The New Brunswick government has introduced Bill 20, An Act to Amend the Pension Benefits Act. Among other things, Bill 20 will afford protections for those carrying out administrative functions with respect to shared risk pension plans (SRPPs), provide protection for parties involved in the conversion of DB plans to SRPPs and clarify the treatment of vested base benefits.
The bill went through the first reading on December 11 and the second reading on December 12.
If it becomes law, Bill 20 will be deemed to have come into force on July 1, 2012, to coincide with when the first shared risk pension plan (SRPP) enabling legislation came into force.
Key elements of Bill 20
Trust and contract law
Bill 20 clarifies that conversion to a SRPP may occur and vested benefits may be affected despite the terms of any contract or trust.
Reduction of vested-base benefits
One feature of SRPPs is the potential for reduction of base benefits in the event that the plan is less than 100% funded for two consecutive years. While SRPPs are designed in such a way that there is a low probability of benefit reductions, such reductions are nonetheless a possibility.
Bill 20 will amend certain definitions in the PBA to clarify that following a conversion of a pension plan to an SRPP, vested base benefits and vested ancillary benefits accrued prior to conversion could be subject to a reduction in accordance with the plan’s funding policy.
Enhanced immunity for administrative functions
When the PBA was first amended to enable the creation of shared risk pensions, immunity was extended under the legislation to the Crown in right of the Province, the Minister, a person designated to act on behalf of the Minister, the Superintendent or plan administrator, assuming that such persons act with the care, diligence and skill of a reasonably prudent person.
Bill 20 will extend this protection to any officers, directors, employees or members of these persons who meet the standard of care. Moreover, Bill 20 would extend immunity to all actions taken under the entire PBA and the regulations in relation to SRPPs, whereas the existing provision offers immunity under only Part 2 of the PBA, which governs SRPPs and related regulations.
Bill 20 will also amend existing rules to extend immunity to parties involved in the conversion of pension plans to shared risk plans. In addition to the persons listed above, the proposed changes would extend immunity with respect to actions related to the conversion to a trustee, a board of trustees, an employer, a trade union that represents members, and an employee organization that is the bargaining agent of members and any of their officers, directors, employees, members, agents or advisors.
At present, the SRPP model, including the changes proposed by Bill 20, applies only to pension plans registered in the Province of New Brunswick. It is to be hoped that this innovative new pension model will be considered and adopted by other pension jurisdictions.
The SRPP design contains elements of a target benefit design, such as a DB-type formula, fixed contributions (subject to certain adjustments in accordance with the funding policy) and the possibility of benefit adjustments. However, the New Brunswick model also incorporates sophisticated risk management and governance requirements to help ensure benefit security and pension sustainability.