Bill 38 marks the first significant amendments to British Columbia’s pension regime since the Joint Expert Panel on Pension Standards released their report on November 14, 2008. This panel was established by the Finance Ministers of Alberta and British Columbia to study the pension legislation of the two provinces and to make recommendations on pension reform.

Bill 38 introduces significant changes to British Columbia’s pension regime. According to a B.C. government press release, the amendments are designed to encourage “wider private-sector pension coverage”. In addition, the explanatory notes to the proposed reforms indicates that the reforms are intended “to harmonize British Columbia’s pension legislation more closely with that of Alberta.” (This statement seems to imply that we may see some similar amendments in Alberta in the near future.)

However, Bill 38 also introduces a number of novel and interesting pension reforms, including the following:

• Governance & Funding Policy Requirements: Plan administrators would be required to establish governance policies. In addition, plan administrators of defined benefit and target benefit plans would be required to establish funding policies. (This would appear to build on the requirements set out in the guidelines established by CAPSA.)
• Distinguishing Between Actuarial Excess and Surplus: The PBSA would distinguish between excess assets over liabilities in an ongoing plan (i.e., actuarial excess) and excess assets over liabilities in a plan that has been terminated (i.e., surplus).
• Solvency Reserve Account: Administrators of a defined benefit plan (other than a target benefit plan) would be permitted to establish a separate account within the pension fund and deposit payments into this account made in respect of a solvency deficiency. Prescribed “actuarial excess” in the reserve account will also be permitted to be withdrawn by a “prescribed person”. 
• Innovative Plan Designs: New plan designs would be added to the PBSA, including:
  • negotiated cost plans – a pension plan established under a collective agreement where contributions are determined and limited by the collective agreement;
  • target benefit plans – a pension plan where contributions and benefits are fixed according to a pre-determined formula (as in a defined benefit plan). However, in a target benefit plan, accrued benefits can be increased or reduced from time to time based upon the funded status of the plan. (Other provinces, such as Ontario, have likewise introduced target benefit provisions through recent pension reforms. However, British Columbia will permit target benefit provisions to be used in non-unionized environments. By contrast, it seems that currently an employer in Ontario will only be permitted to adopt target benefit provisions where their contribution obligations are limited to a fixed amount set out in one or more collective agreements); and
  • jointly sponsored pension plans (JSPP) – the proposed amendments create the framework for a cost-sharing plan model for private sector plans which is similar to that which is currently used in British Columbia’s public-sector pension plans. (This differs from Ontario, where the focus has been on moving public sector plans to the JSPP model.)

As is typically the case with pension reforms, these provisions will not come into force until accompanying regulations (which provide the details of how these reforms are to be applied) are released. We will be reviewing these regulations once they are released, and will provide any additional commentary in future posts.

• defining “retired members”, thereby creating rights for a new group of plan participants;
• introducing immediate vesting;
• permitting plans to offer phased retirement options;
• permitting prescribed employers to use letters of credit to fund solvency deficiencies;
• allowing for the use of jointly sponsored pension plans and target benefit plans;
• allowing employer contribution holidays when the plan is in surplus, unless prohibited by the plan or the funding documents for the plan;
• clarifying the requirements with respect to asset transfers between pension plans;
• providing that surplus may be paid to an employer when it has reached an agreement with two-thirds of the plan members (or a union on behalf of such members) and a prescribed number of former members, retired members and others or by court order; and
• permitting the payment of “reasonable” plan administration expenses from the plan fund unless such payment is prohibited or the payment of fees and expenses is otherwise provided for in the plan or funding documents for the plan.

While these reforms will bring Nova Scotia’s pension regime closely in line with Ontario’s, certain differences will continue to exist between Ontario’s and Nova Scotia’s pension legislation. Most notably, partial plan wind ups will continue to be permitted in Nova Scotia, whereas they are to be phased out in Ontario after a transition period.

Further, Nova Scotia is not following Ontario’s expansion of grow-in rights to all plan members whose employment is involuntarily terminated (except where there has been wilful misconduct, disobedience or wilful neglect). Nova Scotia will continue to require grow-in rights to be provided on the partial or full wind-up of a plan, however, in Nova Scotia’s pension regime there is no requirement to pre-fund such benefits and the full amount of all pensions, deferred pensions, ancillary benefits and other benefits must be paid prior to grow-in benefits in the event of full or partial wind-up.

We expect Nova Scotia to amend the regulations to their pension legislation in order to clarify the “prescribed requirements” for many of the amendments discussed above. Since Nova Scotia followed Ontario’s amendments to its pension legislation, they may very well continue to look to Ontario’s reforms for guidance in this regard. We look forward to reviewing Nova Scotia’s regulations in the future and will keep you informed as to the progress of pension reform in Nova Scotia.
 

Mr. Jarman was an Air Canada pilot who participated in two Air Canada pension plans, a defined benefit registered pension plan and an SRP. It appears from the judgment that the SRP was a non-registered supplemental plan. At issue in this case was whether the payment due to Jarman’s former spouse from the SRP was subject to provincial family law legislation, and consequently payable directly from the Air Canada SRP.

Air Canada took the position that the Air Canada SRP was not governed by the British Columbia Family Relations Act (the FRA) and that their administrative policy should apply. This administrative policy placed the onus on the plan member, or potentially his/her new spouse in the case of survivor benefits, to pay a former spouse his/her entitlement (i.e., the former spouse would not be paid directly from the Air Canada SRP).

The B.C. Supreme Court began its analysis by noting that the definition of “pension plan” in the federal Pension Benefits Standards Act, 1985 (the PBSA) (being the statute applicable to Air Canada's registered pension plans) includes a “supplemental pension plan”. The Court then noted that under the PBSA, pension plan benefits are “subject to the applicable provincial property law”. Since “provincial property law” is defined in the PBSA to include property division on marriage breakdown, the FRA was held to apply to Air Canada’s SRP. As a result, Mr. Jarman’s former spouse was entitled to have her share of the SRP paid directly to her by Air Canada.

What Does This Case Mean for Administrators of Supplemental Plans?

Section 28.5 of the regulations to the PBSA (the PBSR) states that an SRP is exempt from the application of the PBSA if the terms of the pension plan to which the SRP is supplemental entitle all members of the SRP to benefits at least equal to the maximum benefit or contribution limit under the federal Income Tax Act (the ITA). SRPs are typically established as “top-up” plans for higher-earning individuals who are limited by the ITA in the amount of benefits they can receive out of the registered plan. If the SRP only provides top-up benefits for such individuals, then it will be exempt from the PBSA, and thus the applicability of provincial family law legislation in circumstances involving marriage breakdown of a member of the plan will not flow from the requirements of the PBSA.

Despite certain SRPs being exempt from the application of the PBSA by virtue of section 28.5 of the PBSR, however, plan administrators should still review their obligations under the applicable provincial family law legislation itself. For example, the FRA appears to apply to all supplemental plans provided to employees in B.C.. Therefore, even if an SRP provided to B.C. members is not subject to the federal pension legislation, nevertheless the administrator will be required to administer the pension split pursuant to the requirements of the provincial family property legislation itself.