Why communications matter? Plan members and their beneficiaries are taking legal action against employers based on the information, or lack thereof, included in pension communications. It is imperative that pension (and benefits) communications provide clear, accurate and sufficient information for plan members to understand and make decisions related to these plans. This was the foundation of Sean Maxwell’s presentation during the November 19th CBPI lunch session.
He said that the courts are increasingly willing to treat such communications as legally binding, which is why they should be handled with proper review and care by the plan administrator. And while it is not really feasible for employee pension communications to contain all of the detailed provisions that are included in the full plan text, plan administrators need to ensure that appropriate disclaimer language is incorporated in these communications. What are the legal risks? One of the most obvious sources of employer liability is the failure to provide legally required information. At a minimum plan administrators need to provide a plan summary; annual statements, information about plan amendments, retirement/termination statements, wind up statements, statements upon the death of a member, and statements to partner upon relationship breakdown. Plan administrators also have a duty to administer the plan in accordance with the plan text, fund agreement(s) and other pension communications. As most plan members are not given a copy of the full plan text, largely due to its length and complexity, they must rely on other communications from the plan administrator to understand the plan and make decisions. Missing information can be just as damaging as inaccurate information. Typically, plan administrators consider very carefully what they have communicated but perhaps less so what they have left out. The courts place the onus on employers, as subject matter experts, to design communications in a way that plan members can access and understand. Generally, the courts consider the following in its decisions when ruling on these legal matters: - The person making the statement (including oral) owes a duty of care to the recipient
- The statement must be untrue, inaccurate or misleading
- The person making the statement must have acted negligently in making the statement
- The intended recipient must have reasonably relied on the statement; and
- The reliance must have been detrimental to the recipient in the sense that damage resulted
The Canadian Association of Pension Supervisory Authorities (CAPSA) guidelines Projected account balances at retirement can be problematic as assumptions and variables that go into these projection tools (such as for example investment horizon, tax rules/changes inflation and wage growth) can be subject to potential changes and hence cannot be known for certain. If estimates are too conservative, plan members may over save, which could also result in a litigation claim as plan members who over save could see a claw back in the GIS. Conversely, if assumptions are too generous it could result in members not saving enough. Employers must also provide mechanisms to help members understand the myriad of retirement products available in the marketplace especially when approaching the “payout” phase when members retire. The bottom line on pension communications Employers should aim to manage or mitigate risk. The courts hold employers to a high standard; and they look for accurate and complete information as well as any pertinent information that was not disclosed to plan members. The standard that must be met is "reasonable disclosure” not "perfect disclosure." Sean suggests developing communication goals and to have a plan in place that focuses on education and information. He also recommends considering risks while understanding legal requirements and keeping best practices in mind. In other words, try and keep it between the white lines. - Stian Andersen & Ken MacDonald Please visit our WordPress Blog for a copy of the presentation |