National single-employer pension plans are at a very fragile juncture, and the current patchwork of pension legislation discourages organizations from providing pension coverage in multiple jurisdictions. However, a recent report has tabled several possible solutions to the legislative snarl.
According to the C.D. Howe Institute’s The Pension Tangle: Achieving Greater Uniformity of Pension Legislation and Regulation in Canada by pensions advisor Gretchen Van Riesen, there are two levels of jurisdiction that govern private and public pension plans in Canada: tax and minimum standards. The federal level deals with tax deferral/tax shelter limits, while provincial jurisdictions establish minimum standards for design, funding, communications and administration. However, some employees fall under federal jurisdiction—such as employees of banks and communications companies—for minimum standards as well.
The problem, she points out, is that while all pension plans are covered by the same federal tax rules, there is no such uniformity in minimum standards regulation. Provincial legislation has evolved into a patchwork of jurisdictions—all with different provisions—even for employers whose operations are national in scope. Minor discrepancies, such as the definition of spouse, are numerous enough to “threaten the very fabric of national private pension coverage,” and the overall effect is a range of confusing rules that increase the legal risk of plan sponsors, encouraging them to migrate to a defined contribution plan, group RRSP or tax-free savings account. While uniformity is not the sole problem for plan sponsors, it may represent the “last straw.”
A better way?
Van Riesen suggests that by juggling the responsibilities for legislation, regulation and enforcement, there are a number of combinations worth considering.
1. One law, one regulator
The adoption of one piece of pension legislation—similar to the Employee Retirement Income Security Act in the U.S.—would bring together the most representative elements of existing jurisdictional legislation. Paired with a single national regulatory body to supervise pension plans—such as the Office of the Superintendent of Financial Institutions (OSFI)—this option would be the most logical and cost-effective. Political resistance from the provinces has so far stymied previous efforts at this, but Van Riesen points to the recent “ABC Plan” from Alberta and British Columbia as proof that harmonization is possible if governments set their minds to it.
2. Model law across Canada with multiple regulators
With this option, Canada’s current regulatory structure would be retained, but the various jurisdictions would align its legislation with a “model law” design to be developed and championed by the Canadian Association of Pension Supervisory Authorities (CAPSA).
CAPSA introduced model law principles in June 2005, sought stakeholder input on these principles over the subsequent nine months, and recently introduced a proposed model law for adoption by the various jurisdictions. However, Van Riesen warns that even if such a concept were accepted by the jurisdictions, it would be difficult over time to prevent provinces or the federal government from making changes that move away from the model law.
3. Multiple jurisdictional laws, one regulator
This alternative would maintain the current structure of multiple acts of pension legislation, but under the supervision of one national regulator, such as OSFI.
At the same time, multilateral agreements—including the proposed multilateral agreements recently reviewed and revised for provincial adoption by CAPSA—would remain in place to ensure some consistency in the application of legislation for national employers.
The problem, says Van Riesen, is that such agreements will need clarification, as there have been legal challenges by some jurisdictions regarding their scope and applicability. The drawn-out attempts at creating a national securities regulator will likely be instructive with regard to a similar effort to create a single pensions regulator in Canada.
Further, such an agreement would be difficult to administer should changes in employment patterns alter the jurisdiction that contains a plurality of plan participants.
“In the end, we cannot even be sure that it will be adopted by the various governments, or that it will be uniformly applied,” she says.
4. Multiple jurisdictional laws, multiple regulators
Van Riesen’s final alternative would maintain the current structure of multiple laws supervised by multiple regulators, but would augment it with CAPSA-sponsored guidelines and rule-making authority for regulators to increase and maintain uniformity.
However, she says, rule-making authority entails the possibility of movement away from uniformity rather than toward it. Guidelines—similar to CAPSA’s Pension Governance Guidelines and Self-Assessment Questionnaire as well as its Guidelines for Capital Accumulation Plans—should be created and adopted to discourage such tendencies. This type of authority for jurisdictional regulators could be effective in enabling them to reach agreements without another level of political pressure.
“There are many reasons to be discouraged about Canada’s potential success in resolving the pension legislation non-uniformity issue,” says Van Riesen. “Most of the progress to date in addressing the non-uniformity of pension legislation has been minor and cosmetic. When there has been any opportunity to seek a harmonized solution to a new or contentious regulatory issue (e.g., letters of credit, phased retirement, solvency funding), there has been little or no success.”
“Definitive action is required that will enable [national single-employer pension plans] to grow and to address the issue of inadequate pension coverage. Alberta and British Columbia have shown that it is possible to make pragmatic suggestions for serious reform. Other provinces and Ottawa need to follow suit. Canadians who believe that voluntary and contractual approaches to employment-related retirement saving are better than government mandates should push for more harmonization, preferably a single national pension law and regulator.”
Read the full report here.
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