Part I of this series, we considered issues related to setting
up a solvency reserve account (SRA) for an Alberta (and eventually
British Columbia) defined benefit plan, SRA withdrawals and
multi-jurisdictional plans. In this post we will discuss
sponsor versus administrator roles and who is authorized to
establish and make withdrawals from an SRA.
Sponsor vs Administrator Roles
Who is authorized to establish and make withdrawals from an SRA?
Section 54 of the EPPA provides that the
"administrator" may set up a separate SRA within the
plan's pension fund and that prescribed actuarial excess or
surplus in the SRA may be withdrawn by a "prescribed
person" in accordance with the EPPA regulations.
Sections 65 and 66 of the EPPA regulations state that the
prescribed person is the administrator of the plan and contemplate
that the administrator will provide all required information to the
Superintendent and make all required applications and filings in
relation to such withdrawals.
It is unclear whether the drafters of the EPPA and EPPA
regulations turned their minds to the differences in plan sponsor
and plan administrator roles in the context of making these
decisions. How do these provisions reconcile with the plan
administrator's fiduciary obligations to members? What,
if any, role does the plan sponsor play in establishing the SRA?
Is there a potential conflict of interest where, as in many
plans, the employer is both the sponsor and the plan
These are important questions to resolve, both when establishing
an SRA as well as when contemplating a withdrawal. In all
cases, it is essential for the employer to understand whether such
decisions are being made within its powers as sponsor (in which
case there is no fiduciary duty owed to members in the pension
context), or within its powers as plan administrator, in which case
the decision must be made in accordance with the plan terms having
regard to what is in the best interests of members. Based on
the EPPA and Guideline #07, strong arguments can certainly
be made that even if the decision to establish the SRA is made by
the administrator, it is reasonable that having an SRA as part of
the plan's funding structure is, in fact, in the members'
best interests because it encourages higher funding levels and
better benefit security. However, the withdrawal of funds
from the SRA by an "administrator", even in compliance
with the regulated safeguards and limits, may raise more difficult
questions as to the compatibility of such withdrawals with the
administrator's fiduciary responsibilities.
To the extent there is any doubt created by the references in
the EPPA and regulations to the administrator performing these
SRA-related tasks, we believe it is advisable to clarify the
employer's role through initial amendments made to the plan in
conjunction with establishing the SRA. In this regard, an
employer who is acting as both sponsor and administrator should be
able to eliminate, or at least minimize, any potential conflict by
inserting appropriate SRA wording in the plan, funding policy and
related trust agreement to authorize/direct the administrator to
establish an SRA and to apply for a withdrawal on the sponsor's
behalf if so instructed by the board of directors in compliance
with regulatory requirements and limitations. In this way the
establishment and operation of the SRA is dealt with under the plan
terms, rather than being left to the administrator's discretion
as a permitted action under the EPPA which could raise issues of
Proposed BC SRA Provisions
As we noted in our earlier post, we expect that the BC SRA rules
will be administered in a similar manner as the Alberta rules,
however, we will have to wait and see once the BC pension reform
legislation becomes law.
Administrators of Alberta and BC registered defined benefit
plans should carefully consider taking advantage of recent (and in the case of BC forthcoming)
legislation permitting them to establish SRAs as an effective way
of funding their plans and avoiding "trapped capital"
concerns that have historically discouraged full funding and
undermined DB plan security.
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.
To print this article, all you need is to be registered on Mondaq.com.
Click to Login as an existing user or Register so you can print this article.
Unfortunately, reasonable accommodation for employees in the workplace continues to be the source of significant litigation and even today we continue to see outrageous examples of employers behaving badly.
We are now beginning to see reported cases involving charges and subsequent fines laid against employers for failing to provide information, instruction and supervision to protect a worker from workplace violence.
On October 13, 2016, the Supreme Court of Canada denied leave to appeal an Ontario Court of Appeal decision which ordered an employer to pay a former employee 37 months of salary and benefits following termination.
Register for Access and our Free Biweekly Alert for
This service is completely free. Access 250,000 archived articles from 100+ countries and get a personalised email twice a week covering developments (and yes, our lawyers like to think you’ve read our Disclaimer).