Following the recent provincial election, Ontario’s Liberal government re-introduced the budget bill which had been defeated during the last session of the legislature. With the Liberals’ new majority in the legislature, the budget bill passed easily this time around. Bill 14, the Building Opportunity and Securing Our Future Act (Budget Measures) Act, 2014, received royal assent on July 24, 2014.
Among other things, the budget bill re-introduced changes to the Pension Benefits Act (PBA) to address the October 31, 2012 decision of the Ontario Court of Appeal in Carrigan v. Carrigan Estate. Continue Reading
Jana Steele recently co-authored the C.D. Howe Institute paper “Target Benefit Plans in Canada – An Innovation Worth Expanding” with Mel Bartlett and Angela Mazerolle.
The paper reviews the challenges facing defined benefit (DB) and defined contribution (DC) pension plans, and argues for the need to move beyond the DB versus DC debate towards “a middle-ground option that incorporates some of the positive attributes of both designs.”
Target-benefit plans (TBPs) can deliver the cost predictability of DC plans combined with a defined-benefit-type pension to retirees, with predictable contribution levels, and enable pooling of longevity and investment risks.
The paper discusses New Brunswick shared risk pension plans and considers lessons that can be applied to the design of similar TBP legislation in other Canadian jurisdictions.
Currently, the pension standards legislation in most Canadian jurisdictions do not accommodate single-employer TBPs. In particular, pension legislation generally prohibits reduction of accrued benefits outside of the multi-employer unionized environment – this would have to change, as a key element of TBPs is their ability to let benefits vary as a function of the funding status of the plan. In addition, federal tax rules would have to be amended and accounting guidance would have to be provided in order to facilitate the development of TBPs.
The paper concludes by noting that governments should be encouraged to make the necessary legislative amendments in order “to move outside the pure DB versus DC debate and permit other design options.”
You can also watch Jana interview with BNN, where she discusses the advantages of TBPs.
Osler made a submission in response to the federal Government’s consultation paper “Pension Innovation for Canadians: The Target Benefit Plan”.
We provided comments with a view to ensuring that target benefit plans (TBPs) are introduced in a way that puts them on a “level playing field” with other currently available pension options (i.e., traditional defined benefit and defined contribution pension plans), such that artificial barriers are not created which could impede TBP implementation.
In our view, the following are the two biggest disincentives to the adoption and/or sustainability of new TBPs under the current Government proposal:
- Negotiation/consent requirements for the establishment and amendment of TBPs, particularly in a non-union context; and
- Governance requirements related to the functioning and representative make-up of the administrator of TBPs − in particular, the proposed requirement that the Board of Trustees be comprised of members, retirees and other beneficiaries.
As we discuss in our submission, neither requirement is necessary to establishing an equitable and transparent TBP framework.
On June 12th, the Quebec government introduced Bill 3 – An Act to Foster the Financial Health and Sustainability of Municipal Defined Benefit Pension Plans in Quebec (Bill 3). Bill 3 replaces Bill 79 – An Act to Provide for the Restructuring of and Make Other Amendments to Municipal Defined Benefit Plans (Bill 79) which was introduced in February 2014 by the previous government, but died on the Order Paper after the last election. For a more detailed discussion of Bill 79, see our previous post. During the election, the Liberal party committed to restructuring municipal pension plans and reigning in the ballooning deficits, currently estimated in the neighbourhood of $3.9 billion.
Bill 3 is a stricter version of Bill 79 and contemplates a significant shift in the structure of municipal sector pension plans. Unlike Bill 79, Bill 3 would make the restructuring process mandatory for all municipal defined benefit pension plans, not just plans that meet certain funding triggers. Another notable difference is that Bill 3 could impact retirees by allowing an employer to suspend the indexation of their pensions.
The key implications of Bill 3 for municipal bodies, plan members and retirees are:
- Past and future pension plan deficits would be shared equally between the municipal body and the active plan members;
- The municipal body could suspend indexation for retirees;
- A stabilization fund would be created to protect plans from future adverse deviation; and
- The parties could negotiate for one year, after which an arbitrator would be called to settle the dispute.
These proposed changes have triggered resistance from certain plan members. However, the amendments proposed in Bill 3 are consistent with the cost control measures recently introduced in other provinces in relation to public sector pension plans. As provincial governments struggle with limited resources and demographic challenges, changes to public sector plans are increasingly perceived as imperative.
We review the proposed amendments in Bill 3 in more detail below. Continue Reading
Even the best run pension plans occasionally pay retirees the wrong amount due to errors in employee classification, or calculating participant service or compensation. Correcting underpayments is easy enough – though it is important to remember that interest is required –but what happens after a pension plan discovers an error after paying the retiree too much or even a benefit to which a retiree was never entitled?
The United States Court of Appeals for the Ninth Circuit recently confronted this issue when a retiree, who was found never to have had enough qualifying service to have vested in his pension, sought to enjoin the plan from cutting off his payments. In Gabriel v. Alas. Electrical Workers’ Plan, the retiree claimed that he would never have stopped working if he had known he had not qualified for a pension. He sought equitable relief under the U.S. Supreme Court’s CIGNA v. Amara decision, finding that participants could obtain traditional equitable relief for certain violations by plan fiduciaries. Continue Reading
Plan fiduciaries are held to the highest performance standards and can be personally liable for breaches of fiduciary responsibility. Because of this potential liability, there should be clear and rational rules enabling those who provide services to plans to know when they have crossed the line.
I recently wrote a post called the “Teflon Fiduciary” in which I argued that the U.S. Court of Appeals for the Fifth Circuit had permitted investment advisers functioning as fiduciaries to avoid responsibility for imprudent or inappropriate advice. By looking to the manner in which the adviser in question was paid rather than whether he was functioning as a fiduciary, that court set the line in the wrong place. The rule may have been clear, but it wasn’t rational and it excluded too many advisers.
We have now had a decision from a federal district court in another part of the country that seems to err in the opposite direction by including as fiduciaries people who the drafters of ERISA probably never intended to cover.
The case is Golden Star, Inc. v. Mass Mutual Life Insurance Company. Continue Reading
The Office of the Superintendent of Financial Institutions has posted guidance (the Guideline) on the question of whether a fund established as a limited partnership by a corporation meets the definition of “pooled fund” or “mutual fund” for purposes of Section 9 of Schedule III to the Pension Benefits Standards Regulations (Schedule III). Continue Reading
By: Jana Steele and Laura Stefan
On April 24, 2014, the federal government released a consultation paper proposing a framework for target benefit plans (TBP), and seeking input from stakeholders on the parameters of the proposed TBP framework. The government’s initiative would incorporate TBP provisions into the federal Pensions Benefits Standards Act, and would make TBPs available to federally regulated private sector employers and Crown Corporations. For a primer on TBPs, see our prior Osler series on TBPs.
There are a number of notable similarities between the proposed federal TBP framework and New Brunswick’s shared risk plan (SRP) model. Continue Reading
By: Jana Steele, Paul Litner and Lesha VanDerBij
The 21st century workforce needs a modern retirement income system, but Ontario and Canada have a 20th century system in place. That is why Ontario is taking a leadership role in addressing this pressing issue.
On May 1st, the Ontario government presented its Budget for 2014 (the Budget). Chapter IV “Strengthening Retirement Security in Ontario” makes it clear that pensions are a government priority and perhaps even an election issue.
In this Budget, Ontario has taken a leadership role in proposing some innovative and thoughtful solutions to address the ongoing problems of pension adequacy and coverage. Public understanding of the importance of a sound retirement system is increasing. The government appears to appreciate the importance of this issue to the electorate, as well as the broader policy issues.
The Budget notes that: (i) the Canada Pension Plan (CPP) is fundamental to the retirement income security of all Canadians, but current benefit levels are too low to meet the needs of “middle income earners”; (ii) a significant portion of today’s workers are not saving enough to maintain their standard of living in retirement; and (iii) unless action is taken, a significant portion of today’s workers will face a decline in their standard of living in retirement.
The Budget identifies the following contributing factors: no access to a workplace pension plan, inadequacy of voluntary savings, high investment management fees, and longer life spans. Ontario is proposing a wide array of measures to address the “retirement savings gap”, including a new made-in-Ontario pension plan to complement CPP. This proposed Ontario pension solution has garnered the attention of several other provinces, including Prince Edward Island, Alberta, Manitoba and British Columbia, who now have representatives on the working group. We examine, below, some of the Budget’s key pension proposals. Continue Reading
By Louise Greig and Jana Steele
We noticed last week after the federal government’s welcome announcement to commence a consultation process on target benefit plans (TBPs) that much of the media coverage and discussion focussed on the Canada Pension Plan (CPP) and the fact that the federal government appears to have rejected the option of enhancing CPP at this time. We are writing this post to discuss why the CPP enhancement debate is a different issue from the introduction of rules regarding TBPs.
Stepping back, it is key to remember that retirement saving in Canada is based on three main pillars: employment pension plans and individual savings, Canada/Quebec Pension Plan and universal government benefits that apply to seniors (OAS/GIS). The idea is that all three pillars play a role in ensuring that Canadians have adequate retirement savings income. The federal consultation on TBPs relates to the employment pension plans and individual savings pillar, not CPP/QPP. If implemented, changes to allow TBPs in the federal sphere may assist with the employment pension plans and individual savings pillar. Continue Reading