A review of B.C.’s new pension legislation

Many aspects of the new legislation take a more principles-based approach than the current act and will be heavily dependent on the final regulations once they are released.

Alberta is expected to introduce new pension legislation that will be substantially similar to Bill 38; JEPPS recommended that both provinces harmonize their respective pension laws, so changes discussed below should be broadly applicable in both B.C. and Alberta.

New plan designs
Bill 38 introduces new plan designs and design features, many of which incorporate recommendations contained in the JEPPS report. Of note are the following:

• A negotiated cost plan is defined as a plan established under a collective agreement where contributions are determined and limited by the collective agreement.
• The jointly sponsored plan establishes a framework (subject to details to be set out in forthcoming regulations) for plans containing a “benefit formula provision,” in which participating employers and employees are required to make contributions to meet funding requirements. Responsibility for plan governance is shared between the participating employers and active plan members.
• A target benefit plan is a plan that establishes a formula by which the amount of pension is predetermined and provides that the accrued pension may, by amendment, be reduced or increased and the contributions adjusted accordingly. There is no requirement that target benefit plans be restricted to unionized collectively bargained workforces.

Bill 38 also grants the superintendent discretion to designate an existing plan as either a “collectively bargained multi-employer plan,” a “non-collectively bargained multi-employer plan” or a “single employer plan.” This new power appears to contemplate an existing plan adopting new design features provided in Bill 38 and, for instance, changing from a negotiated cost plan to a plan containing target benefit provisions. This should be of interest to plan sponsors looking to vary the pension deal on a go-forward basis.

Plan governance
Bill 38 does not prescribe the specific entities that may be the plan administrator, instead defining the administrator simply as the person responsible for administering the plan in accordance with the PBSA.

Moreover, administrators will now be expected to act in a fiduciary capacity to members and others entitled to benefits.

This change aligns B.C. with similar provisions under Alberta’s current legislation. Plan administrators will be required to establish governance policies and, for plans with a benefit formula, a written funding policy that must be provided to the plan actuary. This change is consistent with the recent CAPSA Guideline No. 7, Pension Plan Funding Policy Guideline and the JEPPS recommendations.

Administrators will also be required to assess their plan administration in accordance with the regulations for funding, investment and trustee/administrative staff performance. Written records of the administration assessment must be retained by the administrator and made available to the superintendent upon request.

Plan funding
Details of specific funding rules for plans with benefit formula provisions will be set out in the regulations. Solvency funding relief for multi-employer plans continues to be a major concern, so we’ll have to wait to see what the regulations will say about this.

Bill 38 permits the administrator to set up “solvency reserve accounts” exclusively for depositing solvency deficiency payments, with the ability to withdraw, by a prescribed person, “actuarial excess” in the account in accordance with the rules in the regulations—despite any wording in the plan text. Bill 38 did not adopt JEPPS’ recommendation that plan sponsors be permitted to “ring-fence” existing plan and trust provisions relating to surplus ownership and create a go-forward provision to address surplus ownership. The trapped capital concern, however, may be less of a concern assuming the solvency reserve account can be properly used.

Regulatory powers
The superintendent has been given greater discretion to approve new or amended plan designs, which should, according to the government’s press release, encourage “wider private sector coverage.” However, as stated in the JEPPS report, with greater discretion and a more principles-based approach to regulation, the relationship between the regulated and the regulator will require careful attention to ensure a closer understanding of the regulated industry and the underlying challenges faced by plan administrators. This new paradigm will take time and patience on both sides.

The precise extent of these discretionary powers will presumably be set out in the regulations and related guidelines. Additional powers also include the ability to direct the administrator to reverse any transaction based on an amendment that the superintendent refused to register, and to designate an actuary if the superintendent is of the opinion that assumptions and methods used by the incumbent actuary were inappropriate for the plan.

Bill 38 also grants the superintendent power to impose, by direct order, significant administrative penalties against administrators, corporations and individuals for specific contraventions of the legislation, including failure to file required reports, make contributions and disclose information within prescribed timeframes.

Looking ahead
At the time of writing this article, Bill 38 had received second reading in the Legislative Assembly and has been referred to the legislative committee for review, so it remains to be seen when passage of Bill 38 into law will occur.

We will also have to wait to see when, and the extent to which, Alberta follows suit with what may be nearly identical legislation. JEPPS’ recommendations for harmonization of the two provinces’ acts were based, in part, on recognizing the significant number of employers operating in both provinces, as well as the stated commitment of both governments to help businesses and facilitate worker mobility.

Not all of JEPPS’ recommendations on the harmonization front were adopted (e.g., a single regulator, joint Alberta/B.C. pension tribunal and joint advisory council), but until Alberta’s legislation is introduced and respective regulations are finalized, it is premature to comment on whether the JEPPS Report, which was entitled Getting our Acts Together, will live up to its name.

Scott Sweatman is a parnter in the pensions, employment benefits and executive compensation practice with Spectrum HR Law and former co-chair of JEPPS. spectrumhrlaw.com