The National Pension Scheme (Occupational Pensions) Amendment Act 2019 (the NPS Amendment Act), the provisions of which come into force on different dates, amends the existing legislation and regulations requiring employers to establish, register, fund and maintain occupational pension plans. The NPS Amendment Act contains extensive amendments to the National Pension Scheme (Occupational Pensions) Act 1998 (the NPS Act) as amended that enhance existing provisions and introduce new provisions including provisions relating to non-Bermudian employees, civil penalties, Guidance Notes and hardship benefits for persons who are retired. The most significant amendments and the dates they come into operation are highlighted below.
1. Application of the National Pension Scheme
The NPS Amendment Act extends the requirement to provide an occupational pension plan to all employees meeting the eligibility criteria, with the exception of a person granted permission under the Bermuda Immigration and Protection Act 1956 to engage in gainful occupation in Bermuda for less than an aggregate period not exceeding twelve months, with effect from 2 March 2020. Historically and until such date, employers must only provide an occupational pension plan to Bermudians and the husband or wife of a Bermudian.
Citizens of the United States of America granted permission under the Bermuda Immigration and Protection Act 1956 to engage in gainful occupation in Bermuda who participate in a pension plan qualified under what is commonly known as section 401(k) of the United States Internal Revenue Code are also excluded from the above requirement, with effect from 2 March 2020.
2. Time Frames and Submissions
The time period within which an employer must apply to register an occupational pension plan has been shortened to ninety days from one hundred and eighty days after the establishment of the plan, with effect from 30 December 2019.
The time period within which an administrator must pay (transfer) the commuted value of a member’s benefits in the case of a defined benefit pension plan or a member’s account balance in the case of a defined contribution pension plan on the direction of such member who terminates employment has been extended to forty-five days, with effect from 2 January 2020. The commuted value or account balance, as applicable, of such a member who fails to provide a direction shall be dealt with in accordance with the administrator’s fiduciary obligations or as directed by the Bermuda Pension Commission (the “Commission”). These provisions, however, do not apply where a pension plan provides for an employee who terminates employment to remain a member of the employer’s pension plan and the member has elected to do so.
Employers are required to retain certain records with respect to their pension plans registered pursuant to the NPS Act and each of their employees as set out in the Regulations, for a minimum of seven years following the date of termination of the employee, with effect from 2 March 2020.
3. Contributions and Interest
The definition of pensionable earnings, one of the factors used to determine the value of the employer and employee required contributions to a defined contribution plan, has been expanded to include any bonus, including payments from a profit-sharing scheme, with effect from 2 January 2020.
An employer who fails to pay contributions monthly, in arrears within thirty days is liable to pay interest on the unpaid contributions (employee and employer contributions) at the rate prescribed in addition to the unpaid contributions, with effect from 2 March 2020.
A new part, Part IIA, has been added which requires that all trustees be approved by the Pension Commission with effect from 2 March 2020. The minimum criteria for approval are set out in the new Third Schedule. Pursuant to the Transitional Provision (section 43 (1) and (2)) the trustee of a registered pension plan has six months from 2 March 2020 to apply to the Commission to be approved as a trustee. Failure to apply for approval constitutes an offence.
All assets of an occupational pension plan must be held in a separate and distinct fund by an approved trustee only, with effect from 2 March 2020.
The required vesting period has been shortened to one year from two years, with effect from 2 March 2020.
The Pension Commission does have discretion to approve another vesting period in the case of multi-employer pension plans.
A member or former member who has attained normal retirement age and has retired may receive a lump sum refund of up to 25% of his account balance in the case of a defined contribution pension plan and up to 25% of the commuted value of his benefits in the case of a defined benefit pension plan. No date has been set for this amendment to come into operation.
The financial hardship provisions have been amended to permit a refund of contributions or accrued benefits to cover eligible funeral expenses, with effect from 2 January 2020.
The value of small pensions which may be paid out where a former member has attained normal retirement age and has retired has been set at US$50,000 for the account balance or commuted value, as applicable, with effect from 2 January 2020. This provides a fixed definite value in place of a calculation based on 5% of the average employment income as prescribed in the regulations in the year that the former member terminated his employment.
The annual statement of pension benefits may be provided by electronic means to the address or number provided by the member for the purposes of electronic communication, with effect from 2 January 2020.
Administrators of a defined contribution pension plan no longer have to submit to the Commission a report prepared by an accountant, actuary, or person who is authorised by a financial institution every three years, with effect from 30 December 2019.
The administrator must, within 6 months, submit to the Commission an auditor’s report in respect of the financial statements if at the end of the fiscal year the pension plan has at market value US$3 million or more in assets, with effect from 30 December 2019. Many administrators who used to have to submit an auditor’s report will no longer need to, due to this threshold having tripled from its previous value.
Surplus may only be paid out of a pension fund that has been wound up with the consent of the Commission, with effect from 2 January 2020.
The requirement that the administrator of a defined contribution pension plan ensure a range of investments is subject to approval by the Commission from time to time, with effect from 30 December 2019. It remains to be seen how that approval will be provided, whether generally or on a plan specific basis.
Survivor benefits are available earlier, with effect from 2 March 2020. If a member dies before completion of one year (historically and until such date, the time period is two years) of membership in a registered pension plan, the deceased member’s beneficiary will receive a lump sum payment equal to the member’s contributions, if any, plus earnings thereon.
A pension plan that permits variation of payment of a pension by reason of a member having a mental or physical disability requires an opinion of a qualified medical practitioner, with effect from 2 January 2020, that the disability is likely to reduce the member’s life expectancy to five years or less.
9. Civil Penalties
Where a person is liable to a criminal conviction under section 67 but has not been charged with such an offence, the Commission may impose a civil penalty instead of up to US$25,000 in the case of a person winding up a pension plan who fails to provide a report and up to US$50,000 in the case of any other contravention of the Act, with effect from 2 January 2020.
10. Guidance Notes
The Commission may issue Guidance Notes to promote best practices and compliance with the NPS Act and Regulations, which relevant persons must have regard to in the performance of their duties, with effect from 2 January 2020, but failure to comply with the Guidance Notes is not an offence.
The schedule of fees has been amended, with effect from 30 December 2019, and annual administrative fees are payable by 30 June of each calendar year by the administrator. These fees are not recoverable from the pension plan, pension fund, the employer, or the members or former members of the pension plan.
To learn more about the changes to the National Pension Scheme and how they could affect you please contact your usual Conyers lawyer or any of those listed below.