Apr 25, 2016
The legal risks that come with defined contribution pension plans are often missed by plan sponsors. Anna Sharrat of Benefits Canada writes that there must be a level of diligence when overseeing these plans. Jana Steele, a partner in Osler’s Pensions and Benefits Practice Group, said at Benefits Canada’s Benefits and Pensions Summit, “Arguably, the administrator should be applying the same level of diligence in their DC investments as they would in their [defined benefit] investments. They have to provide the appropriate [investment] options for their demographic and their plan members, taking action to replace underperforming options.”
If plan administrators don’t manage the plans well and the fees are not adequately communicated with plan holders, there could be an increased risk of litigation.
“What often happens with DC is that administrators take a very standoff approach and rely on service providers,” said Jana. “But the administrator is still a fiduciary.”
“Unfortunately, communication is what employers struggle with,” Jana said. Pension cases in Canada are now centring around misrepresentation.
It wasn’t until 2008 that the shift of risk occurred for DC plans. Before then, the risk for defined benefit plans was with the employer, while DC risk was with the employee. Today, the risk for DC is shared between the two, while employers bear the risk with DB plans until a company goes insolvent.
To read more about defined contribution pension plans, read Anna Sharrat’s full article “DC sponsors face bigger legal risks than they believe” online at Benefits Canada, April 25, 2016.