A class action law suit was commenced against the Business Development Bank of Canada (the “Bank”) by a group of its retirees who participated in a defined benefit pension plan. The suit alleged that the Bank breached its fiduciary duties toward the retirees when it amended the pension plan solely for the benefit of active employees, when it took contribution holidays and when it paid for expenses from the pension fund. The British Columbia Supreme Court released its decision on September 29, 2009: Lieberman v. Business Development Bank of Canada, 2009 BCSC 1312, and decided in favour of the Bank.
This case concerns the division of a company’s dual roles as employer/plan sponsor and plan administrator and whether a company owes fiduciary duties toward the pension plan members while acting in its role as employer. While the decision involves an employer in the federal sector and a pension plan governed by the federal Pension Benefits Standards Act, 1985, the principles enunciated by the court apply equally to federally and provincially regulated employers and pension plans.
The Bank built up a mounting and substantial surplus in its pension plan in the 1990s. As a means to use some of the surplus, the Bank paid expenses from the plan and took contribution holidays. It also granted contribution holidays to the plan members and increased the level of survivor benefits paid from the plan. Lastly, it made a special payment to retirees, in the amount of $2 million. The latter benefit was the only enhancement granted to retirees.
The retiree group alleged that the plan’s assets were wrongly used for the disproportionate benefit of active members of the plan, amounting to a breach of fiduciary duties to the retirees. The court reviewed the division of responsibilities between those of employer and administrator, both at common law and under pension legislation to determine whether in amending its pension plan the Bank owed fiduciary duties toward the retirees.
Subsection 8(3) of the federal PBSA imposes a duty of trustee (fiduciary duty) on the administrator:
“The administrator shall administer the pension plan and pension fund as a trustee for the employer, the members of the pension plan, former members, and any other persons entitled to pension benefits or refunds under the plan.”
The court distinguished between the roles of administrator and employer. In doing so, it confirmed that not all duties undertaken in respect of a pension plan are fiduciary in nature:
“However, the fact that an employer is both the administrator of the Plan and trustee of the Fund does not prevent the employer from altering the compensation arrangements it has concluded with its employees. The employer may amend or terminate the Plan. When doing so, the employer is acting neither as administrator nor trustee, but as employer and as a party to the broader contract of employment.”
An employer’s decision to amend a pension plan to either enhance or reduce benefits in respect of a particular class of pension plan members, provided it otherwise complies with regulatory requirements, does not constitute a breach of fiduciary duties. Further, the Bank’s decision to take contribution holidays was dependent upon and in accordance with the advice of its actuary. It did not constitute a form of diversion of the pension fund away from the plan members and for the Bank’s benefit.
With regard to the payment of expenses from the pension fund, the Bank amended the plan to provide for payment of expenses. The decision of the Supreme Court of Canada was released in the Kerry case (please refer to our Labour & Employment in the News dated August 12, 2009) after the trial in this case. The court received submissions arising out of the Kerry case. The court confirmed the following principle established in Kerry:
“…administrative expenses can be paid from the Fund unless the Plan documentation prohibits such payments. … The Plan need not specifically authorize the payment of administrative expenses from the Fund. Rather, such expenses can be paid from the Fund provided the Plan documentation does not expressly or impliedly prohibit such payments.”
This decision is helpful in delineating the roles of employer/plan sponsor and administrator. An employer has significant latitude in making decisions concerning the amendment of a pension plan. In the larger context of the employer-employee relationship, the provision of pension benefits through a pension plan is simply one component of compensation. Insofar as a plan amendment affects the compensation of employees, there may be a general duty of good faith, but not a fiduciary duty, particularly toward retirees who were not affected by the amendments.
Fiduciary duties apply in the context of carrying out the roles and responsibilities of a plan administrator. It is important for employers and pension committee members to be careful to properly distinguish between the roles of employer/plan sponsor and administrator. Pension committees frequently act in both capacities. Being mindful of the distinctions will affect what decisions are made, how they are made and by whom, in the operation of a pension plan.