Legislative Environment and Fiduciary Duties

Antony’s Concerns about the Trustees’ Criteria

Antony is concerned about a number of issues involving the criteria utilized by the trustees to remove ABC and hire a new trust manager. He is especially concerned about a potential breach of the duty of care. The Employee Retirement Income Security Act (ERISA) of Canada, enacted in 1974, establishes prudential requirements for trustees to follow when administering benefit schemes.

Lack of Thorough Study Before Contract Signing

First and foremost, administrators should not sign into a contract with a company before thoroughly studying it by getting assessment reports, surveys, and other relevant papers (Koskie, 2004). In the case of the Forest Worker’s Pension Plan, Pamela merely searched mutual fund ratings on the Morningstar website and the team settled on one internationally based mutual fund manager. The committee failed to conduct further research based on other documents such as the manager’s current annual reports and surveys conducted about the manager.

Lack of Utilization of Business Skills

Additionally, trustees should possess business skills or other special professional skills to utilize in the operation of the fund (Koskie, 2004). Antony is also concerned that the team did not apply any skills to choose a top-rated manager. In fact, the trustees did not know the criteria they should use to assess the material presented by potential new firms and address the managers. For example, Pat said that he did not know the criteria.

Trustees’ Fiduciary Obligations and Potential Breaches

Which, if any, of the trustees may be in danger of breaching their fiduciary obligations? Have they already done so, and if so, how?

Administrators have obligations to act scrupulously for the benefit of the trust and not for themselves to avoid conflict of interest (Koskie, 2004). Richard might breach the obligation to act scrupulously by suggesting the trust use Star Counsel without carefully examining its performance and reliability. The trustee argued that if the firm has performed well with large plans then it should be good to consider for Forest Workers’ Plan. It is evident that Richard did not conduct further research about the company but just recommended it.

Additionally, administrators have the obligation to carry out their duties personally as a result of confidence and trust reposed in them without relegating them (Koskie, 2004). Forest Workers’ trustees settled on a larger internationally based mutual fund manager suggested by Pamela. That is, they relegated the duty of searching for top-rated mutual fund managers instead of every trustee engaging in the search. Although the trustees have not breached the rule of not relegating their duties, they might violate it if they will end up using service from the international trust manager.

In your opinion, what should the trustees have done instead? What can they do now to help resolve the situation?

The main issue in this case is the termination of ABC and the selection of a new pension fund manager. The trustees have already decided to terminate ABC. However, they should have a basis for the termination by tabling documents to prove the unsatisfactory performance of the firms. The administrators should then search for another company because that is their obligation. Nevertheless, this should be done diligently to avoid issues that emerged in the process (Koskie, 2004). First thing, the administrators should act carefully to avoid vested interest. That is, they should conduct broad research on well-performing companies based on their annual reports, independent surveys conducted on them, and public reputations.

All the trustees should also actively carry out their duties with integrity (Koskie, 2004). This will help to avoid the unnecessary mistake of choosing underperforming managers. Most importantly, trustees should conduct the search personally without relying on information from only some members or consultants. Relegating duties might lead to bias due to insufficient consultation and coordination among themselves.

Breaches of Fiduciary Duty by the Pension Committee

Has the pension committee breached any fiduciary duty?

One of the fiduciary duties of the committee is to manage the trust property in the best interest of the beneficiaries of the trust (Koskie, 2004). The committee has violated this fiduciary obligation by failing to solve issues raised by members. The case study indicates that HR staff has been complaining about errors in records keeping and forwarded them to the committee. However, the committee has not taken time to address the issue yet, they know it will affect service delivery to beneficiaries.

The committee also violated the fiduciary obligation to act scrupulously for the benefit of the trust beneficiary of the trust. This is evident where the committee seemed not to mind directing the trust administrator to correct the errors on records. Unfortunately, the worst scenario has happened where one of the beneficiaries has incurred a loss and threatens to sue the company and seek compensation. Committee members should familiarize themselves with all the notices under their control (Koskie, 2004). In this case, the committee is mandated to solve issues associated with errors in records because they affect trust property as well as interests of the beneficiary. The committee failed to address such issue hence it breached its fiduciary duty.

What are the specific issues in this case?

One of the issues in this case is a failure by the administrator to update records as per the beneficiary’s request. The HR identified such errors and notified the committee, but members failed to address it. The error has led to the issue of loss, forcing the beneficiary to seek compensation.

What would you suggest the pension committee do now?

The committee should intervene quickly to address the issue before the beneficiary sues the trust. The court battle will taint the company’s image to the public and lead to further losses. First and foremost, the committee should direct the trust manager to transfer the funds immediately as instructed by the beneficiary. The committee and the manager should also accept the liability for the loss, calculate the loss the beneficiary incurred, and pay. Halsbury’s Law of England states that the committee cannot be excused from the consequences that resulted from its failure to read and understand terms of trust documents (Koskie, 2004). Although it is not clear whether the committee read the document on which the beneficiary instructed the transfer of her funds or just ignored the request, members of the committee should accept the liability.

Legislative Requirements within Alberta and British Columbia

The Legislative Requirements within Alberta

An individual in Alberta should be a full-time, part-time, or temporary worker occupying a position for more than 6 months to join a pension plan (Kim, 2008). An individual should also work on for at least 15 hours on average weekly on a regularly scheduled basis in order to join a pension trust. An employee should be aged 45 and continuously served for 10 years for him/her to get vesting benefits. According to Kim (2008), an employee should have served for 5 years continuously to get benefits accrued after 1986 and before 2000. The member can also get retirement income benefits accrued on or after 2000 after 2 years of membership of a particular pension plan. Additionally, employees in Alberta whose employment ends before meeting the requirements for vesting a contributory pension plan are entitled to a refund of their contributions with accrued interest.

Pension plan legislations in Alberta also allow individuals to unlock additional voluntary contributions. Employees can also unlock 25 percent of the value of their pre-reform pensions (Kim, 2008). Pension legislations in Alberta further require pension trusts to allow their beneficiaries to transfer their deferred vested pension to other retirement pension arrangements upon termination of their service at any age (Kim, 2008). The transfer options in Alberta include LIF, life annuity, RPP, LIRA, or LIF-style account with the plan.

Alberta pension legislations entitle survivors of a pension plan a number of benefits. First thing, a survivor is entitled to a refund of contributions made before 1987 with interests (Kim, 2008). The person is also entitled to more than 60% of the commuted value of vested pension benefits accumulated on and after January 1, 1987 (Kim, 2008). However, the benefits do not include those accrued after January 1, 2000. The other benefits include any excess contributions articulated under the 50% rule and the contribution the deceased made on and after January 1, 1987, with interest. However, these do not include those made after January 1, 2000.

Additionally, the trust should pay the commuted value of the pension together with any excess contribution the deceased made under the 50 percent rule on as well as after January 1, 2000. Alberta complies with the 50 percent sharing rule that requires employers to pay 50 percent of a member’s pension entitlement. However, this rule is not applicable to the member’s vested pension (Kim, 2008). Remittance deadline for employer contributions in Alberta is within 30 days after the end of the month of the related contributions. In the case the contribution related to profits, the employer should remit the contributions 90 days after the end of the particular fiscal year. The retirement age in Alberta is 65.

The Legislative Requirements within British Columbia

People employed on a full-time basis in British are eligible to join a pension plan in British Columbia. Vesting in the country applies to people who have been members of a particular pension plan for 2 years of continuous service (Kim, 2008). Vesting in British Columbia also applies to all benefits a member accrued before January 1, 1998. The locking-in benefits in the country apply to benefits accrued after 1992 only. Pension plan members are entitled to 100% of pre-reform pension benefits (Kim, 2008). That is, employees whose employment ends before meeting the vesting requirement of the contributory pension scheme are entitled to 100% refund of their contributions with interest.

The legislations for portability in British Columbia allow employees to transfer their deferred vested pension to a retirement savings arrangement of their choice on termination of employment at any age (Kim, 2008). The transfer options include locked-in RRSP, RPP, LIF, or LIF-style account in the plan. British Columbia’s pension legislations entitle an individual who dies before retirement a refund of contributions with interest h/she made before 1993 plus more than 60% of the commuted value of vested pension made after 1992 plus (Kim, 2008). The other benefits include any excess contributions h/she made under the 50 percent rule and contributions with interest made before 1992.

British Columbia’s pension standard legislation requires employers to pay 50 percent of the member’s pension entitlement (Kim, 2008). The rule applies to the member’s vested pension. British Columbia’s standard pension legislations require employers to pay contributions within 30 days after the end of the month related to the contributions. However, if the contributions are related to profits, the contributions should be remitted within 90 days after the end of a given fiscal year. The retirement age in British Columbia is 65.

Alberta and British Columbia have almost equal provisions. However, British Columbia has more generous provisions. For example, only employees aged 45 and served continuously for 10 years qualify for vesting benefits in Alberta. However, employees in British Columbia only need to have been members of a certain pension plan for at least 2 years of continuous service to qualify for vesting benefits. Similarly, pension plan members in Alberta can unlock 25% of the value of their pre-reform pensions. On the other hand, members in British Columbia are entitled to 100% of pre-reform pension benefits. Therefore, British Columbia has more generous provisions than Alberta.

References

Kim, H.-J. (2008). Morneau Sobeco handbook of Canadian pension and benefit plans. CCH Canadian Limited: Toronto.

Koskie, R. (2004). Employee benefits in Canada. Brookfield, Wisc: International Foundation of Employee Benefit Plans.