Ontario amends pension legislation to address electronic beneficiary designations
Pension plan administrators are implementing electronic tools as part of their administration processes with increasing frequency. This can be attributed to factors such as the prevalence of technology in society generally, the efficiency of using electronic processes and shifts in member demographics such that today many members expect to have the ability to communicate with their administrator through electronic means, or to process transactions or have access to plan information electronically. Increased regulatory attention is also being paid to electronic communications in the pension industry, as reflected in the Canadian Association of Pension Supervisory Authorities (CAPSA) Guideline No. 2, Electronic Communication in the Pension Industry (CAPSA Guideline No. 2), a revised draft of which was published for consultation in November 2018 and the recent focus in CAPSA’s strategic plan (released in April 2019) on cyber-security, artificial intelligence, “Fintech” and “RegTech”. Most recently, on April 11, 2019, the Ontario Government released its 2019 budget in which it stated that it is considering future legislative changes to the Ontario Pension Benefits Act (PBA) that would permit pension plans to use electronic communications as the default method of providing information to members. In keeping with the increasing emphasis on electronic communications and transactions, on December 6, 2018, section 30.1.1 of the PBA came into force. This section provides that, despite anything to the contrary in the Succession Law Reform Act (Ontario) (SLRA), a pension plan administrator may permit members to designate beneficiaries electronically. In doing so, the administrator is required to comply with any prescribed requirements respecting the electronic designation of beneficiaries.
Impact of Section 30.1.1 of the PBA
Prior to the enactment of section 30.1.1 of the PBA, pension legislation in Ontario did not address the manner in which beneficiary designations under pension plans were to be effected. The addition of section 30.1.1 is therefore a significant development in the pension industry, where administrators have long had well-developed, reliable electronic systems that allow members to access information about their pension benefits, communicate with the plan administrator, process certain transactions and update personal information electronically. While legislation existing prior to the introduction of section 30.1.1 (namely, the SLRA and Electronic Commerce Act (Ontario) (ECA)) may be reasonably interpreted to already permit electronic beneficiary designations in pension and certain other contexts, it did not contain an express provision addressing the point. While the SLRA may be interpreted not to preclude electronic beneficiary designations, the new PBA provision should provide comfort to plan administrators that they can implement electronic beneficiary designations under pension plans. We therefore expect this new provision to support more efficient and member-friendly processes for designating beneficiaries under Ontario-registered pension plans. That said, a number of questions and issues remain.
Practical considerations for implementation
When considering the implementation of electronic beneficiary designations, plan administrators should ensure that they can do so prudently and in keeping with their fiduciary obligations to members. Plan administrators should think about a number of key questions and issues:
Reliability: Administrators should consider implementing procedures to help ensure that an electronic system for designating beneficiaries is reliable and addresses the risk of fraud. As a best practice – and in the absence of prescribed requirements under the PBA – plan administrators should consider complying with the “functional equivalency” rules for electronic signatures that apply under the ECA to certain prescribed documents. These rules include a requirement that the electronic signature is reliable for the purposes of identifying the person, and that the association of the electronic signature with the relevant electronic document is reliable at the time the electronic signature is made. Plan administrators should also consider the impact of best practices relating to the retention of electronic documents and the reliability of electronic signatures in the pension plan context as outlined in CAPSA Guideline No. 2, and more broadly, any best practices in the technology industry, to the extent applicable.
Information security: As with other information stored electronically, plan administrators should consider the security of beneficiary designations stored electronically and their availability for retrieval when necessary. Accordingly, any third party service providers hired to implement or administer an electronic beneficiary designation process/system should be prudently selected and the plan administrator should be satisfied that industry best practices concerning electronic documents are being adhered to. Agreements with service providers should also be reviewed to ensure appropriate protections and standards are included. Plan administrators should also consider appropriate communications with members regarding a member’s role in safeguarding login/password information to prevent unauthorized access to the system.
System design: If not directly involved in the design of a system that allows electronic beneficiary designations, plan administrators should understand the process that members will use to make electronic beneficiary designations to ensure that it complies with the PBA and other applicable legislation.
Accessibility: Not all plan members will wish to make beneficiary designations electronically. Plan administrators that implement a system of electronic beneficiary designations should be aware that some members may not be able to use such systems due to disability, issues related to their access to or ability to use the technology, or a preference to designate their beneficiary with a wet signature. Accordingly, plan administrators should ensure that they provide members with a meaningful option to designate a beneficiary with a wet signature. This would align with existing PBA provisions that permit plan administrators to provide certain prescribed communications to members by electronic means that comply with the ECA, and that stipulate that persons are not required to use, provide or accept a document in electronic form without express or deemed consent.
Ontario-registered multi-jurisdictional pension plans: Administrators of multi-jurisdictional pension plans that are registered in Ontario should also consider the applicability of section 30.1.1 of the PBA to non-Ontario members and whether this provision permits such administrators to implement electronic beneficiary designations in respect of non-Ontario members. At a minimum, such plan administrators should satisfy themselves that there are no contrary provisions in the pension or other applicable legislation in a jurisdiction outside Ontario that would apply to preclude an administrator from allowing a non-Ontario member to make an electronic beneficiary designation under the pension plan.
Future use for evidentiary purposes: Plan administrators may wish to consider the implications of any future uses of electronic beneficiary designations, particularly the submission of a beneficiary designation for evidentiary purposes during a court or tribunal proceeding. Generally, evidence legislation in the applicable jurisdiction will contain rules regarding the authentication of electronic documents, secure electronic signatures and the evaluation of electronic documents for evidentiary purposes, such as satisfying the best evidence rule.
Compliance with PBA prescribed requirements: Finally, section 30.1.1 (2) of the PBA provides that plan administrators must adhere to “prescribed requirements” respecting the electronic designation of beneficiaries. At the time of writing, there are no current or pending provisions of the PBA regulations that prescribe requirements for designating beneficiaries electronically. Plan administrators should be mindful that, if any prescribed requirements are enacted, their systems will need to be reviewed for compliance to ensure that, if applicable, any required gaps are addressed.
The pension industry will continue to experience change as legal and technological advances facilitate the development of new products and services related to plan administration. We encourage plan administrators to consult with their legal advisors for guidance on the implementation of innovative plan administration tools and practices in a manner that complies with their legal obligations.