Protecting pension plan trustees
Published:Friday | January 21, 2011 | 12:00 AM
Sanya Goffe, Guest Writer
The increased responsibilities imposed on trustees of pension plans under the Pensions (Superannuation Funds and Retirement Schemes) Act and regulations, and under the general law, are wide and, understandably, have heightened the anxieties of those who take on the role.
Fundamentally, a trustee owes duties of honesty, loyalty and good faith to the beneficiaries of pension plans, a duty to administer the pension trust with care and skill, and a duty to ensure strict compliance with the terms of the trust and applicable statutes.
Failure to comply with these duties will leave a trustee personally liable for breaches of his duty. Because a breach of trust can be established without any evidence of negligence or unreasonableness on the part of a trustee, it is important that trustees be protected from liability for certain acts.
There are four main ways to achieve this:
Exemption clauses: Trust deeds may contain exemption or exclusion clauses protecting trustees. These clauses vary widely, but are all aimed at excluding the personal responsibility of the trustees for breaches of trust.
A clause might provide, for example, that a trustee shall not incur any personal liability in the execution of any duties, rights or powers under this trust deed and rules, except in cases of fraud. If a trustee protected by such wording committed a breach of trust through an honest mistake, the clause would give him or her a defence to any claim for breach of trust.
Any trustee who wishes to rely on an exclusion clause must carefully check to see whether he is protected under its exact terms. Exclusion clauses are strictly construed by the courts, so if there is any ambiguity, the trustee is unlikely to be protected.
Indemnity from the employer: Pension trustees may seek an indemnity from the sponsoring employer before taking a particular course of action. For example, trustees may request an indemnity if the employer asks them to merge the plan with another or undertake some other activity that causes a material change in the plan's operation.
It is common for trust deeds to contain a general provision that indemnify trustees by the employer for their actions, provided they are acting honestly and in good faith. One limitation of an indemnity from an employer is that it is only reliable if the employer has the resources to indemnify the trustees when the need arises.
Indemnity from the pension plan: It is also possible for trustees to seek indemnity from the pension fund in respect of breaches of duty. Any such indemnity would need to be expressly contained in the trust deed and rules and would be of no value if the plan were in deficit.
Insurance: Trustees may seek to protect themselves by obtaining insurance against their liability for breach of trust. This is a helpful tool, but usually will not cover all breaches and can be expensive. If trustees decide to obtain insurance they will obviously want the cost to be covered by the pension fund. Insurance premiums can only be paid out of the fund, however, if there is a specific power in the trust deed allowing for this.
The Trustee Act: Section 24 provides for a limited implied indemnity for trustees. It states that a trustee shall be answerable and accountable only for his own acts and not for those of any other trustee and may reimburse himself or pay out of the trust all expenses incurred in the execution of his powers.
Section 44 goes further to state that if it appears to the court that a trustee is or may be personally liable for breaches of trust but has acted honestly and reasonable and ought fairly to be excused for breach of trust and for omitting to obtain the direction of the court in the matter in which he committed such a breach, then the court may relieve the trustee either wholly or partly from personal liability. Whether a trustee has acted reasonably or honestly is a question of fact and the test applied by the courts is an objective one; the question of whether the trustee ought to be reasonably excused is a question for the court to determine in light of all the circumstances of the case. A trustee relying on this provision will have to satisfy the court that they had good reason for not applying to the court for guidance on the matter concerned.
The role of trustees over recent years has developed considerably.
Trustees cannot escape with a vague and superficial interest in the pension plan. They have to understand how it works, take complicated decisions regarding investment which will have a long-term effect on members, and generally take responsibility for the plan.
This, as well as members' growing awareness of their responsibilities and greater willingness to claim rights or challenge decisions, results in a greater need for trustees to take measures to protect themselves to cover their personal liability.
Sanya Goffe is a partner at Lex Caribbean Attorneys-at-Law.