Knowledge

In the Cayman Islands, all pension plans established and maintained for the benefit of employees are governed by the National Pensions Act (2012 Revision) (the "Principal Act") and regulated by the Department of Labour and Pensions (the "DLP"). Since its enactment, the Principal Act has been heavily reviewed by the DLP, resulting in various amendments, including the National Pensions (Amendment) Act, 2016 (the "2016 Pensions Amendment Act"), the COVID 19 related amendments in relation to early withdrawal and payment suspensions and, more recently, the imminent changes to withdrawals to buy land and repay mortgages.

Unlike most other amendments (which came into force almost immediately), the 2016 Pensions Amendment Act took a more phased approach by slowly coming into force over the years through various commencement orders. This briefing focuses on the most recent commencement order, the National Pensions (Amendment) Act, 2016 (Commencement) Order, 2022 (the "2022 Commencement Order"), which relates to the reforms which have become effective throughout 2023.

The selected provisions of the 2016 Pensions Amendment Act, which correspond to the 2022 Commencement Order, generally concentrate on fortifying the pension regime through reforms that improve procedures and encourage more compliance. More specifically, they increase the responsibilities of pension plan administrators (the "Pension Administrators") and aim to hold non-compliant employers more accountable through enhanced punitive measures. By virtue of this, the pension plan members (the "Pension Members"), and the general public, gain further information and transparency with regard to pension plans and pension funds.

Increasing the responsibilities of Pension Administrators

The 2016 Pensions Amendment Act refined the pension regime by increasing the fiduciary duties of Pension Administrators to ensure that pension procedures were more standardised in order to provide more effective service, better knowledge and transparency to Pension Members.

Annual General Meetings ("AGMs") and Pension Benefit Statements ("Statements")

The 2016 Pensions Amendment Act introduced a provision which, effective 1 January 2023, requires all Pension Administrators to:

-        hold AGMs;

-        provide a record of the AGM to the Director of the DLP within three months of the AGM; and

-        provide a record of the AGM to the Pension Members (along with their Statements). 

Simultaneously, the 2016 Pensions Amendment Act changed the frequency and method by which Statements are provided to Pension Members. Effective 1 January 2023, Pension Administrators are required to provide Pension Members with a Statement, issued either electronically or in hard copy, on a semi-annual basis (as opposed to the former annual basis).

By legally refining and imposing these responsibilities on all Pension Administrators, the DLP ensures that all Pension Members, irrespective of their Pension Administrators, have an opportunity to discuss, and gain further knowledge with respect to, their pension plan.

Information provided to membership applicants 

In line with its target to ensure that Pension Administrators are being informative and transparent, the 2016 Pensions Amendment Act made slight modifications to the requirements to disclose information to pension membership applicants.

Pension Administrators must provide in writing to persons applying for membership prescribed information concerning the pension plan, including an explanation of the applicable provisions of the pension plan and an explanation of their rights and obligations under it. Effective 1 March 2023, Pension Administrators are now required to also provide details of the returns and expense ratios of the pension fund.  All of this information has to now be provided immediately upon a person's application for membership, ensuring more timely and efficient communication from Pension Administrators. Furthermore, employers now have a 21-day deadline within which to provide Pension Administrators with any relevant information that is required to perform their duties in providing such information.

Inspection of the Pension Administrator's documents

While the Principal Act already gave individuals access to pension records applicable to their pension plan and pension fund, it lacked a timeframe in which the information was to be provided. Therefore, the 2016 Pensions Amendment Act included reforms to ensure that Pension Administrators perform their duties in a timely manner.

Effective 1 March 2023, Pension Administrators have 30 days from the date of the written request to make the relevant prescribed information and documents available to the applicant.  Additionally, requests for inspection can now be made once every six months rather than only once per calendar year.

As a result of these reforms, it is important for Pension Administrators to ensure that their records are maintained, up to date and in an organised manner, otherwise, they run the risk of non-compliance within fairly short deadlines.

Training of Pension Administrators

The DLP expects Pension Administrators to ensure that sufficient training is being provided to their staff to allow them to meet their increased responsibilities.

Therefore, effective 1 October 2023 Pension Administrators must:

-        provide evidence to the Director of the DLP of the method being utilised to address on-going administrator training when registering pension plans; and

-        in performing their ongoing fiduciary duties, provide evidence of annual administrator training to the Director of the DLP within three months of the end of the financial year.

Holding non-compliant employers accountable

The 2016 Pensions Amendment Act also targeted the increasing issue of non-compliant employers. Over the years there has been an increased trend of employers making pension contributions incorrectly (if at all), so the DLP has put in place reforms that aim to hold these employers more accountable through harsher punitive measures.

Requirement to publish

Pursuant to the 2016 Pensions Amendment Act, effective 1 March 2023, the Director of the DLP requires all registered pension plans to be published in the Gazette, or some other media that they may determine, including details of the respective Pension Administrator and other key service providers for the pension plan. Publishing an official list of pensions ensures that Pension Members can verify that their respective pension plan has been properly registered with the DLP as its regulator. 

More importantly, effective 1 March 2023, employers who fail to properly provide and contribute to pension plans for their employees will be subject to heavier penalties. On summary conviction, courts can now impose fines starting at $20,000, imprisonment starting at a term of two years, or a combination of both.

Delinquent payments and imposition of heavier penalties

Pursuing their aim of deterring employers from breaching their duties, the DLP significantly reformed the Principal Act with regard to recovering arrears of contributions from employers who have failed to comply with their duties. 

Effective 1 July 2023, a more structured process was initiated, which included the following: 

-        a "contribution date deadline" was introduced by which employers are given a timeframe in which to pay monthly contributions into their employees' pension fund;

-        where a contribution is not made within this timeframe, it will be considered a "delinquent contribution", and Pension Administrators will have authority to take immediate action to collect the delinquent contribution (including interest accrued) before the "reportable date";

-        where employers fail to pay the delinquent contribution by the reportable date, Pension Administrators shall report this in writing to the Director of the DLP by a specified "delinquent notification date"; and

-        Pension Administrators will be required to inform affected employees of a non-compliant employer within 60 days of notifying the Director of the DLP and will have the option of publishing the names of these non-compliant employers.

In addition to the above, the reforms included enabling the Director of the DLP to investigate and initiate action against non-compliant employers to recover the payment of the delinquent contributions through one or more of the following means:

-        demanding that the non-compliant employer make payment within 14 days;

-        demanding that the non-compliant employer appear before the Director of the DLP to address the delinquent contribution and disclose various documentation;

-        ordering the payment of a fee of up to 10% of the amount owed or $50 per day until the total amount is settled;

-        commencing legal proceedings to recover the delinquent contribution (including fines and fees); and

-        publishing details of breaches of the Pension Act, including the name of the employer, the offence committed, and the applicable penalty.

Furthermore, reforms also enable employees (who reasonably believe that their employer has failed to remit their contribution) to report their employer in writing to the Director of the DLP to investigate and take the above actions where required.

Additionally, it has been clarified that, aside from any other fees, fines, or penalties, an employer is obligated to pay interest, calculated daily at the current prime rate in the Cayman Island plus 5%, on all money due to be paid by an employer to a pension fund.

Conclusion

The full effect of the 2016 Pensions Amendment Act may have been a long time coming; however, it has really made the pensions law in the Cayman Islands fit for purpose as an essential benefit required to be provided by employers to employees.

Admittedly, it is a complex piece of legislation and therefore employees, employers, and Pension Administrators could be forgiven for feeling a little bemused. We at Bedell Cristin have guided clients through the complexity and welcome the chance to guide others.