October 4, 2017
The regulatory environment applicable to pension plan administrators will shift in 2018, with the Superintendent of Financial Services gaining the power to impose monetary penalties for breaches of the Pension Benefits Act (“PBA”). On January 1 new provisions of the PBA come into force, which, along with a new Regulation on Administrative Penalties, create a legislative scheme allowing the Superintendent of Financial Services to impose such penalties in certain circumstances. Penalties can be imposed against boards of trustees, their members and other administrators, and the fines cannot be paid with funds from the pension fund.
In addition to enhancing the enforcement powers of the Superintendent, the purpose of administrative penalties is stated in s. 108.1(2) of the PBA as follows:
- To promote compliance with the requirements established under this Act.
- To prevent a person from deriving, directly or indirectly, any economic benefit as a result of contravening or failing to comply with a requirement established under this Act.
The legislation divides administrative penalties into two types: general and summary. General administrative penalties are reserved for more serious breaches of the PBA and the Regulations, whereas Summary penalties relate to more minor infractions. The Superintendent may impose a general penalty where they are satisfied that a person is contravening or not complying with a provision of the PBA, Regulations, or an administrative order or undertaking.
For example, a general penalty may be imposed if the employer or administrator fails to give appropriate notice of a wind up or violates the statutory limitations on asset transfers between pension plans.
Along with the amendments to the PBA, a The Administrative Penalties Regulation prescribes a list of considerations the Superintendent must take into account in determining the amount of a general administrative penalty under section 3(2):
- The degree to which the contravention or failure was intentional, reckless or negligent.
- The extent of the harm or potential harm to others resulting from the contravention or failure.
- The extent to which the person who is contravening or not complying with or who has contravened or failed to comply with a provision tried to mitigate any loss or to take other remedial action.
- The extent to which the person who is contravening or not complying with or who has contravened or failed to comply with a provision derived or reasonably might have expected to derive, directly or indirectly, any economic benefit from the contravention or failure.
- Any other contraventions of or failures to comply with a requirement established under the Act or with the pension benefits legislation of a designated jurisdiction during the preceding five years by the person
Summary administrative penalties are reserved for more minor infractions, as compared to general penalties. Summary penalties have prescribed daily penalty amounts in the new Regulation. For example, a violation of section 13(1) of the Regulation, which requires an administrator to submit a report within 90 days after the establishment of a new pension plan, carries a prescribed daily penalty of $200 up to the maximum amount under the PBA.
The maximum amounts for penalties are set by the new section 108.4 of the PBA: $25,000 for a person other than an individual, and $10,000 for an individual. Penalties must be paid within 30 days of receiving the order, unless the order specifies a longer period.
The person on whom the penalty is imposed may request a hearing, but the process differs slightly between general and summary penalties. For a general penalty the Superintendent must provide notice of an intended decision, and the person may request a hearing in writing within 15 days. For a summary penalty, the Superintendent will simply issue the order and the person may appeal the order to the Financial Services Tribunal within 15 days.
The new administrative penalty regime is another tool in the regulator’s toolbox, and hopefully will lead to greater compliance across the industry. Some concerns exist with respect to trustees of multi-employer pension plans, who have a limited role in day-to-day administration of their plans but who are nevertheless exposed to personal liability for regulatory breaches. Given this heightened risk of personal liability, and that the fines cannot be paid from money in the pension fund and are generally not covered by standard insurance policies applicable to trustees, it may be prudent for trustees to seek indemnification agreements from the parties that have appointed them.
Pension and Benefits