Pension legislation varies by jurisdiction across Canada. While there is national interest in making legislative and regulatory changes that would potentially result in greater pension plan sustainability, the pace and scope of change varies from province to province. At the moment, one area that is receiving a lot of attention is Target Benefit Plans (TBPs). The summary below captures the current status of legislation across the country that is focused on TBPs. Watch for updates as new laws and regulations are passed with respect to TBPs and other pension solutions.
On June 20, 2016, the Federal and Provincial Finance Ministers agreed to expand the Canada Pension Plan (“CPP”). The agreement includes the federal government and all provinces except Manitoba and Quebec.
The contribution rate for both employees and employers will increase. Although not specified in the formal announcement, it appears the increase will be approximately 1% of pensionable earnings on the part of both employers and employees. The current CPP contribution rate is 4.95% of pensionable earnings for both employers and employees. (The Quebec Pension Plan (“QPP”) contribution rate is 5.25% of pensionable earnings for employers and employees.)
The earnings ceiling for contribution and benefit purposes (the Year’s Maximum Pensionable Earnings, or “YMPE”) will increase by 14%.
A seven-year phase-in of the increase is scheduled. Specifically, the contribution rate increase will be phased in over five years commencing January 1, 2019. After the five-year phase-in, the maximum earnings limit will be increased over two years.
Effective June 7, 2016, the federal government adopted the new Multilateral Agreement Respecting Pooled Registered Pension Plans and Voluntary Retirement Savings Plans (the “Agreement”), and designated British Columbia, Nova Scotia, Quebec and Saskatchewan as provinces which will be part of the Agreement. For PRPPs with members outside Quebec, the Agreement streamlines supervision by ensuring that plan administrators only need to deal with one supervisor (i.e., the federal Office of the Superintendent of Financial Institutions, or “OSFI”) for administrator licensing, plan registration, and ongoing plan supervision. This would allow a multi-jurisdictional employer to offer the same PRPP across its workforce.
As a result of these recent developments, PRPPs and VRSPs are now available for federally regulated employers and employers in British Columbia, Nova Scotia, Quebec and Saskatchewan. As more provinces proclaim PRPP legislation into force and join the Agreement, PRPPs and VRSPs will become a more viable option for employers who wish to offer a defined contribution pension plan to their employees.
On April 21, 2015, the Federal Government released its 2015 Economic Action Plan (the “Budget”). The Budget modifies RRIF minimum withdrawals and TFSA maximum contributions and includes a number of announcements relating to retirement and benefit plans. For more information, please see the May 2015 issue of News & Views.
April 21, 2015 Budget: The Government continues to assess a voluntary target benefit plan option for Crown corporations and federally regulated private sector pension plans. The Government understands the importance of ensuring that any changes to the federal pension regime protect benefits that have already been earned by requiring that plan members and retirees consent to the treatment of accrued benefits at the time of plan conversion. In addition, given that a number of provinces are moving ahead with the development and implementation of target benefit plan frameworks for their jurisdictions, the Government will consider modifications to the income tax rules to appropriately accommodate target benefit plans within the system of rules and limits for registered pension plans.
The federal government is amending the regulations under the Pension Benefits Standards Act, 1985. The draft regulations were discussed in the October 2014 News & Views. The final version of the amendments responds to the comments received during the public consultation period and sets the implementation date for the changes. The final version of the amendments responds to the comments received during the public consultation period and sets the implementation date for the changes.
April 24, 2014: The federal government announced that it was soliciting commentary on its proposal to introduce TBPs for federally regulated private sector or Crown corporations (excluding core public sector pension plans). Submissions were due June 23, 2014.
On July 22, 2014, the Alberta Government passed the new Employment Pension Plans Regulation (the "New Regulation"). The New Regulation concerns the new Employment Pension Plans Act (the "New Act"). Both the New Act and New Regulation will take effect on September 1, 2014. The new Act includes provisions permitting the establishment of TBPs.
On April 16, 2014, the Alberta Government introduced Bill 10. Among key changes, Bill 10 would clarify that conversions from DB to TBPs may apply to benefits previously accrued under the DB plan. Bill 10 was referred to the Standing Committee on Alberta’s Economic Future for further consultation and was eventually abandoned.
Effective May 2016, PRPPs are now permitted in British Columbia. Refer to the discussion under Federal (June 7, 2016) for more details.
On March 15, 2016, the Financial Institutions Commission of British Columbia (FICOM) released Bulletin 16-001: Guideline for Converting Plans from Defined Benefit to Target Benefit. The Bulletin summarizes the legislative requirements for a conversion from a DB pension plan to a TBP, lays out FICOM’s expectations, and also includes a questions and answers section. For the time being, only a negotiated cost MEPP can be converted to a TBP in British Columbia.
As of September 30, 2015, the new BC Pension Benefits Standards Act (the “Act”) and its regulations came into force. The new legislation was summarized in our News & Views of May 2015. The new Act includes provisions permitting the establishment of TBPs.
Manitoba has not proposed any legislation that would allow for TBPs.
Newfoundland and Labrador
On September 2, 2014, the Government of Newfoundland and Labrador announced an agreement with the major unions to reform the Public Service Pension Plan ("PSPP"). Many of the key benefit changes are similar to those seen in other provinces, with an increase in retirement ages, changes to post-retirement indexing, and increased contributions from both PSPP members and Government. The PSPP also will be transitioned to a Jointly Trusteed structure with equal sharing of future surpluses and deficits between PSPP members and Government, coupled with a planned reduction in the level of risk associated with the plan’s investments. In announcing these changes, Government stated that its key objectives were to have a sustainable plan, to allow for reasonable retirement benefits for public employees, and to protect the financial future of the Province. For more information, please see the September 2014 issue of News & Views.
Effective May 2016, PRPPs are now permitted in Nova Scotia. Refer to the discussion under Federal (June 7, 2016) for more details.
The Nova Scotia government has proclaimed the new Pension Benefits Act and its accompanying Regulations to be in force effective June 1, 2015. TBPs are defined in the new Act, but there are no accompanying regulations that would allow for their implementation. For more information, please see the May 2015 issue of News & Views.
In connection with the agreement to expand the CPP, the Ontario government has announced it will abandon plans to establish the Ontario Retirement Pension Plan (ORPP).
On June 3, 2016, the Ontario Government filed regulations under the Ontario Pension Benefits Act, which will extend for an additional three years the temporary solvency funding relief measures previously provided to private sector defined benefit (DB) pension plan sponsors in 2009 and 2012. The draft regulations were originally released on May 6, 2016. The Ontario Government first announced this extension in the 2015 Fall Economic Statement and again in the 2016 Ontario Budget.
At the same time, the regulations impose additional restrictions on contribution holidays for DB plans registered in Ontario, identical to those in place from 2010 to 2013.
On February 25, 2016, Ontario released its 2016 Budget. According to the Budget, submissions relating to the 2015 consultation paper seeking input from affected stakeholders on a proposed regulatory framework for target benefit MEPPs were supportive of a new framework, including a solvency funding exemption. However, some concerns were raised that certain MEPPs may face challenges transitioning to a new framework and implementing changes in funding rules.
The government will continue to consult with affected stakeholders on all aspects of a target benefit MEPP framework, including funding rules, and is committed to providing a transition period that allows sufficient time and ensures minimal disruption to the collective bargaining process.
On February 2, 2016, the Ontario Ministry of Finance released draft regulations to facilitate asset transfers between multi-employer pension plans ("MEPPs"). Asset transfers between MEPPs are currently prohibited. The amendments would allow the existing rules that apply to single employer pension plans to apply also to MEPPs. For more information, please see the February 2016 issue of News & Views.
On July 24, 2015, the Ontario government released its consultation paper titled Regulatory Reform for Target Benefit Multi-Employer Pension Plans. The consultation paper requests input from interested parties on numerous policy issues associated with the development of a new target benefit framework for MEPPs in Ontario.
On June 26, 2015, the Ontario Ministry of Finance released draft regulations for the merger or conversion of single employer pension plans (SEPPs) in the broader public sector into jointly sponsored pension plans (JSPPs). A draft framework was discussed in our News & Views bulletin of February 2015.
On June 12, 2015, the Financial Services Commission of Ontario released Policy W100-803 - Original and Successor Pension Plans - Section 81 Does Not Preclude Wind-Up of Original Plan (the “Policy”). The Policy addresses the rules for winding up a defined benefit pension plan when a successor defined contribution pension plan exists. For more information, please see the July 2015 issue of News & Views.
Prince Edward Island
Bill 41, the Pension Benefits Act received first reading on May 17, 2012, but has not been proclaimed in force. It allows for TBPs, but it appears unlikely that it will come into force.
On November 26, 2015, Bill 57, An Act to amend the Supplemental Pension Plans Act, received Royal Assent. Bill 57 applies to all DB plans and significantly changes the funding rules for such plans.
Quebec’s Bill 58 was adopted by the National Assembly and received Royal Assent. The purpose of the bill is to combine the operations of the Régie des rentes du Québec (“RRQ”) with those of the Commission administrative des régimes de retraite et d’assurances (“CARRA”). For more information, please see the December 2015 issue of News & Views.
On November 11, 2015, the Quebec government introduced Bill 75, An Act respecting the restructuring of university sector defined benefit pension plans and amending various legislative provisions. With Bill 75, all university-sector DB plans must be restructured by December 31, 2017 in accordance with the provisions of the Act, based on a complete actuarial valuation as at December 31, 2014, to be submitted no later than December 31, 2015. Bill 75 also introduces the possibility that all DC plans (not only university-sector plans) could pay variable benefits to a retired member. For more information, please see our Special Communiqué.
Bill 34, An Act to amend the Supplemental Pension Plans Act with respect to the funding and restructuring of certain multi-employer pension plans, was adopted on April 2, 2015 by the Quebec National Assembly. Almost all of its provisions take effect as of December 31, 2014. In addition, the regulations have been changed to include temporary funding relief measures for certain multi-employer pension plans. For more information, please see the May 2015 issue of News & Views.
After an extensive review by a parliamentary committee, Bill 3, An Act to foster the financial health and sustainability of municipal defined benefit pension plans, was finally adopted by the Quebec National Assembly on December 4, 2014. The committee made a number of changes to the revised bill tabled in October 2014. Adoption of Bill 3 regarding Quebec’s municipal pension plans, with new amendments.
An Act to provide for the establishment of target-benefit pension plans in certain pulp and paper sector enterprises came into force on Dec. 7, 2012. In November 2013, regulations with retroactive effects to 2010 came into force. While TBPs are currently limited to the pulp and paper industry in Québec, it is expected that they will be available more broadly.
Member-funded pension plans (MFPP), which are in some ways similar to TBPs, have existed since 2007. Only a few MFPPs have been established. Existing MFPPs cover unionized employees. The MFPP rules are not as flexible as the rules applicable to a typical TBP.
Effective May 2016, PRPPs are now permitted in Saskatchewan. Refer to the discussion under Federal (June 7, 2016) for more details.
On May 2, 2016, the Financial and Consumer Affairs Authority (“FCAA”), the Saskatchewan Pension Regulator, released a consultation paper titled Proposed Regime for Negotiated Cost Pension Plans (the “Consultation Paper”). Further to a review of the existing regulatory framework for private sector negotiated cost pension plans (“NCPPs”), the Consultation Paper proposes a new regulatory regime for such plans.
Under the proposed regime, an NCPP would not be required to fund on a solvency basis. The solvency position of an NCPP would still have to be measured and reported in each actuarial valuation report. An NCPP would be required to continue to fund an unfunded going concern liability over a period not greater than 15 years. There would be a requirement to calculate provisions for adverse deviation (“PfAD”) in the going concern valuation, but the PfAD would not have to be funded.
The Consultation Paper proposes a new regime for Saskatchewan NCPPs, but some of the proposals will be of interest to audiences interested in both NCPPs in other provinces as well as target benefit pension plans. Variants of the many of the proposed measures could find their way into new regulatory regimes in other provinces.
The City of Regina and the Civic Pension and Benefits Committee (the “Committee”), representing the employers and employees of the Civic Pension Plan (the “Plan”), have reached a negotiated agreement to address concerns regarding the long term sustainability of the Plan. The City and Committee made joint submissions to the Government in December 2014 setting out further details of their agreement to implement substantial changes effective July 1, 2015. On that basis, the Government of Saskatchewan announced, on March 11, 2015, that it has agreed to move forward with special regulations to implement the Regina agreement and the Saskatchewan regulator has announced it will not cancel the registration of the Plan for non-compliance with The Pension Benefits Act. The Plan was reported to have a $224 million deficit. For more information, see the April 2015 News & Views.
The Memorandum of Understanding between the parties and funding policy provide further details of the agreement between the City of Regina and the PBC, and may provide interesting precedents for other public sector pension reforms in Canada. The funding policy and governance model will also be of interest as a potential model for the development of target benefit plans in Canada.