Occupational Pension Scheme Trustee Duties 3 of legal obligations on trustees of an ... Occupational Pension Scheme Trustee Duties Defined Contribution Trustee Training

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  • Occupational Pension Scheme Trustee Duties

    Defined Contribution Trustee Training

    6 April, 2005

    John KettlePartner

  • Introduction

    Overview of legal obligations on trustees of an occupational pension scheme

  • Occupational Pension Schemes

    A pension scheme sponsored by an employer for the benefit of its employees

    Two types of occupational pension scheme:- Defined Benefit- Defined Contribution

  • Defined Benefit Schemes

    Sometimes referred to as final salary schemes

    A members pension is directly related to salary at retirement

    The pension will normally be calculated by granting a fraction of the members salary at retirement for each year of pensionable service

  • Defined Contribution Schemes

    Also known as money purchase schemes

    No guarantee of a particular level of pension related to final remuneration

    Members benefit is determined solely by reference to the contributions paid into the scheme by the employer and (if contributory) by the member plus the investment return on those contributions

  • Defined Contribution Schemes

    Final outcome for each member depends on return on fund and investment conditions prevailing at the time of retirement

    Contributions of each member are individually tracked Individual Retirement Account

    Therefore, it is possible to see at any time what share of the fund relates to the member

  • Legal Structure of Schemes

    Occupational pension schemes normally established under a trust

    A trust is a legal device under which property is held and looked after by one or more persons (the trustees) for the benefit of other persons (the beneficiaries)

    Assets of the pension scheme held legally and physically separate from the assets of the employer

  • Trust Deed and Rules

    The terms and provisions of the scheme will be set out in a detailed (written) trust deed and rules

    The trust deed contains the formal administrative provisions of the scheme

    The rules contain details of eligibility, membership and benefits

  • Trust Deed and Rules

    Power of amendment e.g. to take account of changes to the law/change benefit structure

    Consistency of explanatory literature with the scheme documentation

  • Trustees

    Initial trustees usually appointed by employer at schemes commencement

    Trustees can be individuals or a body corporate or a combination of the two

    Individuals acting as trustees could include directors of the employer company, employees, pensioners or professional trustees

  • Appointment and Removal of Trustees

    Under the terms of the trust deed

    Under the Trustee Act, 1893

    Under the Pensions Acts

    A deed removing a trustee should contain a specific discharge releasing the retiring trustee from any future liability in relation to the scheme

  • Member Participation in Trustee Selection

    Since 1994, Regulations made pursuant to Section 62 of the Pensions Act provide that members are entitled to participate in the selection of a number of the trustees

    This entitlement applies to schemes with not less than 50 qualified members or directly invested scheme with not less than 12 qualified members

  • Member Participation in Trustee Selection

    In summary, a qualified member is an active member or a pensioner but not a deferred member

    Not compulsory to have member trustees unless the member selection process is initiated by either the employer, the members or an authorised trade union

    If the member selection process is not initiated, the existing trustee arrangements will prevail. Members may initiate the selection process at any time

  • Member Participation in Trustee Selection

    If the selection process is initiated, there are two types of arrangement which may apply, namely the standard arrangement or the alternative arrangement

    The standard arrangement provides for selection by means of an election

    The alternative arrangement allows the members to approve the selection by the employer of the relevant members

  • Member Participation in Trustee Selection

    Summary of procedure: Trustees notify employer of valid request

    Employer directs trustees to hold preliminary poll or proceed to election under the standard arrangement

    Trustees appoint a Returning Officer

    If > 50% opt for standard arrangement, the Returning Officer notifies trustees and employers and arranges for the election process

  • Member Participation in Trustee Selection

    If > 50% opt for alternative arrangement or if < 25% take part in the preliminary poll, appointment of trustees is via alternative arrangement

    If elections are to be held the Returning Officer must have regard to Guidance Notes issued by the Pensions Board

  • Trustees General/Fiduciary Duties NB

    A trustee has fiduciary duties to a member of a scheme

    A fiduciary is a person in a special relationship of trust to another

    A trustee, as a fiduciary, must place the interests of that other person ahead of his own and must act in that other persons interest

  • Trustees General/Fiduciary Duties

    Trustees basis obligation is to carry out the terms of the trust in accordance with:

    - duties imposed by equity and trust law- the terms of the trust deed and rules- applicable legislation (Trustee Act, 1893, Part VI of the Pensions Act, 1990)

    Must exercise reasonable care and have regard to interests of beneficiaries as a whole

  • Principal Duties of Trustees

    To be familiar with the scheme documentation

    To act prudently, conscientiously, honestly and in good faith

    To avoid any conflict of interest (particularly relevant for employee/director trustees)

    To ensure that contributions are paid by the employer and members

  • Principal Duties of Trustees

    To ensure the proper investment of the scheme assets

    To notify beneficiaries about the details of the scheme

    To ensure that proper records and accounts are maintained

    To pay out benefits

  • Principal Duties of Trustees

    To prepare or cause to be prepared an annual report

    To comply with the requirements of preservation

    To keep up-to-date with relevant applicable laws

    To ensure that the provisions of the scheme comply with the principle of equal treatment

  • Principal Duties of Trustees

    To take advice on matters on which they are not experts or not competent to act without such advice or where it is prudent to do so

    To comply with Revenue requirements so that favourable tax treatment is safeguarded

    Not to make a personal profit, unless authorised by the trust

  • Principal Duties of Trustees

    To maintain confidentiality

    To act fairly as between the different classes of beneficiary

    To register the scheme with the Pensions Board, pay registration fees and furnish information re inspection

  • Trustees Duties - Investments

    Proper investment:

    - provide for the proper investment of the schemes resources in accordance with the scheme

    - In so far as is reasonable, to invest contributions within 10 days of the latest date for payment (contributions must be remitted within 21 days from the end of each month to the trustees or their nominee)

  • Trustees Duties - Investments

    Absence of express investment power:

    - trustees are only permitted to make the investments set out in the Trustee Act, 1893 (Part I), as amended by the Trustee Authorised Investments Act, 1958 (the list of authorised investments has since been amended by statutory instruments)

    - most schemes confer wide investment powers

  • Trustees Duties - Investments

    Standard of care:

    - the standard of care is such care as an ordinary prudent man would take if he were minded to make an investment for the benefit of people for whom he felt morally bound to provide (Learoydv Whiteley)

    - Stacey v Branch

  • Trustees Duties - Investments

    Insured schemes:

    - assets of scheme invested in an insurance policy issued by a life assurance company

    - insurer reserves full control over investment strategy of assets

    - if trustees dissatisfied, can switch to another policy or life assurance company

    - costs incurred if switch

  • Trustees Duties - Investments

    Investment in the employer:

    - No direct prohibition on such investments

    - Indirect restriction arises under the Acts in relation to a defined benefit scheme

  • Trustees Duties - Investments

    - terms of trust deed may contain a restriction

    - investment in employers business should be carefully evaluated and made only on commercial terms

    Investment Managers

  • Trustees Duties - Disclosure

    Information to be provided:

    Trustees must provide information to the scheme members and other prescribed persons as follows:

    - details about the constitution and rules of thescheme (i.e. legal documents governing the scheme)

    - basic information about the scheme, usually provided by way of explanatory booklet

  • Trustees Duties - Disclosure

    Information to be provided (contd.):

    - details of personal benefits (benefits statements to include accumulated value of individual retirement account, date of entry into the scheme, normal retirement age and date, contributions credited during the previous scheme year)

  • Trustees Duties - Disclosure

    Reports:There are three types of annual report, depending on the