Canada: Electronic Communications And Pensions—Driving With Care On The Information Highway

This article was originally published in Blakes Bulletin on Pension & Benefits - January 2004

Legislation, industry guidelines and common law considerations must be weighed if plan administrators and sponsors want to take advantage of Web-based communications with beneficiaries. Reduced administration costs, up-to-date information exchange, and more convenient and accurate recordkeeping are the promised benefits for plan sponsors and administrators communicating electronically with plan beneficiaries. Is it really that easy? What technical and legal requirements must plan sponsors and administrators follow? At this early stage in the evolution of electronic communications, it is important to be aware of a mixed bag of legislation, pension industry and regulatory guidelines and common law considerations.

The Legislative Landscape

Good communication is essential in pension administration. Pension benefits laws impose obligations on plan administrators to communicate information to plan beneficiaries. That said, laws such as the Ontario Pensions Benefits Act (the "PBA"), are silent on electronic communications. Until recently, with no clear rules, plan administrators could not be certain electronic communication fulfilled statutory and fiduciary duties. The Ontario Electronic Commerce Act, 2000 (the "ECA") is an attempt to fill this void. The ECA provides rules to ensure documents, such as contracts and signed forms, have the same legal authority as paper-based equivalents, including:

Getting Consent. To communicate electronically with a plan beneficiary, for example, an administrator must ensure a recipient beneficiary has given express or implied consent for this mode of communications. For express consent, a hard copy of an original, signed consent must be provided to the plan administrator. The consent should speak to the type of information the beneficiary agrees to receive electronically, acceptable means of communication and confirm a password for security purposes.

While implied consent can arise from a person’s conduct if there are "reasonable grounds to believe that the consent is genuine and is relevant to the information or document," the ECA does not provide guidance on what are "reasonable grounds." Relying on implied consent is best avoided, if possible.

The ECA also makes it clear that implied consent cannot apply to "public bodies." For example, the Financial Services Commission of Ontario (FSCO) is just such a body and must give express consent to receive documents electronically. FSCO’s current policy is that all filings must be in traditional paper format.

"Equivalency". Under the ECA, to replace any paper document required to be "in writing," an electronic version must be capable of being retained and available for later reference. The recipient must be able to retain the document easily (i.e., print and store the document). The ECA is clear it must be "provided", that is, sent by e-mail or displayed in the course of an electronic transaction. It is not enough that a document is simply available for viewing on a Web site. Also, the online version must appear in "the same or substantially the same way" as the paper document, if the paper document is required to be provided in a specified form.

Accommodation for Electronic Signatures. The ECA provides for the use of electronic signatures if a document must be signed or endorsed. These "signatures" typically are a password, personal identification number or encrypted digital signature, but need not look like a hand-written signature. Since regulations for electronic signatures have not yet been passed in Ontario, plan administrators should establish policies for assessing the reliability of a beneficiary’s electronic signature.

What CAPSA and FSCO Say

In 2002, the Canadian Association of Pension Supervisory Authorities (CAPSA) issued its own guidelines for electronic communication in the pension industry. While they do not have the force of law, the CAPSA Guidelines assist plan administrators in assessing their compliance with the law:

Deemed Consent. Deemed or implied consent may be given if a beneficiary has designated an "information system" (i.e., an e-mail address) for receiving documents. Consent cannot be deemed unless the administrator informs the beneficiary before the first use of electronic communication and with each subsequent use that the:

  • designation of an information system constitutes deemed consent
  • beneficiary may revoke consent at any time, in writing or electronically
  • beneficiary may request a paper copy of documents
  • paper copies will be provided if electronic delivery fails, and
  • beneficiary may change the designated information system at any time by notifying the administrator, either in writing or electronically.

Given all the information a plan administrator must provide, the CAPSA Guidelines considerably narrow the requirements for deemed consent when compared with the broader wording of the ECA.

Use of Electronic Signatures. The CAPSA Guidelines require an electronic signature to be reliable for the purpose of identifying the plan beneficiary and for associating the signature with the relevant electronic document. It is also important to note that, in early 2003, FSCO issued Policy A300-805, Electronic Communication Between Plan Administrators and Plan Beneficiaries. FSCO affirmed that communications may be provided electronically to plan beneficiaries so long as they comply with the PBA, ECA and CAPSA Guidelines.

What The Common Law Says

Given that the courts have held plan administrators liable in cases where a plan beneficiary did not fully understand the consequences of a document that he or she was asked to sign, plan administrators must be particularly cautious before allowing certain types of documents to be signed electronically (i.e., spousal waivers can theoretically be communicated electronically, but plan administrators should be wary). A spousal waiver under the PBA requires the witnessed signature of both the member or former member and the spouse. It is not clear currently how a document can be witnessed reliably in an electronic format. The administrator would also have to obtain a separate consent from the spouse for the electronic communication and ensure the spouse is fully aware of the consequences of the waiver. In light of the fiduciary obligations involved, an absence of clear guidelines and little case law, it is strongly recommended spousal waivers be made in traditional paper format.

Another issue is beneficiary designations. Under Ontario’s Succession Law Reform Act, for example, a beneficiary of a death benefit can be designated via a will or "instrument signed by him or her." At first glance, it would appear that a beneficiary designation can be made electronically since a signed, but not witnessed, instrument is all that is needed. The ECA excludes wills and codicils from its list of acceptable electronic documents and it is arguable, from a policy perspective, that beneficiary designations are no different. Since the courts have not yet addressed this issue, it is recommended plan administrators stick to traditional paper formats.

Finally, and perhaps most important, administrators considering switching to electronic communications must think about the capabilities and comfort zones of beneficiaries. Even in this wired world, it is not unusual to find beneficiaries who either do not have access to e-mail or are uncomfortable using it. For them and for others who are leery of the information highway when it comes to financial matters, traditional paper-based communication will likely always be the preferred option.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

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