Picard notes that there is no specific legislation that lays out the duties and requirements of companies that offer plans, either themselves or through a third party. However, the Canadian Association of Pension Supervisory Authorities has developed guidelines and on Oct. 31, the organization released a report on a model pension law.
Picard says employers can use the guidelines to make sure their plan administrators are following best practices.
“The fire drill should be about the employer saying ‘have we been prudent in offering and monitoring and communicating our defined contribution investment plans,’” says Picard.
The key question employers should be asking is whether the pension administrators have been acting in the best interest of your employees — the members of the plans? Also, she notes that employers should be asking the plan administrators whether or not they are adhering to the CAPSA guidelines.
The third question employers should be asking themselves is “what our legal obligations are and have we met them.” Picard says the most important thing an employer should do is keep a written record of these conversations and suggestions.
“My advice is go through that fire drill now internally, make sure whatever your lawyers and consultants are saying are your legal obligations that you are complying with them and please, please, please keep records,” she says.
Click here to get the CAPSA report.