Nova Scotia’s pension funds operate in a “patchwork” regulatory environment that stifles the creation of new defined benefit (DB) plans, according to the Nova Scotia Pension Review Panel. In order to alleviate an increasingly difficult situation for the province’s plan sponsors and plan members, new legislation is required.
The Nova Scotia Pension Review Panel’s report, Promises to Keep, highlights a number of key challenges facing the system—namely, the adequacy of funding, transparency and governance.
“The required funding levels must deal openly and realistically with market circumstances, while somewhat constraining volatility,” reads the report. “Flexibility in regulation will be needed to accommodate evolving benefit designs and forms of oversight. Governance must be effective and transparent, and participation of members is to be strongly encouraged.”
Four key issues were identified in the document. One, the underlying legislative framework is ill equipped to deal with the evolution of defined contribution and target benefit plans.
Two, today’s labour environment is an issue, as the province’s pension structure was developed during a period when workers typically stayed with one company for the majority of their working lives—an anomaly by today’s standards.
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Three, the provincial government’s “patchwork” approach to individual pension issues has resulted in a confusing landscape of overlapping legislation, creating unintended consequences for other types of plans.
And four, recent sharp increases in liabilities for DB plans due to improved longevity, reduced interest rates and reduced assets due to investment performance have emphasized both the magnitude and the volatility of the cost to employers.
The result, according to the report, is an environment that discourages the creation and continuation of DB pension plans.
“The number of members participating in employer-sponsored pensions has been declining, and the proportion of employees continuing to accrue DB pensions (felt by many to be the best arrangement for employees) is declining even faster, particularly in the private sector,” reads the report. “Many of those sponsors who still have DB plans are considering changes.”
The panel added that it could find no instance of a truly new private sector pension plan being implemented on a DB basis in the past decade.
The report makes a total of 30 recommendations, including:
• the availability of target-benefit plans for single- and multi-employer groups;
• a solvency funding amortization period of 10 years for all plans, regardless of type;
• the encouragement of phased retirement, and
• the creation of a province-wide supplemental pension plan.
Download the full Nova Scotia Pension Review Panel report here
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