Pensions and Benefits Law Blog

Plan administrators cannot “undo” negligent representation

Apr 26, 2017 4 MIN READ

Good employee communication is at the forefront of good pension plan governance. As fiduciaries, plan administrators are required to communicate with plan beneficiaries both accurately and in a timely manner.

It is well established from the case law that a pension plan administrator may be susceptible to legal claims where inaccurate or unclear information has been communicated to plan beneficiaries.   

The recent case of Calder v. Alberta, (“Calder”) serves as a reminder of the importance of accurate communications and addresses two important questions relating to member communications: (i) Are plan administrators able to correct a misrepresentation once discovered, where the correction results in the member receiving a pension entitlement on a prospective basis that is lower than what was communicated to the member?; and (ii) If so, can a plan administrator still be liable for damages in respect of the error that has been corrected?

In this case, the Alberta Government had closed a public service pension plan funded entirely by the Province in 1994 (the “Closed Plan”), and by legislation provided for public service pension plans to be provided under a new plan called the Management Employees Pension Plan (the “MEP Plan”). A group of approximately 25 individuals were entitled to pensions under both plans, having left their employment as managers under the Closed Plan while it was still in effect, and subsequently returning to employment once the MEP Plan came into effect.

The Alberta Pension Services Corporation (“APSC”) was the administrator of both the Closed Plan and the MEP Plan. In 2009, the Plan was interpreted to provide that salary earned after the MEP Plan was established would be used to calculate pension entitlements under the Closed Plan. APSC communicated to Dr. Calder on numerous occasions that his pension entitlements would be calculated in this manner, and based on this information he elected to retire. Dr. Calder received the communicated pension entitlements for nearly three years.

The APSC subsequently conducted a review in 2012 and determined that salary earned after the MEP Plan was established should not be used to calculate pension entitlements. In mid-2014, Dr. Calder was informed of the error and that his monthly pension entitled would be reduced from $8,417.09 to $2,232.16. Dr. Calder and his wife commenced an action arguing vested rights, estoppel, breach of fiduciary duty and negligent misrepresentation. Dr. Calder’s suit served as the “test case” for a number of other claimants who were impacted by the revised interpretation of the Closed Plan entitlements.

The court found that a breach occurred on the basis of negligent misrepresentation.  In this case, all the elements for a claim for negligent misrepresentation were satisfied.  That is, there was a duty of care based on a special relationship between the plan administrator and beneficiary, the plan administrator made a representation that was untrue, inaccurate or misleading to the beneficiary and such representation was made negligently. Further, the beneficiary relied, in a reasonable manner, on the representation and damages resulted from the reliance. The Court found that Dr. Calder had made reasonable efforts to verify the accuracy of the statements he was given concerning his pension entitlements prior to his retirement, and his retirement on the information was reasonable. The Court held that APSC’s conduct constituted a series of negligent misrepresentations to Dr. Calder and that ASPC was liable for damages based on Dr. Calder’s detrimental reliance on those negligent statements.

On damages, the Court did not agree with Dr. Calder’s argument that he should be put in the same financial position he would have been in if the error was not corrected,  instead awarding restitution for damages flowing from APSC’s negligence. In determining appropriate damages, the court relied upon an actuary to provide various calculations assuming the plaintiff had continued to work for a period of time, instead of electing to retire when he did. The scenario relied on by the court contemplated that Dr. Calder would have postponed his retirement until age 68. The court found that it was fair to assume that Dr. Calder would have postponed his retirement given his good health and high job satisfaction. The Court awarded lump sum damages that were grossed up for taxes in the amount of $265, 017.

The importance of this case for plan administrators is to reinforce the need for accurate and clear communications to plan members and beneficiaries. Ensuring such accurate communications can help to avoid the potential for liability based on a claim for negligent misrepresentation.  Further, this case makes it clear that while an error can be corrected prospectively, even if it reduces the monthly pension amount, depending on the facts, a member may still succeed in a claim for negligent misrepresentation.