Ontario pension administrative expenses
In January 2013, the Financial Services Commission of Ontario (FSCO) published Policy A200-101 (the “Policy”) concerning administrative expenses of pension funds.
The Policy replaces and expands upon a number of policies that previously existed.
New Legislative Provisions
In 2010, Bill 120 adopted a new provision respecting fees and expenses payable from a pension fund. The new section 22.1 of the Pension Benefits Act (PBA) provides that fees and expenses paid from the fund must be:
- related to the administration of the pension plan or the administration and investment of the pension fund; and
- not prohibited or otherwise provided for under the documents that create and support the plan or the fund or under the PBA or Regulation.
Examples of Valid Administrative Expenses
The Policy points out that the PBA does not list the specific administrative expenses that can be paid from the fund. The Policy gives examples of the types of expenses that would usually be considered to be administrative expenses payable from the pension fund under the PBA:
- actuarial fees to prepare and file valuation and other reports required under the PBA or Regulation;
- trustee/fund holder and custodial fees;
- investment management fees;
- costs for records retention, benefit calculation, member communications;
- legal or consulting fees related to legislative compliance;
- costs to implement governance guidelines or to strengthen existing plan or fund governance structures;
- continuing education costs for members of the board of trustees or the administrator’s employees; and
- fees for services provided by agents that are usual and reasonable expenses of the plan.
Examples of Invalid Administrative Expenses
The Policy states that any expense not required for the proper administration of the plan should not be paid from the pension fund as it would not be considered an administrative expense. Expenses incurred by the administrator or others acting in the role of plan sponsor, collective bargaining agent or employer should also not be charged against the fund. Examples of expenses not payable from the pension fund are:
- actuarial, consulting and legal fees to assist a plan sponsor or employer in designing the plan benefit structure;
- actuarial, consulting and legal fees incurred by the employer or union as part of collective agreement negotiations;
- expenses not consistent with the plan’s purposes; and
- expenses incurred by the employer acting in its own interests and not as a plan fiduciary.
Conflict of Interest
The Policy states that the use of a pension fund to pay the employer’s non-administrative expenses would be considered a conflict of interest under the PBA. Furthermore, the administrator and members of a pension committee or a board of trustees that administers a pension plan are prohibited from receiving any benefit from the pension plan other than pension benefits, ancillary benefits and contribution refunds.
The Policy is consistent with previous understanding of the rules governing plan expenses and previous court decisions, such as the Kerry decision by the Supreme Court of Canada. However, for the first time, FSCO has given specific examples of the types of expenses which may or may not be paid from a pension fund. FSCO has also stated that the use of a pension fund to pay invalid expenses could constitute a conflict of interest and breach of the PBA. This may indicate greater scrutiny of plan expenses by FSCO in the future.