Class actAn experienced class-action administrator can reduce the burden on pension plan management |
As the number of class actions being filed in Canada continues to rise, pension-plan sponsors and administrators are increasingly required to re-examine the entitlements of their beneficiaries. This can present a significant challenge when administrators are faced with former plan members or terminated pension plans.
While the tasks associated with calculating and distributing pension benefits fall within their typical role, plan sponsors and administrators have little expertise in locating missing beneficiaries. An experienced and independent class-action administrator can offer valuable insight in coordinating national outreach efforts to identify unlocatable beneficiaries.
The Supreme Court of Canada’s 2004 decision in Monsanto Canada Inc. vs. Superintendent of Financial Services may give rise to future pension disputes. Although the company filed a partial windup report relating to the termination of 146 plan members, the court ruled that the company must distribute a portion of any actuarial surplus existing at the time. Soon after, the Financial Services Commission of Ontario indicated that it expects to review the way in which hundreds of past partial pension plans were wound up.
This heightened focus on the windups of past pension plans is likely to increase the number of instances where administrators encounter beneficiaries who cannot be located. This issue represents a recurring and potentially costly problem for plan administrators.
In order to obtain guidance, plan administrators look to the governing regulator and existing legislation. In practice, administrators consult provincial regulators when faced with the challenges brought about by dated or missing records and unknown former plan participants. Currently, there is consensus on the need for guidance in addressing unlocatable beneficiaries, yet authoritative direction remains elusive.
The absence of clear direction can lead to inconsistent treatment of undistributed benefits or residual class-action entitlements. This variability in approach can:
- result in a lack of fairness to all class members and, ultimately, the denial of unlocatable beneficiaries’ legal entitlements,
- undermine the credibility of the process and expose the defendant to potential future litigation,
- generate unnecessary labour and costs in isolating, maintaining and managing the benefits for extended periods of time.
In an effort to provide the necessary guidance, the government of Ontario included measures in its Bill 198 that were intended to bring the necessary clarity to provisions of the Pensions and Benefits Act. A new section would have addressed missing persons who are entitled to benefits when a pension plan is being fully wound up. Unfortunately, on November 2002, then–finance minister Janet Ecker announced that "the measures in Bill 198 dealing with pension issues will never be proclaimed."
In a further attempt, the Canadian Association of Pension Supervisory Authorities released its proposed regulatory principles for a model pension law in January 2004, with the intent to harmonize approaches to multi-jurisdictional pension plans. Principle 32 provides direction regarding “any assets remaining in a terminated plan which the administrator is unable to distribute, after making reasonable efforts to do so.”
According to that proposal, the funds attributable to unlocatable beneficiaries will be referred to a public agency. However, law firms that represent plan sponsors and administrators question the feasibility of this approach, given the absence of a dedicated public agency in all provinces. One solution, proposed by pension lawyers, is to engage an independent third party to manage the funds and conduct outreach initiatives to contact unlocatable beneficiaries.
A knowledgeable class-action administration firm has experience adopting cost-effective electronic investigation techniques to locate unknown class members. Such an approach reinforces the parties’ commitment to distribute any residual funds to the public as well as the courts.
After the independent administrator has exhausted all available search methods, a court may elect to redirect the remaining proceeds to a charitable organization to avoid any ongoing management burden. The result of engaging an experienced third party firm is reduced demands on the plan administrators and greater comfort in the integrity of the distribution process.
Learn more about how Deloitte’s class-action administrators can help your business succeed.