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March 11, 2015
Members’ wishes override internal procedures, court says

A Saskatchewan court has upheld a pension plan member’s right to designate beneficiaries even when the member does so in a way that violates a plan’s administrative procedures.

The case involves a member of a Saskatchewan health care sector pension plan that had designated his daughter as beneficiary under the plan in 2000.

However, in 2009, the member changed the beneficiary designation to his four nieces and nephews using the plan’s official beneficiary change form.  In doing so, the member also provided witnessed documentation that he was estranged from his daughter and did not want her to receive the pension benefits on his death.

Shortly after providing the documentation, the plan administrator noted that he had not stated his relationship with the new beneficiaries.  As well, it said, he was supposed to list the fourth beneficiary on the second page of the beneficiary change form. (The member listed all four beneficiaries on a single page.)  As a result, the administrator asked him to re-submit the designation forms.  When no response was received, it sent two follow-up letters to the member.  Again, no response was received.

After the member’s death in 2012, it was discovered that he had destroyed the letters he received from the plan administrator.

While the pension plan’s administrator originally advised the nieces and nephews that they were the member’s designated beneficiaries, it later reversed that decision, citing that the member had not followed procedures when he listed the four beneficiaries on one page.  They then awarded the benefits to his daughter.

The case then went to litigation.

In their submission, the nieces and nephews argued that, despite not following the plan’s administrative procedures, they were the member’s lawful beneficiaries as the 2009 signed beneficiary change form “gave legal effect” to his intentions.

In contrast, the pension plan argued that its plan documents gave the plan administrator unfettered discretion to establish and administer plan policies, including interpreting beneficiary designations.  To support their position, they also presented a policy adopted by the plan in 2012 stating that all forms received prior to that year must strictly conform to their administrative procedures.  As a result, it said, the listing by the member of four instead of three beneficiaries on one form invalidated the 2009 beneficiary designations.

In addition to that position, the deceased member’s daughter also argued that by destroying the 2009 beneficiary designation when it was returned to him, the member had effectively revoked his intentions, thereby upholding the original designation of 2000.

In reviewing the case, the court cited Saskatchewan’s Pension Benefits Act, which affirmed that a member may change or revoke a beneficiary “only in the manner specified in the plan.”  

In reviewing the plan documents, the judge found that while the plan allowed for the changing of beneficiaries, the only requirement listed in the plan documents was that the beneficiary change be in writing on a prescribed form.  

“Although the plan had rejected the form, the concerns raised by the plan did not affect the validity, clarity or reliability of the plan member’s wishes,” the court said.

It also stressed that administrative policies should not impede pension plan administrators from acting on plan members’ directions or wishes.

“The overriding purpose of those policies is to ensure that the wishes of plan members are clearly identified and acted upon,” the court stressed.  “While the administrator’s discretion is a broad one, it may not demand irrelevant information or require compliance with formalities that may serve only to impede, rather than achieve its objectives.”

As a result, it said, the plan member had a right to designate the new beneficiaries on the form prepared for that purpose, which he did.  The fact that he did so on one page instead of two pages was irrelevant.

The court then ruled that the 2009 beneficiary designation to be valid.

The Saskatchewan case should serve as a lesson in customer service for pension plan administrators.  While pension legislation provides them with a large degree of discretionary power to ensure the effective and consistent administration of a pension plan, they still must do so in a way that gives priority to the wishes of plan members over dictates of internal administrative procedures.

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