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From: Theresa Tedesco
Category: Category 1
Date: 04 May 2002
Time: 02:40:14
Remote Name: 10.10.17.217
Page URL: http://www.nationalpost.com/search/story.html?f=/stories/20020502/97273.html May 2, 2002 Standard in talks on refunds Internal document reveals insurer withheld refunds to a major Vancouver pension plan Theresa Tedesco, Chief Business Correspondent Financial Post The Canadian arm of Standard Life Assurance Co. is attempting to negotiate a settlement with the trustees of the B.C. Waterfront Employers Industry Pension Plan in the wake of allegations that the insurance company may have concealed refunds owed to the Vancouver-based pension plan, the Financial Post has learned. Sources say senior executives and lawyers for Standard Life are in discussions with representatives for the trustees of the Waterfront pension plan with an aim to determining the amount Standard Life will reimburse the trustees for dividends earned on policies dating back more than a decade. According to sources, officials at the Canadian operations of the giant U.K.-based mutual insurer informed the Vancouver pension plan of a shortfall resulting from charges deducted from their refunds without their knowledge or consent. Similar negotiations have been under way in the past year between Standard Life and 80 of its group annuity clients. Officials representing the Waterfront pension group declined to comment. Sources say the trustees hired a lawyer and are said to be seeking a reimbursement of about $100,000. Michel Dufour, a spokesman for Standard Life in Montreal, declined to comment specifically about the trustees of the Waterfront Employees Pension Plan because the insurer is involved in a lawsuit between itself and three former B.C.-based employees who were fired by the company in 2000. Documents related to that lawsuit were sealed by a B.C. Superior Court judge last December. The case involving the Waterfront pension plan surfaces in the wake of other allegations levelled by another former employee of Standard Life's Canadian operation, which accounts for $25-billion of the U.K. parent's $187-billion in assets. Peter Hedges, the former manager of the London, Ont., branch, who was fired by Standard Life, said in a court affidavit filed last year that Standard Life encouraged the "unethical practice of secret billings" against client accounts. Mr. Hedges was sued by Standard for allegedly breaching the company's business code of conduct in late 2000. As part of his defence in the lawsuit, he claimed the insurer had been engaged in a deliberate practice of overcharging its clients for decades using a series of unexplained deductions for client accounts. The accounts were charged with miscellaneous branch fees and other fee-for-service charges without giving the clients an opportunity to validate the fees being charged against them. Mr. Hedges claimed that his branch earned about $20,000 to $40,000 a year over a 15-year period through undisclosed billings. The former employee also accused the company of concealing refunds owed to its clients. Standard Life subsequently admitted that it had uncovered a "derogation to one of our business practises" and that it had hired Deloitte Touche to conduct an internal audit of its participating group annuities dating back to 1987. At the same time, the Office of the Superintendent of Financial Institutions in Ottawa began its own review of Standard Life last year. Mr. Hedges settled his lawsuit with Standard Life last year. According to an internal document obtained by the Financial Post, which outlines the Waterfront pension plan's account activity dating back to 1959, the corporate policy at Standard Life had been to withhold volume refunds earned on that client's participating group annuity contracts. The five-page summary card of the pension plan's activity, prepared by Montreal head office, instructs that miscellaneous fees were to be charged against the volume refund accrued by the Waterfront pension plan and that these billings were not to be disclosed to the client. As well, any volume refund remaining was not to be paid out to the client but instead, was redirected into the general account that Standard Life used to enhance the group quotations of other policyholders. For example, according to the summary card which outlines activity from 1959 to 1985, $57,769.51 was removed from the volume refunds of the Vancouver-based Waterfront pension plan in 1981 and was transferred to Standard Life's general account. "It was decided that the Trustees should not be advised of volume refund for [the] time being and that the amount is to be kept in a fund to cover special expenses that might come up in administration of the plan," the summary card stated. "Under no circumstances are we to pass any information to the Trustees concerning the Volume Refund or the amount on deposit." The policies at the centre of the controversy -- known as Par Bonus -- had been popular in the insurance industry with individual and corporate clients who paid an additional premium or surcharge in the price of their plans in order to qualify for a return of profits earned by Standard Life. There is a contractual formula that dictates how much of the bonus clients would receive from company profits in a given year. These annual bonuses -- or volume refunds -- were supposed to be deposited into an account and used as volume refunds payable to the client, which could opt to take the cash or use it to enhance the member benefits. Over the life of these policies, volume refunds were expected to make up a significant share of the total fund to cover the pensions of its members. Instead, the summary card stated that the volume refund owed to the Waterfront pension plan was to be calculated in a "normal manner" and that the amount was to be transferred to Standard Life's general account. "A statement of the fund is to be made up for our information only," the document underscored, adding that the original version was to be filed in Standard Life's Montreal headquarters and a copy sent to the Edinburgh head office. Standard Life's Vancouver branch office, which had been administering the Waterfront pension plan, was not to receive copies of the summary card and audit notices showing the volume refund on deposit. A former senior manager at Standard Life confirmed that the insurer had billed client accounts various fees without disclosing the charges to clients, but that it had recently changed that policy. In an affidavit filed in Ontario court as part of the Peter Hedges lawsuit, Douglas Wagner, former vice-president of sales, stated that "Standard Life always believes, and still believes, that these charges were proper. The charges represent legitimate recovery of the cost of real services." In a letter published in the National Post in January, 2001, Claude Garcia, president of the company's Canadian subsidiary, admitted Standard Life had decided to deduct fees incurred by the client for special services rendered from the dividend declared on certain group annuity contracts. He indicated that it was "the practice in the industry." Although the Par Bonus annuity products were introduced in 1972, new federal laws regulating the insurance industry were introduced in the mid 1980s that required employees to disclose the billings to clients. Mr. Garcia wrote, "We have discovered that in some cases the client's agreement to do this had not been obtained," and that Standard Life was presently contacting these clients to complete its investigation and "resolve this to their satisfaction." Mr. Dufour said that it has negotiated settlements with all but one client for total reimbursements of about $1 million. However, a court affidavit filed by another former employee contradicted Mr. Garcia's comments. Martin Horsburgh, a manager in Standard Life's Vancouver office fired in October, 2000, claimed that although the company's recent stated policy was to obtain approval from clients, it was not enforced. In his affidavit supporting Mr. Hedges filed in Ontario, Mr. Horsburgh claimed the practice of secret billings carried on for years until an internal memorandum was issued to the sales force by electronic mail in May, 1999 declaring that the company was "curtailing the billing of undisclosed fees against participating accounts unless client authorization was received and the fee basis included detailed documentation of services provided." Still, he claimed Standard Life made no attempt to inform or reimburse the clients before then. ttedesco@nationalpost.com