{"id":18024,"date":"2020-04-09T09:00:04","date_gmt":"2020-04-09T13:00:04","guid":{"rendered":"https:\/\/www.benefitscanada.com\/news\/are-there-legal-issues-for-pension-funds-making-charitable-donations-right-now-144926"},"modified":"2020-04-09T09:00:04","modified_gmt":"2020-04-09T13:00:04","slug":"are-there-legal-issues-for-pension-funds-making-charitable-donations-right-now","status":"publish","type":"post","link":"https:\/\/blog.lifeinsurance-orleans.ca\/index.php\/2020\/04\/09\/are-there-legal-issues-for-pension-funds-making-charitable-donations-right-now\/","title":{"rendered":"Are there legal issues for pension funds making charitable donations right now?"},"content":{"rendered":"
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Yaelle Gang, the Canadian Investment Review<\/span> | April 9, 2020 <\/p>\n

With the coronavirus pandemic causing pain for employers and employees across the country, many organizations want to help out those in need. But can pension funds go as far as making financial donations to charities?<\/p>\n

Last week<\/a>, the Caisse de d\u00e9p\u00f4t et placement du Qu\u00e9bec announced it\u2019s donating $300,000 to five organizations for coronavirus relief, including the Canadian Red Cross and the Centraide of Great Montreal\u2019s Emergency Fund. Similarly, the British Columbia Investment Management Corp. said it\u2019s contributing $75,000 to the Victoria Foundation\u2019s Rapid Relief Fund.<\/p>\n

This isn\u2019t the first time the Caisse has supported philanthropic endeavours. In fact, it supports a variety of these causes annually, said Yann Langlais-Plante, a media, communications and public relations advisor at the Caisse, in a statement emailed to Benefits Canada<\/em>. \u201cIn our view, our philanthropic action is part of being an active member of the community.\u201d<\/p>\n

Read: Canadian pension players making donations, investments to alleviate coronavirus pressure<\/a><\/strong><\/p>\n

The BCI, on the other hand, has an ongoing program that encourages employees to work with causes of their choice one business day per year without using personal days or vacation time. \u201cBCI puts clients at the forefront of all decisions and this is no different,\u201d said Ben O\u2019Hara-Byrne, a BCI spokesperson, in an emailed statement. \u201cWe encourage employees to spend one business day each year working with a worthy cause and, since they can\u2019t use the program right now, BCI opted to make this donation in lieu as a recognition of our ongoing commitment to the community during this crisis.\u201d <\/strong><\/p>\n

Not so simple<\/strong><\/p>\n

When it comes to financial donations to charities, one item for pension funds to consider is tax compliance, notes Randy Bauslaugh, head of the national pensions, benefits and executive compensation practice at McCarthy T\u00e9trault LLP.  Since registered pension plans\u2019 primary purpose is providing lifetime income to its members, using the plan for other purposes may affect their compliance with the tax rules.<\/p>\n

Further, plan sponsors should consider their fiduciary duties, he says. \u201cThe focus of fiduciary responsibility in a registered pension plan is to comply with the terms of the plan and deliver the benefits that are promised under the plan, not other things.\u201d<\/p>\n

Indeed, a plan sponsor\u2019s fiduciary duty involves carrying out the purpose of trust, which is delivering lifetime pension income. \u201cWithout more evidence that this is somehow carrying out that fundamental purpose of delivering retirement benefits, I fail to see how a charitable donation to provide economic relief from the effects of COVID-19 is consistent with that trust purpose,\u201d says Bauslaugh. \u201cNow, maybe they can come up with a rationale that would be acceptable by a court or the majority of their beneficiaries, but I\u2019d need to see it.\u201d<\/p>\n

Read: Legal considerations for pension plan sponsors on design changes amid coronavirus<\/a><\/strong><\/p>\n

Whether a pension plan can donate to a charitable cause may depend on the cause, says Mitch Frazer, partner and chair of the pensions and employment practice at Torys LLP. \u201cIs it doing something that supports someone\u2019s school or educational initiative? Maybe that doesn\u2019t fall in that category. If it\u2019s a COVID-19 relief fund, which helps save lives of potential members or the beneficiaries, or makes society better, or helps cure this and then helps the market, I think you have a much better argument.\u201d<\/p>\n

The current context isn\u2019t like a traditional recession such as the global financial crisis, he adds. In that case, when financial markets started to collapse, pension funds would give back by trying to prop up companies and create general economic value. \u201cThey were helping the economy because they had money to do so. But now an elephant \u2014 a.k.a., the government \u2014 has sat on the economy. And so, in order to get the elephant off the economy, you have to fix health. I would argue that a pension fund doing it within reason here is helping to fix a symptom of what is suspending our economy.\u201d<\/p>\n

Another consideration for plan sponsors is the size of the contribution compared to the size of the plan, says Frazer.<\/p>\n

Simon Archer, partner at Goldblatt Partners LLP, highlights the distinction between a pension fund acting as an operations manager and employer compared to one that acts as a pension fund investor. For instance, a pension fund as an employer would have a budget for operational activities, which could include charitable giving as part of its communications and marketing budget. But it would be a separate question for a board of trustees to donate money to charities as an investment activity rather than as an act of operations management.<\/p>\n

For example, if an organization\u2019s management has an annual operations budget and has given employees days off for charitable activities in the past, says Archer, choosing this year to donate a similar amount to charity instead is a different decision than asking about fiduciary issues. Rather, it\u2019s a decision about how management allocates its annual budget and would likely be permitted.<\/p>\n

Read: Canadians want volunteering opportunities organized by employers: study<\/a><\/strong><\/p>\n

He also notes that pension funds may also consider whether their operational budgets are consistent with regulatory requirements for expenses from pension funds.<\/p>\n

Different shapes and sizes<\/strong><\/p>\n

For registered pension plans in general, Bauslaugh has concerns about charitable donations, but he acknowledges some pension plans are established by statute. \u201cThey\u2019re not necessarily subject to all of the same requirements as, say, the run-of-the-mill registered pension plans. So you\u2019d have to examine the terms and conditions under which they\u2019ve been established versus the terms and conditions under which most registered pension plans are established.\u201d<\/p>\n

Some large pension funds, like the Caisse, for example, have broader economic mandates, highlights Frazer.<\/p>\n

Susan Seller, partner at Bennett Jones LLP, notes a distinction exists between private plans and the larger public pension funds. \u201cIf you\u2019re a large pension fund, like a public sector pension fund entity, that\u2019s an institutional investor in its own right. They typically have policies around their charitable activities and any donations that they may make, and very specific objectives and policies that they follow including procedures for board approval, etc.\u201d<\/p>\n

But the concept of fiduciary duty does apply across the board, she adds.<\/p>\n

Other ways to help<\/strong><\/p>\n

In the past, Archer has been asked about whether pension funds can donate to charity and he\u2019s always said no. \u201cThese were smaller funds without the same kind of, what I\u2019ll call, operating budget that others have, and you\u2019re conservative advice is, if it\u2019s not authorized under your trust agreement or as a legitimate expense of the pension fund in the administration of the fund, then you better not do it, or you better find another way to provide the community service.\u201d<\/p>\n

Read: Canadian public pension heads call on employers to focus on coronavirus<\/a><\/strong><\/p>\n

Another option is for a pension fund to introduce a staff-led initiative, which it then supports as an employer and not a pension fund trustee. \u201cThat\u2019s not going to be second-guessed by a beneficiary who says, \u2018Why are you giving money away when my pension is underfunded,\u2019 or something like that,\u201d says Archer.<\/p>\n

Further, pension plan sponsors can provide employees with paid-time-off to do good deeds like delivering meals, suggests Frazer. \u201cThere are a lot of ways you can actually help people creatively.\u201d<\/p>\n

Dot the i\u2019s and cross the t\u2019s<\/strong><\/p>\n

Overall, the topic of pension plans donating to charity is a tricky legal issue, says Bauslaugh. \u201cUnfortunately, it\u2019s one of those things where you might say, \u2018It sounds like a good idea, let\u2019s check it out with legal counsel.\u2019 And I\u2019m not saying that as a make-work project for lawyers. I just think you\u2019re in a fiduciary position to manage a plan to provide retirement benefits, so you really need to think twice about using those plan assets to do something other than that.\u201d<\/p>\n

In addition to consulting with legal counsel, pension plan sponsors should also look at their mandate, ensure it fits with their bylaws, make sure their boards are OK with this shift in policy and ensure the contribution is reasonable, notes Frazer.<\/p>\n

And plan sponsors or pension funds that go down this route should have a policy to address the objectives and parameters of this type of donation, as well as the procedure for approving it, says Seller. <\/p>\n

Read: U.S. Fed cuts rates to zero in bid to quell coronavirus impacts<\/a><\/strong><\/p>\n

Read the full article at BenefitsCanada.com<\/a><\/p>\n","protected":false},"excerpt":{"rendered":"

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