Effective as of a date yet to be announced, advisory committees in Ontario will get a little more complicated. Whether or not you are already dealing with advisory committees, you should begin to make yourself aware of the new requirements discussed below.
Advisory committees have been a part of the Pension Benefits Act of Ontario (the "PBA") for a long time. In 2010, Bill 236 amended the provisions of the PBA dealing with advisory committees, and on August 25, 2015, complementary draft regulations were released for public comment. Comments were to be submitted to the Ministry of Finance by no later than October 13, 2015.
The goal of the new requirements is to facilitate the formation and operation of advisory committees.
What are Advisory Committees?
Advisory committees have no administrative role. As set out in the PBA, they are merely a means by which plan members may monitor plan administration, increase members' understanding of the plan, and make recommendations to the plan administrator.
As such, plan administrators should not ascribe to advisory committees any greater role than what is reserved to them under the PBA.
Why Revisit Advisory Committees?
Advisory committees are being revisited as a response to certain recommendations in the report of the 2008 Ontario Expert Commission on Pensions (the Commission). The Commission decried the fact that advisory committees were rarely used and largely ineffective. It felt that their functions were vaguely defined in the PBA and that plan sponsors were reluctant to assist such committees due to privacy concerns.
In creating the new rules applicable to advisory committees, the legislature has implemented all of the Commission's recommendations except for recommendation 8-24, which would have required every plan to establish an advisory committee.
New Advisory Committees Rules
While the purpose of an advisory committee remains the same, and while the advisory committee will continue to have the right to examine and copy the plan administrator's records (subject to obtaining prior consent in respect of personal information), the new rules bring changes to the advisory committee's composition, introduce procedures to be followed in order to establish an advisory committee, and add a number of plan administrator duties before and after an advisory committee is established. They provide as follows.
The plan administrator must be provided with a written notice of the intention to establish an advisory committee (containing prescribed content) from at least ten members or retirees, or a trade union representing at least ten members (the Initiators).
Within thirty days of receipt of the written notice, the plan administrator must contact the Initiators to address the manner in which it is, within sixty days of receipt of the notice, to notify all members and retirees that a vote to establish an advisory committee is to be held, distribute voting ballots, provide details of how to participate in the vote, and distribute a rationale for the advisory committee to be prepared by the Initiators.
Following the Vote
The plan administrator must notify the members, retirees and any relevant trade union of the outcome of the vote.
If the vote was successful, the plan administrator must also provide information to the Initiators with respect to plan membership to facilitate the appointment of representatives.
If the vote was unsuccessful, the plan administrator must notify the members and retirees that it is not required to provide assistance to establish an advisory committee for two years, if it does not wish to provide such assistance.
Following the Establishment of the Advisory Committee
The plan administrator must promptly contact the advisory committee representatives to hold an initial meeting.
At least annually, the plan administrator must meet with the advisory committee to discuss plan administration and matters of interest to plan beneficiaries and have the plan actuary and someone who can report on fund investments meet with the advisory committee.
The plan administrator must provide, on an on-going basis, administrative assistance to the advisory committee so that it can report to members and retirees about its activities and give the advisory committee such information as is under its control and is required for the advisory committee's purposes.
In addition to the above, a plan administrator should keep in mind the following.
The right to establish an advisory committee does not arise if the plan either is administered by a pension committee at least one of the members of which is appointed by plan members, is a multi-employer pension plan established pursuant to a collective agreement, or is a jointly sponsored pension plan, and unless the plan has a combined total of at least 50 members and retirees.
Each class of plan members is entitled to appoint at least one committee representative. If there is only one class of members, that class is entitled to appoint at least two committee representatives. Retirees are entitled to appoint at least two committee representatives. One or more former members may be appointed as committee representatives, and an advisory committee must have a minimum of five and a maximum of fifteen representatives.
Reasonable costs associated with holding a vote to establish an advisory committee and relating to the committee's establishment and operation are payable out of the pension fund.
A quick review of the new rules leads to a few preliminary observations and a number of questions.
First, although the new rules give greater guidance as to how to go about establishing an advisory committee and ensuring its functioning, there is nothing to promote the greater use of advisory committees.
It is clear that the plan administrator's duties are expanded. Presumably, these new duties are governed by the same standard of care as are all of the administrator's duties. When faced with an advisory committee, the plan administrator should adopt a policy to systemize and deal with the committee's recommendations, in accordance with its standard of care.
The advisory committee is now subject to meeting and reporting duties. Although the advisory committee has no administrative duties and is therefore not subject to the administrator's standard of care, these newly enunciated duties will undoubtedly be subject to some sort of standard.
Once a successful vote has taken place and an advisory committee is to be established, the plan administrator is required provide information to the members, retirees or the trade union which initiated the vote with respect to plan membership "in order to facilitate appointments" to the committee. What does this mean? Are the representatives not selected by means of the vote?
There are no rules governing representatives' mandates and replacement, and no rules governing the dissolution of advisory committees. Presumably, it is left up to the advisory committee to adopt internal rules dealing with such matters. Should the plan administrator intervene if it perceives that the advisory committee has not done so and is not functioning as it should?
As concerns reasonable costs, the plan administrator should adopt and provide to an advisory committee a policy on what costs it considers to be "reasonable" and therefore payable from the pension fund, particularly as regards travel and continuing education costs of representatives. It should also determine with the employer whether and when reasonable costs will be paid by the employer rather than from the fund (although the employer is not required to do so).
There are no transitional rules for existing advisory committees. For example, if an existing advisory committee does not meet the requirements concerning its composition, should additional representatives be added, and, if so, how?
One jurisdiction which has had spent a lot of time dealing with pension committees, and whose legislation and practices can provide valuable guidance, is Quebec. Many governance issues facing Quebec pension committees as similar to those of advisory committees, despite pension committees, as plan administrators and trustees, having a different role. For example, the rules in Quebec deal with how and when pension committee members are selected and replaced, and how a pension committee should conduct itself with respect to the frequency of its meetings and how it should document its actions.
Only time will tell whether the new rules will translate into more effective, if not more numerous, advisory committees.
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.