Pension
Trustees Liability
Tougher Regulation - Greater Risk
The pension
trustee's role has changed significantly over the past
five years. Once perceived as a low profile and low-risk
job, the position is now firmly in the legal and media
spotlight Certain widely-publicised pension fund scandals
and the resulting implementation of strict legislation
mean that trustees are now far more accountable and
personally liable for their actions and the operation
of the schemes over which they have control.
Traditionally,
many accepted the role without understanding the full
legal responsibilities of the position. Although relatively
few actions have been brought against trustees, the
likelihood and scale of potential legal action has increased
dramatically.
Trustees
are governed by both case law and a number of statutes
including the Pension Act 1995 which came into force
in April 1997. Under the Act, pension fund trustees
have new powers and responsibilities to oversee the
operation of the pension fund and ensure that it meets
strict guidelines and standards.
Trustees
who breach their duties or responsibilities may place
their personal assets at risk or in certain circumstances
open themselves to civil and criminal penalties.
Key duties
under the 1995 Pension Act include:
- Compliance
with Minimum Funding Requirements
- Obtaining
proper investment advice
- A duty
not to personally profit form the operation of the
fund
- A duty
to keep clear and accurate records of the fund
- Establishment
of a dispute resolution procedure
- Ensuring
valuations are undertaken at regular intervals
- Establishing
and monitoring employer contribution of the fund and
reporting of any unpaid contributions to members and
OPRA
- Ensuring
that one third of trustees are selected by the scheme
members - or that members approve alternative arrangements
 top
of page
Who sues
and why
In the past,
litigation has come mainly from scheme members or beneficiaries.
However,
the wider powers of the regulatory authorities and the
new 'whistle blowing' responsibilities of pension scheme
auditors and actuaries has increased the likelihood
of legal action against trustees, trust officials and
administrators and employer companies.
OPRA and
the Pensions Ombudsman
The Pension
Act 1995 which created the Occupational Pensions Regulatory
Authority (OPRA) gave this body extensive powers.
OPRA may
enter a company premises at any time to search records
and can disqualify an individual from acting as a pension
fund trustee and/or remove them from the position if
they fail to meet guidelines. It also has the power
to initiate proceedings for severe fines or penalties
including imprisonment and to wind up a pension scheme
under certain circumstances.
The Pension
Ombudsman can direct the trustees to take any action
he thinks appropriate to resolve a complaint. Complaints
made to the Pensions Ombudsman of maladministration
may also result in heavy financial penalties.
In addition,
trustees must comply with minimum funding requirements,
keep clear and accurate accounts and records and provide
a required level of information to fund members. Failure
to fulfil these duties can trigger a complaint to OPRA.
top
of page
CorporateGuard
includes cover for all the extra duties and responsibilities
outlined in the Pensions Act 1995 including:
- Cover
for trustees and the company for the costs associated
with fact finding investigations in to the fund operation
regardless of whether or not an insured individual
has been accused of mismanagement or errors.
- Cover
for civil fines and penalties imposed by OPRA or the
Pension Ombudsman for breach of duty under the Pension
Act 1995.
Additionally:
Defence costs are covered as the defence proceeds
not just the end of the action. This ensures that
trustees are not exposed financially for long periods
of time.
- Coverage
for libel and slander claims. This is important protection
for pension trustees and employees when they make
public statements
Scheme
members and beneficiaries
Trustees
have the same powers as absolute owners and will be
liable in the event of a failure of the fund/investment
manager. They must exercise a 'duty of care' in the
performance of their investment responsibilities and
must obtain professional advice.
The decisions
trustees take on the distribution of benefits, for instance
on the death of a member and the use of any surplus
funds can lead to claims by scheme members or beneficiaries
for loss as a result of those decisions.
Claims can
be for a number of reasons. Members may consider trustees
have incorrectly calculated benefits or that the trustees
decision has constituted maladministration. There may
be a deficit in funding the wind-up or dissolution of
a fund or members may feel that trustees have not exercised
proper discretion in the investment of funds or the
appointment of professional advisors.
Members may
also claim they have not received equal treatment, for
instance between part-time and full-time workers or
men and women.
top
of page
CorporateGuard
provides protection for this threat by covering:
- Emotional
distress associated with incorrect pension payment
- Costs
associated with disputes and legal actions between
insured parties
Professional
Advisers
The schemes'
actuaries and auditors have a statutory duty to 'blow
the whistle' to the regulatory authorities on the employer,
scheme trustees or scheme advisers if they are not carrying
out their responsibilities.
The schemes' actuaries and auditors may also alert the
regulatory authorities if they think that there is a
conflict of interest between the individual pension
trustees and the fund's operation or if they suspect
personal profiting by trustees.
CorporateGuard
provides protection against these threats with:
- Cover
for those involved in the pension scheme, including
trustees, directors, employees of the Pension Plan
and the employer company
- Consistent
cover between trustees and administrators which removes
doubt for non-trustees who are deemed to be acting
as trustees making cover more concise and understandable
top
of page
Organisational
Change
In a business environment of mergers and takeovers,
trustees can be vulnerable when taking on pension plans
under a newly acquired company scheme.
CorporateGuard
provides protection for these threats with:
- Cover
for all company plans including a facility for new
plans if the company is merged with or acquires another
company
- Continuity
of cover for individuals regardless of company changes
- Automatic
72 months discovery period for retired individuals
if the employer company does not renew the Pension
Trustee liability cover
AIG and
Pension Trustee Liability Insurance
AIG pioneered management liability insurance with the
launch of the first protective directors and officers
liability cover more than 25 years ago in the US and
later in the UK. Now AIG handles management liability
insurance for a range of companies across industrial,
commercial and financial sectors. This gives us unrivalled
experience and knowledge which can be used to add value
to your business.
CorporateGuard
has addressed pension trustees' new responsibilities
and liabilities under the Pension Act 1995 and offers
a number of benefits over and above conventional insurance
protection.
top
of page
CORPORATEGUARD - PROTECTION
CorporateGuard provides the most comprehensive cover
for those involved in trust administration and management
in the light of tighter regulations and the increased
responsibilities of pension trustees.
Pension
Trustee Liability Legal Panel
CorporateGuard goes further than conventional insurance
with value-added services in the form of the CorporateGuard
Legal Panel.
The advisers
accepted for the CorporateGuard Legal Panel have been
identified as clear leaders and experts in corporate
law and litigation in the UK.
Companies
may indeed appoint their own choice of legal representative,
however the decision to choose a member of the CorporateGuard
Legal Panel allows immediate acceptance of the defence
team. This in turn means more rapid formulation of a
strong defence strategy. Clients will also receive advice
on pension trustee liability issues.
Optional
Extensions
As well as comprehensive coverage for the key areas
of risk, CorporateGuard offers a number of optional
pension trustee liability extensions that provide further
protection. These include:
- Theft
- Cover for the theft of fund assets by any party
- Employee
Retirement Income Security Act (ERISA) (1974) USA
Cover for companies with pension plans falling under
the jurisdiction of ERISA in the US
- Loss
of documents - Cover for the loss of documents and
computer system records which relate to pension plans.
Documents may be either the property of the insured
or for which the insured is legally responsible, even
if such documents have been entrusted to another party
top
of page
Main Benefits of CorporateGuard - Pension Trustee Liability
The policy
includes cover for:
- Costs
of monetary awards by OPRA/Pensions Ombudsman
- Full
advancement of defence costs
- Emotional
distress
- Blanket
cover for all company plans including plans from newly
acquired companies
- Costs
of libel and slander claims
- Costs
associated with disputes and legal action cases between
insured parties
- Pollution
defence costs for individuals
- Costs
of official fact finding investigations
- Up to
72 months run off cover if the pension scheme is wound
up or if the employer company is taken over
- Corporate
Trustee Companies included whether they are a subsidiary
or independent
- 72 months
discovery period for retired individuals if the employer
company does not renew their Pension Trustee liability
cover
< Click here
to download a Prospectus, or Proposal form or
<
Click here to return to the Pension Trustees
Insurance menu.
Please use the drop down list below
to select another page from the Corporate & Commercial
section, or click here
to return to the Corporate & Commercial introduction.
top
of page
|
Corporate &
Commercial
