The Power of Perspectives

The Canadian Bar Association

Kim Covert

Pensions across borders

September 25 2017 25 September 2017

There are few things in life more likely to make most of the population close their eyes, plug their ears and sing “la-la-la” than a discussion about pension funding. Many of us have pensions and look for some sort of financial stability in retirement, so it’s amazing how many people are ready to leap with faith on the idea that there will be enough in the pot cometh the hour.

So if you’re tempted to look elsewhere and hum during this next bit, rest assured that the CBA Pensions and Benefits Law Section is taking care of business.

According to the Canadian Association of Pension Supervisory Authorities, more than 2,000 pension plans in Canada operate in more than one jurisdiction, covering more than two million members. Which means that if there’s a major “event”– an insolvency, for example –a lot of different rules need to be satisfied in a lot of different jurisdictions.

In 2016, five provinces signed an agreement prepared by CAPSA which attempts to streamline the rules that multi-jurisdictional plans must follow in each jurisdiction. CAPSA said at the time that the agreement was an interim measure and would be followed by an agreement to be signed by all Canadian governments with pension legislation. This summer CAPSA released a consultation paper seeking stakeholder input on options under consideration for the next step.

The CBA’s Pensions and Benefits Law Section has responded to that consultation paper and the questions asked about the various options it lays out.

The CBA’s pension experts recommend that multi-jurisdictional plans have a major-authority focus – that is, that they follow the rules of the major jurisdiction in the plan, because it will be easier to administer and is consistent with the goal of harmonizing pension benefits standards across the country. The consultation paper notes that if a minor jurisdiction has legislated a funding requirement for a benefit not matched by the major jurisdiction, “that benefit would have to be funded for the plan members in that minor authority’s jurisdiction.”

“As a general principle, it is more important to treat members of the same plan in the same way, regardless of jurisdiction – this is both desirable and defensible,” the submission says. “In our experience as advisors, it is disruptive, difficult to explain, and difficult for our members to understand why their pension benefits are dramatically different from those of a colleague in an otherwise identical position.”

Along with answering the specific questions posed by the consultation paper, the Section also noted two matters that CAPSA should consider addressing in the agreement: commuted value transfers for Quebec members, to take into account recent legislative changes in that province, and target-benefit multi-employer plans.

“Neither the current agreement nor the proposed future agreement addresses the unique situations, special rules and considerations for target benefit multi-employer plans, where the employers’ only funding obligation is to provide fixed contributions,” the submissions says.

The Section recommends that the next version of the agreement provide separate rules for the funding of target-benefit, multi-employer plans, and how the assets of those plans will be allocated if there happens to be a major plan event.

“The CBA Section appreciates CAPSA’s continuing efforts to address important pension plan funding issues for multi-jurisdictional plans,” the submission concludes. “The proposed changes to the funding and asset allocation rules for multi-jurisdictional pension plans are a positive step towards the harmonization of pension legislation across Canada.”

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