Legal Aspects of Trustee Expenses and Attendance at Educational Programs

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by Michael Mazzuca and Mark Zigler*

Trustees of multi-employer pension and benefit plans have a fiduciary responsibility to exercise their powers in the best interests of both present and future trust beneficiaries. This duty toward beneficiaries is paramount.1 Like any other class of trustees, plan trustees are subject to close scrutiny by trust beneficiaries, the general public, regulators and the courts when it comes to spending and accounting for trust fund money.

As the law develops in Canada and the United States on the subject of trustee expenses for educational conferences, the control of such expenditures becomes increasingly important. Educating trustees in all aspects of fund administration is essential to the prudent and efficient performance of trustee duties. On the other hand, the substantial discretion given to trustees when expending trust fund money for educational programs creates the potential for abuse. Trustees who abuse their power with respect to spending for educational opportunities may be subject to civil, criminal and tax penalties.

In Canada's common law, province issues concerning trustee expenses and attendance at educational programs may be dealt with by the Courts. This is similar to the United States, which has much more developed case law. It is therefore helpful to briefly examine U.S. case law concerning such issues. The U.S. Department of Labor (DOL) has the authority to conduct investigations and to take enforcement actions when it deems there have been improper trustee expenses.2

Potential Abuses by Trustees

More than four decades ago, Noel Arnold Levin noted a number of concerns with respect to trustee conference expenditures in his article “Trustee Expenses and Attendance at Educational Programs.”3 Levin's concerns continue to be relevant today. Levin proposed “six measures of prudence” to which trustees should address themselves, as follows.

  1. The reasonableness of expenses. One must examine the amount spent by the trustee in light of the conference locale and the amount a trustee might reasonably be expected to spend. Moreover, there is a need to itemize all expenses so that individuals receive the lesser of the per diem rate or the actual expenses incurred.
  2. The number of meetings attended per year and who attends. The position of a trustee should not be used as a means to visit widespread locations. More importantly, lay trustees should not attend conferences from which they cannot reasonably derive knowledge they will use. For example, it is inappropriate for trustees to attend a conference on a specific issue for which they have no responsibility. While there are cases where exceptions should be made, some advisors recommend limiting trustees to one conference per year.
  3. The location of the meeting. A trustee should attend the meeting nearest to their home when similar meetings are held in different locations.
  4. The number of persons from the particular board of trustees attending. Sending a large number of trustees to any one conference is not a prudent use of fund resources. Trustees who attend conferences are expected to report back to their respective boards, and little can be gained by having all or most trustees attend.
  5. Attendance at all sessions of the conference. Trustees should not engage in recreational activities or other diversions during the hours when sessions are in progress. Failure to adhere to this rule may result in a conviction for fraud or embezzlement.
  6. Charging more than actual expenses incurred. Overcharging raises difficult questions with respect to the personal, civil, criminal and tax liabilities of trustees.

All of the concerns listed by Levin are as applicable to trustees in Canada as they are to those in the United States. The major difference is that the Employee Retirement Income Security Act of 1974 (ERISA) and its associated regulations provide clear guidelines for the conduct of trustees in the United States—including the incurring of expenses by trustees.

While there is no Canadian counterpart to ERISA in this respect, Canada does not lack statutory guidance regarding trustee conduct. Most direction is in the trustee acts of the various provinces.4 Drafted with a view to regulate testamentary or family trusts rather than major employee benefit plans, these statutes are, nevertheless, applicable. Basic common law concerning trusts also provides some assistance. In addition, there are provisions of the Criminal Code where fraud or criminal breach of trust might be involved.

When a pension plan is involved, pension legislation and the policies of the various pension regulators across Canada, including the Canadian Association of Pension Supervisory Authorities, provide further assistance.

With respect to trustee compensation, a guideline published by the Office of the Superintendent of Financial Services (OSFI) in 1998 advises:

“If, for example, the plan wishes to update the knowledge of its administrator and staff by sending them to conferences, documented guidelines could specify for instance what conferences are considered appropriate, what is to be gained from the attendance, what reporting of findings is expected of the attendees, who should attend, what accounting of expenses is expected, and what are reasonable expenses.” 5

The OSFI Guidelines remind trustees that the standard of prudence requires trustees to establish “clear written rules and guidelines regarding the use of plan assets for purposes other than benefit payments.” These rules should set out the issues to be considered before an expense payment is authorized and guidelines regarding what expenses are appropriate. As an example, the OSFI guidelines address attendance at educational conferences:

“The board of trustees should establish a policy for compensating its members for their time and earnings lost while they work as trustees. In doing so, they should seek the opinion of independent advisors with expertise in compensation. The policy should be reviewed by legal counsel to ensure that it is consistent with trust law and the specifics of the plan. The board should consider disclosing to members the actual compensation and any honoria or repayment of expenses to trustees as well as the plan's policy in this regard.” 6

Even though OSFI only regulates federally registered pension plans, the expectations set out in the excerpts from its guidelines apply to the obligations of all benefit fund trustees.

Is It Appropriate for Trustees to Attend Conferences?

In the absence of an express provision in a trust agreement permitting reimbursement for trustee expenses, there is some question as to whether such expenses are proper. For example, Section 23.1 of the Ontario Trustee Act states a trustee:

“…who is of the opinion that an expense would be properly incurred in carrying out the trust may, pay the expense directly from the trust property; or pay the expense personally and recover a corresponding amount from the trust property.” 7

As Donovan Waters notes in the Law of Trusts in Canada:

“It would be an extraordinary system of law which did not permit trustees to recover their out-of-pocket expenses incurred in the discharge of their duties and powers under the trust, and in fact, Courts of Chancery were never in any doubt that the trustee was entitled to such indemnification.” 8

More specific is the question of whether trustee conference expenses are properly “incurred in the discharge of their duties and powers under the trust.” Given the complexity of modern-day employee benefit plans and trusts, the importance of educating trustees cannot be overstated. At conferences, trustees learn how to properly discharge their trust obligations. Canadian regulators recognize that adequate knowledge and skills on the part of pension plan administrators is an underlying principle of good governance.9

Since it is often difficult to establish a direct connection between conference expenses and benefits to a trust, it is crucial these expenses be reasonable in amount and incurred with an honest belief that the trust will benefit. Obviously, this places constraints on the extent to which these expenditures may be made.

A new factor that has emerged, particularly after the COVID-19 pandemic, is the availability of less expensive “online” conferences. Prudent trustees must weigh the advantages of “in-person learning” and the personal interaction gained by such learning with fellow trustees and instructors present against the economics and efficiencies of the online alternatives. Where trustees lack the availability or budget to travel, online options are often preferable when they are available.

Regulation of Expenses Incurred at Educational Conferences

The common law of trusts is the primary source of general guidelines and principles from which a code of behaviour might be developed for trustees attending such conferences. There are three guiding common law principles with respect to trustee expenses.

  1. Trustee expenses must be properly incurred.
  2. Trustees are under an obligation to account for all expenses.
  3. Trustees must meet the standard of care that a person of ordinary prudence would exercise in the management of his or her own affairs.
Properly Incurred Expenses

A basic principle of common law is that trustees are entitled to reimbursement for expenses “properly incurred.” While this criterion can be vague and nebulous, the courts and legal scholars have offered a more precise definition of what constitutes a “properly incurred” expense. Waters provides a threefold test as follows:

“. . . in allowing or refusing claims made by trustees, the test is whether the expense incurred arose out of an act within the scope of the trusteeship duties and powers, whether in the circumstances it was reasonable, and whether it was something that his duty as a trustee required him to do.” 10

Is the Act Within the Scope of Trustee Duties and Powers? This question has been dealt with above with respect to the issue of whether expenditures on educational conferences can be made in the first place. Such expenditures are readily justifiable when there is an express provision in the trust agreement permitting them, although the importance of educating the trustees of an employee benefit trust can be viewed as a matter within the scope of the trusteeship duties in most circumstances.

Is the Expenditure Reasonable? The courts provide little guidance on when expenditures are reasonable. The facts of each case often dictate what is reasonable. Consider a conference on a specialized topic, such as protecting the privacy of personal information. It may be reasonable for one trustee to attend the event, but it may not be reasonable for several trustees of the same fund to attend.

The reasonableness test often manifests itself when trustees choose the more reasonably priced of various alternative expenditures. Such is the case when economy air travel is chosen over a first-class ticket, and a less expensive hotel room is selected instead of luxury accommodations. It is impossible to compile an exhaustive list of reasonable expenditures, but the list of “Trustee Dos and Don'ts” included in Appendix A outlines some trustee conference expenditures generally viewed as reasonable.

In any event, it is clear that a trustee may not recover expenses that arise from their own misconduct.11 This includes situations where a trustee falsifies accounts or unjustifiably runs up expenses.12 Examples of such activities are cashing first-class airline tickets provided by the trust fund and traveling economy class, payments for travel and meals of spouses at the expense of the trust fund, and not attending part or all of the conference.

Do the Duties of the Trustee Require This Activity? A crucial aspect of conference expenditures is the practicable relevance to the trustee’s duties. Accordingly, a trustee not involved in fund delinquencies should not attend a conference on this topic. Expenditures may be justified for trustees with considerable time commitments to trust fund work who exercise a degree of skill and ability and have had some success in trust administration. Justifying such expenditures for trustees with few or no commitments and responsibilities may be extremely difficult.

Duty of Trustees to Account

The second key area for consideration with respect to the law of trusts is the duty of trustees to account and disclose information. By law, trustees are required to keep clear and distinct accounts. In the old English case of Chisholm v. Barnard,13 this obligation was held to mean trustees must give full explanations of all their dealings and the reasons why outstanding assets were not collected or property of the estate has disappeared. More recently, the Ontario Superior Court has clearly held that a trustee “has an obligation to keep proper accounts” and “must keep a complete record of his/her activities.” 14 Beneficiaries of a trust fund are entitled to an accounting for all expenditures as a matter of common law and may bring legal proceedings for such accounting at any time.

Accordingly, it is crucial for trustees to account fully for conference expenditures. Even trustees receiving a per diem allowance for a conference must account for amounts actually spent to avoid suspicion they profited from the allowance by, for example, “doubling up” in hotel rooms and having meals paid for by others. Trustees are legally obliged to return the unused balance of any allowance. On the other hand, trustees may be reimbursed for any reasonable additional expenses that were incurred if plan policies permit doing so.

Standard of Care of Trustees

A final matter is the general standard of care expected of trustees when conducting trust affairs. Apart from maintaining the highest standards of honesty and good faith, the law requires a trustee to exercise the same degree of diligence in their office as a person of ordinary prudence would exercise in the management of their own affairs.15 In the case of pension fund trustees, pension legislation often holds trustees to the highest possible standard where they must act as if managing the affairs of another person.16 Paid trustees are held to an even higher standard. If a trust fund is in a precarious financial position or has a large number of trustees, attendance at conferences by any or all of the trustees should be carefully considered in light of the circumstances. Charging illegitimate expenses to pension funds is also a breach of this standard.17

Liability of Trustees

Trustees who abuse their trust position and transgress the guidelines noted above or actually fall prey to the temptations of improperly benefiting from trust monies may be subject to serious liability in civil courts, criminal courts and under the Income Tax Act.

Civil Liability

Trustees need not be found to have acted fraudulently, negligently, incompetently or in an otherwise blameworthy manner in order to incur civil liability. The operating principle is:

“If the letter of the trustee's obligation has not been adhered to for whatever reason, he is liable to the beneficiaries for any loss which has occurred as a result.” 18

Trustees are jointly and severally liable to the trust beneficiaries for a loss arising out of a breach of trust—in other words, each trustee is personally liable for their own part in losses and also for losses caused by the other trustees. Take note that this common law position has been modified by trustee legislation in some, but not all, provinces. For example, the Trustee Act of British Columbia does not hold a trustee accountable for the acts of another trustee unless the loss “happens through trustee's own wilful default.” 19 Hence, a trustee who condones abuses by other trustees with respect to attendance at educational conferences and is fully aware of such abuses may share liability.

The specific remedies available to fund beneficiaries and trustees are twofold. The first remedy is for situations where expenses are improperly incurred regardless of any dishonesty on the part of the trustee—It consists of reinstatement of the funds improperly advanced and possibly payment of any damages arising from the trust losing the use of the funds. In the case of Zimmerman v. McMichael Estate20, the Ontario Superior Court found that a trustee had made improper and unauthorized payments to himself or for his benefit out of the trust and ordered the trustee of an inter vivos trust to reimburse the trust more than $400,000 plus interest.

A more stringent civil remedy is available when it can be proven a trustee was dishonest, which is the gravest breach of trust.21 Furthermore, most trustee acts permit the nomination of a new trustee to replace a trustee found unfit to act or convicted of an indictable offence.22 In a recent Alberta case, the court held that a trustee’s expenses were not reasonably and properly incurred. As a result, the trustee was ordered to reimburse the fund, and the fund was directed to remove the trustee.23

Criminal Liability

There are various criminal charges to which a trustee suspected of abuses of trust may be subject, including criminal breach of trust, theft, theft by a person required to account and fraud. All of these offences relate to the misappropriation of money or property that does not belong to the trustee, and all can result in prison terms on conviction.

The offence of criminal breach of trust is set out in Section 336 of the Criminal Code:

“Everyone who, being a trustee of anything for the use or benefit, whether in whole or in part, of another person, or for a public or charitable purpose, converts, with intent to defraud and in contravention of his trust, that thing or any part of it to a use that is not authorized by the trust is guilty of an indictable offence and liable to imprisonment for a term not exceeding fourteen years.” 24

With respect to criminal breach of trust, the courts have determined that even if the trustee is given unfettered discretion to look after the trust property, they are not entitled to use the property for personal gain. If the trustee does so, they are guilty under Section 336.25

In most criminal proceedings, the Crown must prove that the accused actually intended to engage in criminal conduct. However, in cases of criminal breach of trust, the necessary fraudulent intent may be deduced from the accused’s conduct. Where the natural consequences of the accused’s acts are to defraud trust beneficiaries, the onus is on the accused to rebut the presumption they intended these consequences.26 Finally, the courts have determined it is not at all inconsistent to charge a trustee with criminal breach of trust and theft for the same offence, as it is possible to be convicted of one and not the other.27

Under Section 322 of the Criminal Code, an individual commits theft when, among other things, the person:

“. . . fraudulently and without colour of right takes, or fraudulently and without colour of right converts to his use or to the use of another person, anything, whether animate or inanimate, with intent to deprive temporarily or absolutely, the owner of it, or a person who has a special property or interest in it, of the thing or of his property or interest in it. . . .” 28

In addition, Section 330 of the Criminal Code creates an offence of theft by a person required to account, as follows:

“Everyone commits theft who, having received anything from any person on terms that require him to account for or pay it or the proceeds of it or a part of the proceeds to that person or another person, fraudulently fails to account for or pay it or the proceeds of it or the part of the proceeds of it accordingly.” 29

Under Section 330, it is possible for a trustee to be convicted for refusing to account for expenditures while attending an educational conference, or simply for not being able to account for how the money was spent. Conviction for theft under Section 322 or Section 330 may result in a jail term of up to ten years where the stolen property exceeds $5,000 in value. Theft under $5,000 may result in a jail term of up to two years or a fine.

Section 380 of the Criminal Code sets out the offence of fraud that is committed by:

“. . . one who, by deceit, falsehood or other fraudulent means, whether or not it is a false pretence within the meaning of this Act, defrauds the public or any person, whether ascertained or not, of any property, money or valuable security. . . .” 30

The penalties for fraud may result in a jail term of up to 15 years and depend on whether the amount in question exceeds $5,000.

In recent years, there has been an upsurge in theft and fraud cases against politicians and civil servants who misappropriate public funds. For example, there is the case of a British Columbia cabinet minister who cashed in first-class airline tickets and traveled economy, then pocketed the difference. The result was a conviction under the Criminal Code's fraud provisions. In another case, a member of Parliament in Newfoundland claimed the mileage allowance available to members of Parliament for trips to his constituency that he did not make. He was convicted of fraud in excess of $200 under the then-Section 338 of the Criminal Code despite evidence that many members of Parliament believe the mileage expenses were an allowance to be used regardless of whether a trip was taken. Similarly, trustees may fall victim to the same types of charges where they seek reimbursement for expenses not actually incurred.

Income Tax Liability

A final matter to be considered is the income tax consequences that might result from attending educational conferences and conventions. Generally, trustees are not subject to tax for conference expenses reimbursed by their trust fund—just as employees are not taxable for such expenses reimbursed by employers as part of the duties of employment. However, Canada Revenue Agency Folio S2-F3-C2 provides that:

“. . . if the employer gives an employee a non-accountable allowance to cover the cost of attendance at such a convention, the employee will, as a rule, be taxable on that allowance. . .” 31

From this it can be argued trustees receiving a non-accountable allowance to attend a conference are receiving remuneration for their work as trustees and, accordingly, are taxed on such an allowance.

Finally, if a trustee is convicted of a criminal offence or illegally misappropriates trust funds, such illegally obtained income is taxable to the trustee under the Income Tax Act.32

Conclusions

It is generally possible under the terms of most employee benefit plans, and pursuant to the relevant provisions of the trustee acts of Canada’s provinces, for trustees to incur expenses for attending educational conferences—provided such expenditures are closely controlled and are reasonable. It is prudent for a trust to establish controls to ensure the expenses charged are reasonable and adhere to the standards set out in legislation and common law.

Trustees should be required to account for all expenses and the reasonableness thereof. The trustees must fully account for their expenditures and observe the standard of care expected of trustees. Failure to operate within these controls may result in adverse civil, criminal and tax liability to the trustee.

Appendix A

Trustee Dos and Don'ts

Dos

  1. Keep all travel, meal and accommodation expenses at reasonable levels, taking less expensive options when possible and practical. For example, attend educational events closest to home when the same opportunity is offered at more than one location. Select economy over first-class transportation when it is available and appropriate.
  2. Attend all educational sessions relevant to your duties as a trustee while at an event.
  3. Substantiate all expenditures associated with attending the educational event even when you have a per diem allowance. Keep receipts whenever possible and provide a full accounting of all trust fund monies spent.
  4. Report to the board of trustees your attendance at the educational events, including the subject matter of the sessions and what you learned.

Don'ts

  1. Attend educational events that do not have content relevant to your responsibilities as a trustee.
  2. Permit an unreasonable number of trustees of the same fund to attend the same conference.
  3. Attend programs when the financial position of the trust fund would not reasonably justify such attendance.
  4. Charge expenses for days other than those actually spent in attendance at conferences or traveling to or from a conference.
  5. Charge to the trust fund expenses incurred by friends, spouses or children attending a conference.
  6. Receive payment from two sources (e.g., two different trust funds) for the same expenses.

Additional information: *This is an update of the chapter written by Raymond Koskie for Employee Benefits in Canada, Third Edition Revised, published by the International Foundation of Employee Benefit Plans.

Endnotes

  1. Cowan v. Scargill, (1984) 2 All E.R. 750 (Ch.D.) at p. 760.
  2. See J. Mader, "Trustee and Plan Expense Issues," NCCMP Resources (Updated November 2006).
  3. N.A. Levin, “Trustees Expenses and Attendance at Educational Programs,” Employee Benefits Digest, June 1979.
  4. S.A. 2022, c. T-8.1, ss. 15, 58, 86; R.S.B.C. 1996, c. 464, ss. 27, 31and 95; C.C.S.M., c. T-160, ss. 8, 9, 78; S.N.B. 2015, c. 21, ss. 9, 52; R.S. N.L. 1990, c. T-10, ss. 3, 11, 29, 31, 32; R.S.N.S. 1989, c. 479, ss. 16, 29, 31; R.S.O. 1990, c. T-23, ss. 3, 27-28; R.S.P.E.I. 1988, c. T-8, s. 4; R.S.N.W.T. 1988, c. T-8, ss. 5, 6, 7; R.S.Y. 2002, c. 223, ss. 8, 9, 10; S.S. 2009, c. T-23.01, ss. 43, 15, 16; R.S.C. 1985, c. P-6.
  5. Memorandum of Administrators of Federally Regulated Pension Plans Under the Pension Benefits Standards Act, 1985, Guidelines for Governance of Federally Regulated Pension Plans (May 1, 1998), p. 13.
  6. Ibid., p. 21.
  7. R.S.O. 1990, c. T-23 s. 23.1; R.S.B.C. 1996, c 464, s. 95; S.A. 2022, c. T-8.1, s. 58,; C.C.S.M., c. T-160, s. 78;S.N.B. 2015, c. 21, s. 52; R.S.N.L. 1990, c. T-10, s. 29; R.S.N.S. 1989, c. 479, s. 29; R.S.N.W.T. 1988, c. T-8, s. 5; R.S.N.W.T. (Nu) 1988, c. T-8, s. 5; R.S.Y. 2002, c. 223, s. 8; S.S. 2009, c. T-23.01, s. 43.
  8. Waters, Law of Trusts in Canada, 4th ed. (Toronto: Carswell, 2012), p. 1207.
  9. Standing Senate Committee on Banking, Trade and Commerce, Report on the Governance Practices of Institutional Investors, November 1998; and supra note 5.
  10. Waters, supra note 8, p. 1209.
  11. Ibid., p. 1210.
  12. Ibid., p. 1210.
  13. Chisholm v. Barnard (1864), 10 Fr. 479 (Ch.).
  14. Zimmerman v. McMichael Estate, 2010 ONSC 2947, para 31.
  15. Learoyd v. Whitely (1887), 12 Cas. 727 (H.L.).
  16. See Ontario Pension Benefits Act s. 22(1) and (2).
  17. OSFI, “Guidelines for Federally Regulated Pension Plans” supra note 5 p. 13.
  18. Waters, supra note 8, p. 1270.
  19. R.S.B.C. 1996, c 464, s. 95; S.A. 2022, c. T-8.1, s. 58; C.C.S.M., c. T-160, s. 78; S.N.B. 2015, c. 21, s. 52; R.S.NL. 1990, c. T-10, s. 29; R.S.N.S. 1989, c. 479, s. 29; R.S.O. 1990, c. T-23; R.S.N.W.T. 1988, c. T-8, s. 5; R.S.N.W.T. (Nu) 1988, c. T-8, s. 5; R.S.Y. 2002, c. 223, s. 8; S.S. 2009, c. T-23.01, s. 43.
  20. Zimmerman v. McMichael Estate (2010) ONSC 2947, para 31.
  21. Waters, supra note 8, p. 898.
  22. S.A. 2022, c. T-8.1, s. 15; R.S.B.C. 1996, c 464, s. 27, 31; C.C.S.M., c. T-160, s. 8, 9; S.N.B. 2015, c. 21, s. 52; R.S.NL. 1990, c. T-10, s. 11; R.S.N.S. 1989, c. 479, s. 16, 31; R.S.O. 1990, c. T-23, s. 3; R.S.N.W.T. 1988, c. T-8, ss. 6, 7; R.S.N.W.T. (Nu) 1988, c T-8, 6, 7; R.S.Y. 2002, c. 223, s. 9, 10; S.S. 2009, c T-23.01, s. 15, 16.
  23. McDonald Estate (2012), 14 ABQB 704, paras. 38-47, 105.
  24. Criminal Code, R.S.C., 1985, c. C-46, s. 336.
  25. R. v. Belanger (1925), 44 C.C.C. 129 (Que. K.B.).
  26. Ibid.
  27. R. v. Petricia (1974), 17 C.C.C. (2d) 27 (B.C.C.A.); R. v. Nakonechny (1980), 3 Sask. R. 209 (Sask. C.A.); R. v. Lowden (1981), 59 C.C.C. (2d) 1 (Alta. C.A.), aff’d (1982), 68 C.C.C. (2d) 531 (S.C.C.).
  28. Criminal Code, supra note 23, s. 322(1).
  29. Ibid., s. 330(1).
  30. Ibid., s. 380(1).
  31. Canada Revenue Agency, Folio S2-F3-C2, “Convention Expenses” (November 24, 1989), para. 7.
  32. R. v. Poynton (1972), 72 D.T.C. 6329 (Ont. C.A.); and Lennox Industries Ltd. v. The Queen (1987), 87 D.T.C. 5041 (F.C.T.D.).

Michael Mazzuca is a partner at Koskie Minsky LLP in Toronto and counsel at Koskie Glavin Gordon in Vancouver. 

Mark Zigler is a senior partner in the Pensions and Benefits Group at Koskie Minsky LLP and has over 40 years of experience.