Obligations of the plan administrator
In carrying out its duties, the administrator must respect the relevant laws and the pension plan's provisions. Like all those who manage other people's property, it has the legal obligation to exercise the prudence, diligence and skill that a reasonable individual would exercise in similar circumstances. It must also act with honesty and loyalty, and in the best interest of the members and beneficiaries.
The purpose of the obligations is to ensure sound pension plan governance. To do so, the administrator must adopt internal by-laws.
The people to whom the administrator has delegated duties, as well as those having discretionary powers, assume the same legal obligations as the administrator.
Respect the relevant laws and the pension plan's provisions
The pension plan must be administered in conformity with all applicable laws, including the Supplemental Pension Plans Act and the Income Tax Act . As a result, if the plan has members in other Canadian provinces, it must also be administered in conformity with the laws governing pension plans in those provinces.
The pension plan must be administered in accordance with the plan's provisions. Registration of the plan with Rétraite Québec does not mean that its provisions are in compliance with the Supplemental Pension Plans Act. If the text of the pension plan has provisions that do not respect the Act, the Act prevails.
A helpful example...
A worker is hired on 1 June 2019. On 1 January
2020, she has worked 700 hours. The administrator must now have the worker enrolled in the plan since she has reached the number of hours required by law, even though the plan text provides for her enrolment after a year's service, that is, on 1 June 2020.
The plan text can provide for provisions that are more advantageous than the minimum requirements of the Supplemental Pension Plans Act. For example, a defined benefits plan can offer an indexed pension although there is no requirement to do so.
Act with prudence, diligence and skill
The administrator must act as a reasonable individual would, including the following:
- If it does not have the knowledge required to make an informed decision, it must consult an expert; the more limited its knowledge, the more important it is to consult.
In addition, under the Supplemental Pension Plans Act, it is assumed that the administrator exercised prudence if it follows an expert's advice.
- If it is unable to carry out certain duties, it must entrust those duties to competent people who are capable of carrying them out. It can do so by means of a mandate, a delegation or a service contract.
- It must make decisions and take action at the appropriate time.
For example, the administrator must respect the time limits set by law. Where no time limit is imposed, it must act within a reasonable time frame.
- It must adequately supervise the plan.
For example, the administrator must regularly monitor the pension fund's performance.
Pension committee members who have particular knowledge because of their profession or business experience must use such knowledge or experience. For example, a member who knows something about investing must help the other members select a competent expert in the field of investment.
Act in the best interest of the plan members and beneficiaries
The pension plan administrator must consider the best interest of the plan's members and beneficiaries as a whole, not favouring one group over another, nor acting in his or her own self interest.
Avoid conflicts of interest
The administrator must avoid putting personal interests before those of the plan. It must avoid getting into any situation in which it has legitimate current or future interests that may be at odds with the interests of the pension fund.
If the administrator is a pension committee, it is each committee member's duty to inform the pension committee in writing and as soon as possible, of any conflict of interest. The pension committee must keep a register of any actual or potential conflict of interest. It must give the employer, plan members and beneficiaries the opportunity to make themselves aware of the register's contents at the annual meeting.
A helpful example...
One member of the pension committee is an accountant. The firm he works for has submitted a tender to verify the plan's financial statements. He informs the committee of the situation and abstains from voting on the selection of the accountant.
To find out more...
Instalment 2 of the collection Administering a pension plan well