On November 15, 2011 Nova Scotia introduced Bill 96, An Act Respecting Pension Benefits, for first reading. If passed, the current Nova Scotia Pension Benefits Act would be repealed and replaced in its entirety by Bill 96.
Continue Reading...Back in 2009, the Quebec government adopted measures to alleviate the effects of the 2008 financial crisis on the funding of defined benefit (DB) plans. These measures allowed an employer to instruct a plan’s pension committee to implement one or more of the following measures for the first complete actuarial valuation dated after December 30, 2008:
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In response to Ontario’s new regime for dividing pensions on marriage breakdown, which permits the former spouse of a plan member to receive an immediate payment of his or her share of the member's pension and requires plan administrators to calculate the value of the pension, the Financial Services Commission of Ontario (FSCO) has released draft versions of the prescribed forms that must be used in the pension division process.
Continue Reading...Over the last couple of years, Canadian federal and provincial governments have expressed concern over declining pension coverage. They have responded by appointing expert commissions to study the matter, and by proposing possible solutions such as pooled registered pension plans and modest enhancements to the Canada Pension Plan.
These concerns regarding declining pension coverage appear to be supported most recently by statistics released by the Office the Superintendent of Financial Institutions (OSFI) although, perhaps surprisingly, the decline does not seem to be as precipitous as one might have expected.
Continue Reading...The New Brunswick Task Force on Protecting Pensions has released a briefing note, outlining its plan to examine the pension risk management practices and regulatory structures being adopted by other jurisdictions, and to review written submissions “that promote and protect pension coverage”.
As I discussed in an earlier blog post, New Brunswick was the fifth jurisdiction in Canada to appoint an expert panel to review pensions when it announced the formation of the Task Force last fall. The Task Force has indicated that it intends to issue an interim report, based on its initial review and stakeholders’ submissions, in the fall of 2011, and that it will present recommendations to the New Brunswick government aimed at encouraging risk management and risk sharing and ensuring the long-term sustainability of New Brunswick pension plans. Written submissions are due by September 19, 2011 and may be sent via e-mail to: pensions-retraite@gnb.ca.
There will be an opportunity for further stakeholder feedback following the release of the interim report. The Task Force expects to review and evaluate the feedback it receives and issue its final report in the spring of 2012.
On June 24, 2011, the Ontario government published final regulations governing the division of pensions on marriage breakdown. With the publication of these regulations, which come into force on January 1, 2012, long-awaited reform of the family law provisions of the Ontario Pension Benefits Act appears to be coming to a close.
Continue Reading...The federal government followed up on its promise in this year’s budget to implement pooled registered pension plans (PRPPs) “as soon as possible”, with the release of a consultation paper (the Paper) that considers the potential tax rules for PRPPs. The Paper seeks feedback on a number of issues, many of which arise as a result of a key difference between a regular defined contribution pension plan and a PRPP -- being that self-employed individuals and employees of non-participating employers may contribute to the latter.
Continue Reading...The Ontario government recently filed regulations under the Pension Benefits Act (the PBA), which implement funding changes for jointly sponsored pension plans (JSPPs) and certain public sector plans, as well as more general changes applicable to all defined benefit (DB) plans.
Continue Reading...When the Toronto Dress and Sportswear Industry Retirement Fund was wound up in April of 1996, the plan was severely underfunded. Plan assets were only sufficient to fund about 41% of plan liabilities. As the wind up proceeded, extensive efforts were made to contact all members and former members. In the end, however, there remained 249 missing, but identifiable members and approximately $1 million in undistributed plan assets relating to their 41% share of pension liabilities. The plan Trustees wanted to complete the wind up distributions, but they could not agree on how the missing member assets should be treated.
Continue Reading...Certain provisions of Bill C-9, last year's Budget Bill, which amended the federal Pension Benefits Standards Act (PBSA), have been proclaimed in force.
As noted in an earlier blog post, Bill C-9 included a number of significant amendments to the PBSA related to funding, plan wind-ups, vesting, and plans at risk. Briefly, the sections coming into force as of April 1, 2011 relate to:
Effective July 1, 2011, provisions related to immediate vesting of benefits will come into force.
Effective March 25, 2011, Ontario amended the regulations under its Pension Benefits Act (the Regulations) to adopt the federal investment rules “as they may be amended from time to time.”
Previously, Ontario had adopted the investment rules as they read on December 31, 1999 – requiring any changes to the rules made by the federal government to be specifically adopted by the Ontario government. This change to the Regulations means that Ontario registered pension plans will now be subject to the most recent amendments to the federal investment regulations, and any future changes to these regulations will automatically apply to Ontario plans.
Continue Reading...In this week’s Budget announcement, the Ontario government confirmed that work continues on its pension reform initiatives. While a number of the government’s announcements focus on the administration, investment and funding of single and multi-employer pension plans, the government also reiterated its desire to make changes at the “macro” level through support of modest phased in CPP enhancements and its ongoing investigation of new forms of retirement vehicles to improve workforce coverage in a cost effective manner.
Continue Reading...Only one day has passed since the Quebec Finance Minister Raymond Bachand delivered the 2010-2011 budget speech and much has already been said in the media about Quebec’s proposal to implement “Voluntary retirement savings plans” (VRSPs).
The government is planning to amend Quebec’s legislative and regulatory frameworks to allow a new type of retirement savings vehicle for those who are not eligible for an employer-sponsored pension plan. VRSPs would essentially be based on the framework for “pooled registered pension plans” (PRPPs) that was announced by the federal government last December.
Continue Reading...Late last week, the Ontario government announced that it would provide temporary solvency funding relief to certain public sector and broader public sector (BPS) pension plans. Obtaining such relief, however, will not be an easy matter. The government has made it clear that in an effort to ensure that these plans are sustainable in the long term, there will be many “hoops” for plan sponsors to jump through.
Continue Reading...In this post, I will discuss important pension plan funding changes implemented by Bill 120, Securing Pension Benefits Now and for the Future Act, 2010. (Previous posts have considered some of the more controversial aspects of Bill 120, namely, changes to the rules regarding surplus withdrawals, contribution holidays and plan expenses.)
Like many aspects of Bill 120, these changes have not yet been proclaimed into force, and regulations are needed to provide much of the underlying details. However, plan sponsors and administrators should start considering the implications of these amendments now since they could require changes to current practices.
This week the federal government announced that it is amending the Pension Benefits Standards Regulations (the Regulations) to provide federally-regulated plan sponsors with greater flexibility when meeting their funding obligations, while protecting the benefits of plan members and retirees.
The federal government began on the road to pension reform with the introduction of Bill C-9 – this year’s budget bill – which received royal assent on July 12, 2010. (See our April 1, 2010 blog post.)
Bill C-9 included a number of funding-related provisions that required separate amendments to the Regulations. A number of these outstanding issues appear to have been addressed in this latest round of amendments. The amendments to the Regulations will add the following details:
Continue Reading...The federal government announced that Bill C-47, which included another round of pension reform, received royal assent yesterday.
As discussed in a prior post, Bill C-47 follows up on the Bill C-9 amendments to the federal Pension Benefits Standards Act (the PBSA) that were passed earlier this year. Perhaps the most interesting are amendments which purport to provide defined contribution plan administrators with a limited form of “safe harbour” from liability related to member directed plan investments. Bill C-47 also included the following amendments to the PBSA:
Continue Reading...On December 2, 2010, the Prince Edward Island government introduced Bill 30 - Pension Benefits Act , the first step towards implementing provincial pension standards legislation that will establish minimum standards similar to that of other Canadian jurisdictions.
Interestingly, a previous version of the PEI Pension Benefits Act received Royal Assent on April 26, 1990 (the 1990 Act), but was never proclaimed in force. Bill 30 repeals the 1990 Act.
Continue Reading...Yesterday Bill 120, Securing Pension Benefits Now and for the Future Act, 2010, received royal assent. As discussed in previous posts (see October 22, October 29 and December 6, 2010 posts), Bill 120 made a number of significant changes to the Ontario Pension Benefits Act, including:
Continue Reading...Bill 120, Securing Pension Benefits Now and for the Future Act, 2010, was amended by the Standing Committee on Finance and Economic Affairs, and was ordered for Third Reading on December 1, 2010. While the amendments address some of the concerns we raised in our submission to the government, a number of issues remain outstanding.
Continue Reading...In January 2009, the Québec Supplemental Pension Plans Act was amended to allow retirees and retirement eligible members, whose benefits cannot be settled in full following the termination of the pension plan of a bankrupt employer, to apply for the payment of their benefits through a pension paid by the Régie des rentes out of the assets of the plan (Bill 1).
The assets attributable to those who elect this new option are to be administered and invested by the Régie during a prescribed period and will then be used to purchase annuities at a time when the annuity market is hopefully more favourable. The Régie is thereby assuming the risk of a further deterioration in economic conditions.
Continue Reading...The New Brunswick government has followed the approach taken by other Canadian jurisdictions - Alberta, British Columbia, Ontario, Nova Scotia and the federal government -- announcing on October 28, 2010 that it will appoint an expert panel to study pensions. According to the government press release, the task force will consult with New Brunswickers on how to ensure that private sector pension plans are “protected and sustainable in the long-term”. Based on these consultations, the task force will make recommendations to the New Brunswick government. No timeline for the consultation was provided.
The government also indicated that public sector pension plans would be subject to a separate review.
Today, the Ontario Minister of Finance, Dwight Duncan, released a consultation paper “Securing our Retirement Future”. As reported in The Globe & Mail, the paper seeks input from Ontarians on the Ontario government’s proposals to improve the Canadian retirement income system at the macro level.
The government is advancing a three-pronged approach to the basic issues of pension plan coverage, adequacy and security. The first initiative is the reform of Ontario’s own private pension laws. In furtherance of this initiative, the government has passed one major reform bill (Bill 236) this year and recently introduced a second major set of reforms (Bill 120).
Continue Reading...Last week, the Ontario government moved forward with its reform of the province’s pension system with the introduction of Bill 120, the Securing Pension Benefits Now and for the Future Act, 2010. Bill 120 follows the first stage of pension reform, Bill 236, which received royal assent earlier this year. (Please see our May 20, 2010 post for a summary of Bill 236.)
This is the second in a series of posts that we will be making on the draft legislation. I will focus on the proposed changes dealing with the payment of pension administration expenses from the plan fund, as well as the ability of an employer to take contribution holidays out of available plan surplus.
Continue Reading...Earlier this month, the Ontario government introduced Bill 120, The Securing Pension Benefits Now and for the Future Act, 2010 for first reading. While we commend the government for pushing ahead with pension reform, we are concerned that a number of the amendments may not resolve ongoing issues as intended or may in fact have unintended consequences.
We have begun posting items on our blog expressing some of our thoughts on Bill 120 (for example, see our October 22, 2010 post on the Bill's surplus withdrawal provisions) and we have also made a submission to the Ontario government outlining our concerns in greater detail. Our submission includes the following recommendations:
Continue Reading...With the introduction of Bill 120, the Securing Pension Benefits Now and for the Future Act, 2010, on October 19, 2010, the Ontario government moved forward with its stated objective to continue its reform of the province’s pension system. This second stage of pension reform follows on the heels of Bill 236, which received royal assent earlier this year. (Please see our May 20, 2010 post for a summary of Bill 236.)
This is the first of several posts we will be making on the draft legislation. I am going to start by looking at one of the most contentious issues in pension law, the withdrawal of surplus.
Continue Reading...On October 19, 2010, the Ontario government introduced the second stage of pension reform – Bill 120, The Securing Pension Benefits Now and for the Future Act, 2010.
A press release indicated that Bill 120 would include amendments aimed at:
The Ontario government also expressed its continued interest in a “modest and gradual” expansion of the Canada Pension Plan and further pension innovation.
We will provide a more detailed post on these most recent legislative amendments later this week.
On October 7, 2010, the Supreme Court of Canada released its decision in Burke v. Hudson's Bay Co., upholding the Ontario Court of Appeal’s ruling that Hudson’s Bay Co. (HBC) was permitted to charge plan administration expenses to the pension fund, and did not have a fiduciary obligation to transfer a portion of the actuarial surplus to the transferred employees’ pension plan on the sale of a part of HBC’s business.
Notwithstanding the win for HBC, the conclusion in this case does not necessarily apply to other employers who sponsor defined benefit plans. It will still be necessary to carry out a review of historical plan documents in order to confirm that any proposed action, whether it involves charging plan administration expenses to the pension assets or transferring assets and liabilities to another plan with or without related surplus, is permitted.
Continue Reading...On September 30, 2010, the federal government introduced Bill C-47, which makes further amendments in conjunction with this year’s budget, including another round of pension reform amendments. Among these, perhaps the most interesting are the amendments which purport to provide defined contribution (DC) plan administrators with a limited form of “safe harbour” from liability related to member directed plan investments.
Continue Reading...In late August of this year, the Ontario government announced the second stage of pension reform. While we were pleased to see that the government was continuing to move forward with its reforms to the Ontario pension system, we were concerned that these proposals did very little to encourage employers in the private sector to establish or maintain defined benefit pension plans. (Please see our August 25, 2010 post for a summary of the government’s announcement.)
Continue Reading...As indicated in our previous post on Bill 236 (the Pension Benefits Amendment Act, 2010), the provisions that address surplus withdrawal on full or partial wind-up have come into force. There is still some controversy, however, surrounding how the Financial Services Commission of Ontario (FSCO) is interpreting the new provisions.
On September 20, 2010, FSCO released a Q&A to address questions in this regard.
In short, FSCO’s Q&A states that, when making an application to withdraw surplus from a pension plan, an employer is required to do one of two things:
(a) demonstrate entitlement to surplus under the historical terms of the plan and obtain the agreement of 2/3 of the members (or the agreement of the collective bargaining agent) and 2/3 of the former members and others entitled to payments under the pension plan;
or
(b) obtain the consent of all the members, former members and other persons entitled to payments under the pension plan.
Continue Reading...By: Ian J.F. McSweeney and Shaun Miller
On August 24, 2010 the Ontario government announced the second stage of a multi-step process to reform the province’s pension system – the first being the passage of the Pension Benefits Amendment Act, 2010 (Bill 236) on May 5, 2010.
The proposals outlined by the Ontario government build upon the principles announced in Bill 236 and the recommendations proposed by the Expert Commission on Pensions. Please see our May 20, 2010 post for a summary of the first stage of pension reform outlined in Bill 236.
Continue Reading...Bill 236, the first stage of pension reform in Ontario, included amendments to the advisory committee provisions in the Pension Benefits Act. The amendments appear to be aimed at increasing the involvement of pension plan members in plan administration and are directed primarily at single employer plans. Although these provisions are not yet in force, plan administrators should begin considering how they may affect their workplaces.
The pre-reform PBA allows a majority of current and former members to vote to establish an advisory committee comprised solely of member representatives. The purpose of such a committee is to monitor plan administration, make recommendations to the administrator regarding administration and promote awareness of the plan. To date, advisory committees have not been very common – Bill 236 seems to be aimed at changing that.
Continue Reading...As noted in prior blog posts (June 4, 2010 and January 7, 2010) the recent expansion of “grow-in” benefits to all involuntarily terminated employees (except for those who were dismissed for "wilful misconduct") will have significant implications for employers who sponsor a defined benefit pension plan. Previously, grow-in benefits applied only when a pension plan was being either fully or partially wound up. These amendments will make grow-in benefits applicable to all employees terminated after July 1, 2012, but as discussed in a recent Osler Update: Ontario Employment Terminations: Implications of New Pension “Grow-in” Rules by Jason Hanson, severance packages negotiated now may have to take these amendments into account.
On June 25, 2010 the federal government announced that it finalized the amendments to the defined benefit funding provisions and the federal investment rules, which it had released in draft form for comment earlier this year. Most of these amendments to the Pension Benefits Standards Regulations, 1985 come into force on July 1, 2010.
Continue Reading...As indicated in a previous post, among the very few aspects of Bill 236, the Pension Benefits Amendment Act, 2010 to come into force on royal assent were the provisions addressing surplus withdrawal on full or partial wind-up. Some issues of concern regarding these provisions have already arisen, as they have been subject to competing interpretations.
Under the old Ontario Pension Benefits Act rules for employer surplus withdrawals on plan wind-up, even if an employer obtained the necessary number of affected plan member consents, it nevertheless had to demonstrate legal entitlement to surplus in order for a surplus sharing arrangement to receive regulatory approval and proceed to distribution. Under Ontario’s new wind-up surplus rules, the employer has the option of sharing surplus with members after obtaining the necessary number of affected member consents, or demonstrating legal entitlement to surplus without member consent and potentially withdrawing all of the surplus for itself. Employers no longer have to do both (that is, prove entitlement and obtain member consents). On full wind-up, for example, section 79(3) of the PBA is the applicable provision:
(3) Subject to section 89, the Superintendent shall not consent to payment of surplus to an employer out of a pension plan that is being wound up in whole unless all of the criteria set out in subsection (3.2) are satisfied and,
(a) the pension plan provides for payment of surplus to the employer on the wind up of the pension plan; or
(b) a written agreement of the employer and the members, former members and other persons entitled to payments on the date of the wind up is made in accordance with such conditions as may be prescribed and authorizes payment of surplus to the employer.
As is often the case in the midst of pension reform, however, the path ahead is not yet clear. Two potential issues have arisen that may delay full realization of the intended results of the legislation.
Continue Reading...One of the results of pension reform in Ontario in 1988 was the introduction of "grow- in" rights. Grow-in rights allow Ontario members with defined benefits affected by a partial or full wind up of their pension plan to "grow in" to ancillary benefits such as enhanced early retirement benefits provided under their plan, if their age and service equals at least 55 points.
One of the most significant changes brought about by Ontario's Bill 236 is that, effective July 1, 2012, grow-in rights will apply to all terminations by employers, unless the employee was terminated for "wilful misconduct". Special rules will permit multi-employer plans and jointly sponsored plans to elect to be excluded from this rule.
Continue Reading...As indicated in a previous post, most of the provisions of Bill 236, Pension Benefits Amendment Act, 2010, which recently received Royal Assent, have not yet come into force, but there is one important exception - the new surplus withdrawal regime for full and partial wind ups.
Under the old plan wind up surplus withdrawal rules, an employer had to obtain both the necessary number of member consents and establish its surplus ownership rights at common law. Historically, FSCO took a strict approach to the latter requirement and refused to approve a surplus withdrawal application unless the employer was clearly entitled to the surplus. In most cases employers could not meet this high bar and it was necessary to obtain court approval before applying to FSCO. This added to the cost and complexity of the application and created additional delays.
As of May 18, 2010 the old regime is gone and a new one is in place. Under Sections 63(1) to (3.2) of Bill 236, on full or partial wind up of its pension plan the employer has the option of establishing legal ownership of any surplus at common law or obtaining the required level of agreement from affected members to a surplus sharing arrangement. It is no longer necessary for the employer to satisfy both requirements.
It is too early to predict the full impact of the new regime as the amendment contemplates the enactment of regulations which have not yet been passed. Technically, however, the new regime is now in force.
As we mentioned in an earlier blog post, Bill 236, the Pension Benefits Amendment Act, 2010, received Royal Assent on May 18, 2010.
While not yet in force, sections 23 and 24 of the Bill provide for immediate vesting of pension benefits, as compared to the current 2-year vesting period for post-reform benefits (post-1986 service), and “45 and 10” vesting for pre-reform benefits (pre-1987 service). With immediate vesting, all plan members will be entitled to a deferred pension upon termination of their plan membership.
Plan sponsors should begin considering now how to react to this change.
Continue Reading...Bill 236, Pension Benefits Amendment Act, 2010, received royal assent on May 18, 2010. As discussed in previous posts (from April 21, 2010 and December 10, 2009) Bill 236 makes a number of significant changes to the Ontario Pension Benefits Act, including:
Recently, much of the debate on Canada’s retirement system has focused on ensuring that as many Canadians as possible have access to some form of pension plan through increased retirement savings coverage. Proposals ranging from government led initiatives such as expanding the Canada Pension Plan (CPP) or creating a supplemental CPP (PDF) to taking steps to promote new pension plan designs in the private sector, such as industry-wide plans, have all been put on the table.
Ontario Bill 54, An Act respecting retirement savings plans for employees and for self-employed persons, (PDF) a private member’s bill introduced earlier this month, attempts to move this discussion forward by proposing amendments to the Ontario Pension Benefits Act to enable insurers and financial institutions to establish defined contribution pension plans for one or more unrelated employers or classes of employers. (Sole proprietorships and partnerships could also register as participating employers in such a plan.) While members would be required to make contributions, employer contributions would be voluntary. Income Tax Act changes would also be required.
Continue Reading...Following up on its previously announced intention to modernize the rules governing investments by pension funds, on May 3, 2010, the federal government released draft regulations that will, among other things, eliminate the existing quantitative limits on pension plan investments in real estate and Canadian resource properties.
Specifically, the current provisions to be eliminated are those which prevent plan sponsors from investing more than:
Under the existing rules, real property generally refers to real estate holdings (and includes leasehold interests), and Canadian resource properties are rights with respect to petroleum or natural gas.
Continue Reading...On May 3, 2010, the federal government released draft regulations, which propose changes to the defined benefit plan funding provisions and the federal investment rules. The proposed changes will directly affect pension plans that are registered under the Pension Benefits Standards Act, 1985 (PBSA) with the Office of the Superintendent of Financial Institutions (OSFI). But don’t stop reading if your plan is not registered with OSFI - the proposed changes to the investment rules will likely impact most pension plans in Canada.
The draft regulations implement a portion of the changes announced by the federal government on October 27, 2009. Other changes to the PBSA announced in the fall were made in Bill C-9, the Budget Bill, which was introduced by the federal government on March 29, 2010. Among other things, Bill C-9 amends the PBSA to require employers to fully fund pension benefits on plan termination, a change which brings the federal pension statute in line with most pension standards legislation in Canada. More amendments will be required to implement the package of proposals announced in 2009.
The draft regulations propose three key changes.
Continue Reading...Following several days of public hearings and receipt of many written submissions, on April 19, 2010 the Standing Committee on Finance and Economic Affairs reported on Ontario Bill 236, Pension Benefits Amendment Act, 2010, making a number of amendments to the Bill.
Probably the most significant change in the revised version of the Bill, which was ordered for third reading, was the extension of the modified surplus sharing regime to partial wind-ups.
The current surplus sharing regime requires employers to satisfy member consent thresholds AND demonstrate surplus ownership. Bill 236 (similar to the federal regime) originally permitted employers to withdraw surplus from their pension plans on full wind-up without needing to prove surplus ownership if member consent thresholds were satisfied and other prescribed requirements were satisfied. Future and pending partial wind-up surplus withdrawals (prior to the elimination of partial wind-ups in 2012) were, however, being treated differently under Bill 236 and remained subject to troublesome conflicts in the current legislation which have caused problems for employers and affected members for years. Revised Bill 236 fixes the problem by prescribing identical treatment for full and partial wind-up surplus distributions. This means that once the Bill becomes law, plan sponsors with pending partial wind-ups (and pending partial wind-up surplus distributions) will be able to take advantage of this modified surplus sharing regime and withdraw surplus by proving ownership or with the required level of member consent.
Continue Reading...With the introduction of Bill C-9 – this year’s budget bill – on March 29th, the federal government is beginning to move forward on a number of the pension reforms that it had announced last fall.
For instance, Bill C-9 contains the increase to the Income Tax Act pension surplus threshold from 10% to 25% of actuarial liabilities (as discussed in our March 25, 2010 post). Bill C-9 also includes a number of significant amendments to the federal Pension Benefits Standards Act (the PBSA), although many of these will require amendments to the Pension Benefits Standards Regulations (PBSR) before they can be fully implemented.
Continue Reading...Yesterday’s Budget announcement by the Ontario government included its “vision” for further pension reform – with the emphasis being on changes to the funding of defined benefit plans.
Ontario began its reform of the pension system late last year with the introduction of Bill 236, which it described as the “first stage” of a multi-step process to reform the province’s occupational pension system. With the tabling of Budget, the government began taking steps towards the next stage by setting out three principles upon which the pension reform will be based:
Following through on its announcement last fall, the federal government has recently tabled a Notice of Ways and Means Motion, which includes amendments to the Income Tax Act increasing the pension plan surplus threshold from 10% to 25%.
These amendments, which will apply to all registered pension plans, whether federally or provincially regulated, beginning with 2010 current service contributions, will allow employers to accumulate greater surpluses in their plans. The theory is that in doing so employers will be encouraged to contribute more to their plans, thereby increasing benefit security and reducing funding volatility.
While many in the pension industry have been lobbying for these changes to the tax rules for some time, the willingness of employers to take advantage of these amendments may be influenced by their perceived ability (or lack thereof) to access such surplus under current provincial pension standards legislation. The so-called “asymmetry issue” (where those responsible for funding deficits are not given equivalent access to surplus) is an issue that can only be fully resolved by legislative reform, which is still pending across Canada.
In the last two years, four provinces (Alberta, British Columbia, Ontario and Nova Scotia) and the Federal government have embarked on extensive pension reviews. While the focus of these reviews, for the most part, was on how each jurisdiction’s pension standards legislation could be improved, the reviews also considered increasing pension plan coverage for employees who do not have access to an employer sponsored pension plan. There has been some activity in the new year on this latter initiative, most recently with the release of the British Columbia Ministry of Finance’s consultation paper “Mechanisms for Expanding Pension Coverage and Retirement Income Adequacy in Canada” (PDF).
The consultation paper follows on the heels of the paper of the Steering Committee of Provincial/Territorial Ministers on Pension Coverage and Retirement Income Adequacy, “Options for Increasing Pension Coverage Among Private Sector Workers in Canada”, (PDF) which analyzed two proposals for increasing pension coverage in Canada through a national pension plan, namely: (a) creating a voluntary, defined contribution structure either added as an additional “tier” to the Canada Pension Plan or as a stand-alone plan; and (b) expanding the existing mandatory defined benefit structure of the Canada Pension Plan either by increasing the replacement rate or the upper limit on income on which the pension is calculated or both.
The British Columbia consultation paper also explores two additional options. First, the consultation paper considers modernizing current pension standards legislation to improve flexibility in pension plan design, for example, by permitting an entity that is not an employer, such as a professional association, to sponsor a pension plan. Second, the consultation paper considers amending the Income Tax Act to encourage increased retirement savings under current registered retirement savings vehicles, for example, by allowing individuals to repay amounts withdrawn from registered retirement savings plans in times of financial hardship. The consultation paper further notes that a blended approach, combining two or more of the four options, could be desirable.
The landscape for pensions and retirement savings in Canada may be changing if these recommendations are acted upon. If and when changes are made, it will be necessary to review how existing employer sponsored arrangements integrate into such landscape.
Comments on the British Columbia consultation paper are being sought by April 1, 2010.
In January 2010, the Financial Services Commission of Ontario (FSCO) released a consultation paper outlining proposals to streamline the regulatory review process for defined benefit (DB) applications (PDF). The proposals outlined in the most recent paper – an earlier consultation process had taken place in the spring of 2009 – are designed to lead to more accurate and timely processing of applications involving DB pension plans (including applications in respect of surplus withdrawals, wind ups, asset transfers, refunds of employer overpayments and refunds of member contributions).
The paper proposes several solutions to address problems inherent in processing DB applications:
The Ontario Court of Appeal’s recent decision in Hydro One confirmed that the Superintendent may use a “subset analysis” when assessing the “significance” of plan member terminations for purposes of ordering a partial plan wind-up. The impact of this decision may be limited, however, if the amendments to the Ontario Pension Benefits Act (PBA) wind-up provisions included in Bill 236 are passed.
Currently, s. 69(1)(d) of the PBA gives the Superintendent the discretion to order a partial plan wind-up if a “significant” number of plan members are terminated as a result of a business reorganization. In the past, cases have held that the “significance” inquiry may be conducted on one or both of the following two bases: the absolute number of terminations or a percentage of the total number of active plan members. The Hydro One case considered a third scenario: whether the Superintendent can carry out the “significance” analysis based on the number of terminated members falling within a defined subset of plan members.
In Hydro One, there were different categories of plan members based on whether or not they were represented by unions. The absolute number of terminations was 73. As a percentage, the terminations represented 2% of the total plan membership (4000) and 18% of the category at issue. Based on the latter test, the Financial Services Tribunal held that the number of terminations was significant. (PDF) The Divisional Court upheld the Tribunal’s decision.
The Court of Appeal agreed with the Tribunal and the Divisional Court. Noting that the public policy and remedial objectives of the PBA require it to be given a “liberal interpretation”, and that the term “significant” is not defined under the PBA, the Court found that a flexible and contextual approach should be taken when assessing whether a “significant” number of plan members has been terminated, thereby triggering a partial wind-up order by the Superintendent. Not surprisingly, the Court concluded that a subset analysis was consistent with a the remedial nature of the PBA and the long line of authorities that have considered s. 69(1)(d).
The Hydro One case is likely one of the last disputes over the meaning of “significant” in s. 69(1)(d). The decision will continue to be relevant during the transition period while partial wind-ups are being phased out, but will ultimately be moot. (Under Bill 236, partial wind ups with an effective date prior to January 1, 2012 will be grandfathered, after which partial wind-ups will be eliminated.)
The elimination of partial wind-ups means that employers will no longer be required to distribute surplus out of the plan based on the test in s. 69(1)(d). However, the elimination of partial wind-ups is not a panacea. The trade off is that the other main benefit conferred on Ontario plan members by partial wind-ups – “grow in rights” – must in future be provided to all eligible involuntary terminations (other than for cause).
The Pension Benefits Amendment Act, 2009 (Bill 236) proposes to extend “grow-in rights” to all Ontario pension plan members whose employment is involuntarily terminated (other than for cause). While this measure was recommended in the Report of the Expert Commission on Pensions (the OECP Report) and comes as no surprise, it is one of the more controversial aspects of the Bill.
Currently, grow-in benefits are only available to members affected by a full or partial wind-up whose age plus years of total service equal at least 55. Such persons are entitled to any early retirement benefits provided under the plan that they would have “grown into” had both the plan and their employment continued until their early retirement date.
The Bill proposes to extend these benefits to all members who are involuntarily terminated by an employer (other than for cause) on and after January 1, 2012. Jointly sponsored pension plans and multi-employer pension plans may elect to opt out of this requirement.
This proposed change is part of a general initiative in the Bill to treat plan members uniformly regardless of the circumstances of their termination (i.e., whether they are terminated in the normal course or as part of a broader program). Such consistency is a worthwhile goal, since it makes little policy sense to provide this benefit to employees terminated in a special situation (e.g., plant shut down or other reorganization) but not those terminated in the normal course. But consistency of treatment among plan members could also have been achieved by abolishing mandatory grow-in rights (for those who had not yet met the eligibility requirements).
Continue Reading...On the eve of what many believe to be the most important political meetings addressing pension matters in Canada in a quarter century, questions persist as to what Canadians can really expect to come out of what has loosely been deemed the “Whitehorse summit”.
The Ministers of Finance from the federal and provincial governments will convene in Whitehorse, Yukon on December 17th and 18th. On the agenda is the state of Canada’s retirement income system and what, if anything, can or should be done about it. Much can be gleaned from the advance positions being taken by many involved in the debate.
At the federal level:
On December 9, 2009 the Ontario government announced the first stage of a multi-step process to reform the province’s occupational pension system – the Pension Benefits Amendment Act, 2009 (Bill 236). The next stage is scheduled to be released in the spring of 2010.
It appears that the government is taking its cue from the Arthurs Report released one year ago, and rolling out legislation that provides some fixes to problems that have plagued the Ontario pension industry since the current pension legislation was enacted in 1987. The stated goal of the Arthurs Report was to balance the interests of employees and employers. Bill 236 seems to be tracking the recommendations in the Arthurs Report quite closely. As a result, some changes will be welcomed by sponsors; however, the proposals also contain enhancements for plan members that will increase benefit costs.
Here is a summary of the Bill with some initial thoughts on its key provisions.
1. Elimination of partial wind ups, introduction of immediate vesting and extension of “Rule of 55” grow-in benefits to all plan members whose employment is involuntarily terminated (other than for cause)
2. Forced annuitization eliminated
3. Facilitate plan mergers and asset transfers while protecting member benefit security
4. Increase transparency and access to information for plan members and pensioners
5. Enhanced regulatory oversight
6. Improve plan administration and reduce compliance costs
7. Surplus sharing settlements not subject to historical plan terms
8. Phased retirement
Nova Scotia’s private defined benefit pension plans are set to benefit from an extension of the time required to make their plans fully solvent.
Under the new regulations recently announced by the Department of Labour and Workforce Development, plan administrators will have ten years to fund solvency deficiencies, as opposed to the normal five years, with permission from plan members. The regulations apply to plans reporting underfunding between December 30, 2008 and January 2, 2011. The regulations also permit plan administrators to file a new valuation in order to pay previous funding shortfalls over the new ten-year period.
The announcement follows the recommendation of the report of the Nova Scotia Pension Review Panel (PDF) to lengthen the amortization for funding solvency deficits from five to ten years. It also comes on the heels of temporary solvency funding relief announced in other provinces, including Ontario, where pension plan administrators can extend the amortization period to ten years for new solvency deficiencies only, with the consent of members and former members.
The new regulations are not yet available, but are expected to be incorporated into the Nova Scotia Pension Benefits Regulations shortly.
The following post is a French translation of Michel Benoit's October 27, 2009 post "Pension Reform Proposals Released by Finance Canada".
Le ministre fédéral des finances Jim Flaherty a publié une série de propositions en vue d’améliorer le cadre législatif et règlementaire des régimes de retraite privés assujettis à la juridiction fédérale. Aucune indication n’a été donnée quant à l’échéancier d’adoption des modifications requises à la Loi de 1985 sur les normes de prestation de pension (« LNPP ») et au Règlement de 1985 sur les normes de prestation de pension (« Règlement NPP ») pour mettre en œuvre ces propositions. Celles-ci semblent inclure un lot de mesures pour « contenter tout le monde ». Il n’y a pas d’indice dans le communiqué de presse à l’effet que le gouvernement ait l’intention de solliciter le concours d’intervenants à cette fin.
Le réforme proposée vise cinq objectifs:
1. Rehausser la protection pour les participants
2. Réduire l’instabilité de la capitalisation
3. Résolution de problèmes propres au régime
Un mécanisme sera disponible pour les promoteurs et les participants d’un régime en cas d’incapacité des promoteurs de s’acquitter des exigences de capitalisation. Ce mécanisme permettra aux promoteurs, participants et retraités d’un régime de négocier un moratoire de courte durée sur les paiements de capitalisation. Toute entente ainsi négociée sera sujette au consentement des participants et des retraités et à l’approbation ministérielle. Cette proposition dériverait semble t il d’une récente entente intervenue entre Air Canada, ses syndicats et ses retraités.
4. Cadre amélioré pour les régimes à prestations déterminées dont les cotisations sont déterminées ou négociées
La LNPP et le Règlement NPP, qui ne traitent pas actuellement de façon adéquate des régimes à cotisations déterminées (« CD »), seront modifiés afin de clarifier les responsabilités et obligations applicables aux employeurs, participants, administrateurs et aux fournisseurs de produits d’investissement de ces régimes. Les régimes CD pourront offrir aux participants l’option de recevoir le paiement de leurs prestations de retraite sous forme de fonds de revenu viager (FRV) permettant ainsi aux participants de bénéficier des investissements faits par le régime de retraite plutôt que d’assumer personnellement la responsabilité de la prise de décision en matière d’investissement.
Le cadre législatif et règlementaire des régimes à prestations déterminées et à cotisations négociées sera amélioré pour y clarifier les obligations de l’employeur et d’inclure expressément le pouvoir du fiduciaire de réduire les prestations accumulées, sujet à l’autorisation du surintendant, concernant la réduction des prestations accumulées.
5. Modernisation des règles relatives aux placements
Des changements longtemps souhaités aux règles relatives aux placements sont proposés, incluant le retrait des limites quantitatives en ce qui a trait aux investissements dans les ressources naturelles et l’immobilier, établissant à cet égard un maximum de 10 % de la valeur marchande des actifs du régime (plutôt que leur valeur comptable) et interdisant les investissements directs dans des actions de l’employeur ou sa dette.
Autres mesures
D’autres modifications techniques sont proposées en vue d’améliorer le cadre législatif et règlementaire de la LNPP et du Règlement NPP afin d’aligner leurs dispositions en accord avec leur interprétation et les politiques courantes.
Finance Canada Minister Jim Flaherty released a series of proposals designed to improve the legislative and regulatory framework for federally regulated pension plans. No indication was given as to the timing of the amendments to the Pension Benefits Standards Act, 1985 (PBSA) and the Pension Benefits Standards Regulations, 1985 (PBSA Regulations) that will be required to implement the proposals. The proposals contain a host of measures which appear to be designed to provide “something for everyone”. The press release does not mention any willingness on the part of the government to seek further input from stakeholders.
Five objectives are being pursued by the proposals.
1. Enhanced Protection for Plan Members
2. Reduced Funding Volatility
3. Resolution of Plan-Specific Problems
A framework will be available to sponsors and members of plans where the sponsor is unable to meet the statutory funding requirements. The framework will permit all stakeholders to agree to a “workout scheme” that would allow the company to benefit from a short moratorium on deficit payments and the members to agree to change the pension arrangements. Any such workout would be subject to member and retiree consent and Ministerial approval. It would appear that the recent arrangement arrived at between Air Canada and its unions and retirees is the source of this proposal.
4. Enhanced Framework for Defined Contribution and Negotiated Contribution Defined Benefit Plans
The PBSA and PBSA Regulations, which currently do not adequately address DC plans, will be amended to clarify the duties and responsibilities of sponsors, members, administrators and investment providers. DC plans will also be allowed to pay Life Income Fund-like retirement benefits, thus allowing plan members to benefit from the investments of the pension plan instead of having to personally assume investment decision-making responsibilities.
Negotiated Contribution Defined Benefit Plans will be subject to an improved framework, which will include greater clarity about employer contribution obligations, and explicit trustee authority to reduce accrued benefits subject to Superintendent authorization.
5. Modernization of Investment Rules
Much needed changes to the current investment rules are proposed including removing quantitative limits on resource and real property investments, determining the 10% concentration limit by measuring the plan’s assets according to market value instead of book value, and prohibiting investments in employer shares or debt.
Other Measures
A number of technical housecleaning measures are also proposed to better align the PBSA and PBSA Regulations with current interpretation and policy.
Once again the “pension crisis” hits the front page, with The Globe and Mail reporting on federal Finance Minister Jim Flaherty’s announcement that the government is considering changes to the Income Tax Act that would permit pension plan sponsors to contribute more to their pension funds. The proposal described by the Globe would essentially permit sponsors to accumulate larger surpluses in their pension funds, by continuing to allow tax deductions for employer contributions when the surplus grows beyond the threshold currently set out in the legislation.
In the area of pensions as in so many other aspects of Canadian society, the issue of provincial jurisdiction of course comes into play, the Canadian confederation being what it is. Most registered pension plans in Canada are governed not only by the federal Income Tax Act but also by provincial pension standards legislation (except for pension plans of federally-regulated businesses such as banks and railways). Without corresponding changes to the provincial legislation, particularly in Ontario which is home to the majority of Canadian plans, this proposal from the federal government may not in fact achieve its intended goal.
The fact is that under Ontario’s Pension Benefits Act, if a pension plan is terminated in part or in full, then any surplus assets must be distributed from the plan, once all promised pension benefits have been paid out to the members. Even if the employer is clearly legally entitled to the surplus based on the plan documents, if it wishes to keep any part of the surplus for itself, the Ontario legislation requires that the employer obtain the consent of at least two-thirds of the affected active plan members as well as at least two-thirds of the affected “former members”, namely the pensioners. Practically speaking, such member consents are difficult if not impossible to obtain without the employer offering to share a portion of the surplus with the members.
Faced with such a scenario, many employers may be reluctant to continue contributing to a pension plan that is already in surplus, even though it may provide the members with greater security in uncertain economic times, if the employer knows that it will have to give away part of that surplus if the pension plan is ever terminated in whole or in part.
Minister Flaherty’s parliamentary secretary was absolutely correct to state that the government was looking to do what it could, within its jurisdiction. Without more from the Ontario government, however, very few Ontario employers may take advantage of the revised tax rules, if the proposed changes are made to the federal Income Tax Act.
With a number of Canadian companies seeking bankruptcy protection over the past few months, it has become apparent that the defined benefit pension plans sponsored by many of these companies are underfunded. As retirees and former employees protest their shrinking pensions, many are left asking how this all happened.
In a recent interview with the CBC, Brett Ledger answers some of the typical questions that people have when such situations arise.
As the debate over pension reform continues to spawn considerable discussion in Canada, two noteworthy commentaries on the state of this country’s pension system have been issued within the past week.
On October 14th, the first Melbourne Mercer Global Pension Index was released. This study, which was produced by the global consulting firm, Mercer, and sponsored by the government of the Australian state of Victoria, ranked Canada's retirement system fourth in the world based on a number of criteria relating to the adequacy, sustainability and integrity of the world’s pension systems. No country received an “A” grade.
The study found that Canada’s ranking could be improved by: (1) increasing the level of pension coverage; (2) ensuring that voluntary retirement savings are preserved for retirement purposes; (3) increasing the pension age as life expectancy continues to increase; and (4) increasing the level of household savings.
Then, on October 17th, the Globe & Mail newspaper began a week-long series addressing the perceived national crisis facing the retirement system in this country. The series is slated to discuss the impact of the current recession on pension plan funding; the fight between plan members and creditors over limited assets when plan sponsors become insolvent; the unavailability of pension plans to the self-employed, professionals, and many of those working in small businesses; and, the divergence of views on the best way forward for the system between those in the business of providing pensions and those who believe a new public pension option is needed.
These calls for action come almost a year after expert reports commissioned by governments were published in Ontario (PDF), Nova Scotia (PDF) and Alberta / British Columbia (PDF) (of which I served as co-chair). Each of those reports called for fundamental and meaningful reforms to the pension laws and pension systems in their respective provinces. The reports also encouraged national dialogue on the issues, including calls to pursue greater harmonization of rules across Canadian jurisdictions.
However, little meaningful action has been taken by governments to date.
The aspects of the three reports that have generated the most attention thus far were recommendations that the various governments take steps to establish new pension vehicles that would be broadly available to those currently without an occupational pension plan. Earlier this year, a federal/provincial working group, chaired by Alberta MP Ted Menzies, with participation from Ontario, Nova Scotia, British Columbia, Alberta and Manitoba, was established to study the viability of such proposals (among other issues). That working group is scheduled to report prior to the end of 2009. However, in the meantime, the Premiers of Alberta, British Columbia and Saskatchewan have announced their intention to proceed with development of such a plan unless substantial progress is made towards a national plan before the year is out.
What does all of this mean for the possibility of a pan-Canadian solution to the pension dilemma?
The leadership being shown by the three Western Premiers is commendable and, indeed, necessary. However, three things remain clear.
The Financial Services Tribunal’s decision in Del Grande et al v. Shoppers Drug Mart Inc. (PDF) has added a further layer of complexity to partial wind-ups by allowing employees to seemingly grow into their grow-in benefits.
In this case, the Superintendent of Financial Services ordered the partial wind-up of the Shoppers plan with respect to members who had been terminated over a period of time, as a part of a corporate reorganization. Thus, the partial wind-up, consistent with prior Pension Commission of Ontario decisions which applied a purposive analysis, was found to have taken place over a period of time.
An employee who was excluded from the partial wind-up group applied to the Tribunal for a hearing. Shoppers viewed her dismissal as performance-related, and did not include her in the partial wind-up group. The Superintendent was of the view that the employee need not be included, as she did not meet the requirements for grow-in benefits, being the only benefit to be derived from inclusion in the wind-up. (At the time of her termination, the employee was 46 years old and had been employed as a Shoppers’ executive for eight years, and, therefore, could not meet the “55 points test” as of her dismissal date.)
The Tribunal held that the employee’s continuous service should be determined as of the effective date of the partial wind-up, which was at the end of the partial wind-up period, rather than as of the date of the employee’s dismissal, which occurred during the partial wind-up period. By allowing the employee to continue to accrue service well beyond her termination date, she accumulated enough service to qualify for grow-in benefits, and, therefore, be included in the partial wind-up group.
The Tribunal’s decision flies in the face of previous partial wind-up reports, which have traditionally calculated grow-in benefits as of an employee’s termination date. As a result, this case adds to the already-existing complexity and uncertainty regarding partial wind-up criteria, and threatens to further increase the number of former plan members entitled to grow-in benefits – an entitlement which can be costly to sponsors of Ontario registered pension plans. It will be interesting to see whether the Ontario government will clarify the partial wind-up provisions as a part of the pension reform package expected to be introduced in response to the report of the Ontario Expert Commission on Pensions.
The Premiers of each of the provinces recently called for a national summit on retirement income, to be lead by the federal government. According to a press release from the Council of the Federation (PDF), the national summit would be conducted by 2010 and would “bring together provinces and territories, the federal government and interested stakeholders and experts to discuss possible options to improve saving options for Canadians and to encourage greater saving.” The Premiers also directed their Finance Ministers to report on possible pension reform options by the end of the year.
In a separate statement, the Ontario government announced the creation of a new Advisory Council on Pensions and Retirement Income (the Council). The Council, whose members reflect a range of stakeholder perspectives, will provide ongoing advice to the minister on pension reform proposals.
Based on these announcements, the consultation recently initiated by the federal government, and last year’s quick succession of reports released by expert panels appointed by the Ontario, Alberta, British Columbia (PDF) and Nova Scotia (PDF) governments, it appears that much needed pension reform has finally made it onto the agenda of the provincial and federal governments. However, the timeliness and effectiveness of any reform measures instituted by the various governments is yet to be determined.
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