The new Employment Pension Plans Act recently took effect in Alberta after long revisions. The act focuses on facilitating new plan designs and modernizing plan governance, risk management and disclosure. Sponsors and administrators of all pension plans registered in Alberta, or registered elsewhere but with Alberta members, should know the legal requirements of the new act and regulations. Here are some of the changes.
New plan designs and governance structures – The new act allows target benefit (TB) provisions in both new and existing plans, albeit with some limitations—for the time being, TB provisions can only be implemented prospectively in Alberta. The regulations provide the tests to be used in administering a TB provision, introducing both stress testing and the concept of the provision for adverse deviation (PfAD) as part of Alberta’s going-concern-plus approach to funding a TB provision. (The PfAD is an adjustment to the plan’s normal cost based on the percentage of the fund assets invested in equities and the amount by which the assumed discount rate exceeds the benchmark rate.)
Governance policies – Every pension plan will need to have a written governance policy that meets criteria outlined in the regulations. Among other elements, the policy must include structures and processes for overseeing, managing and administering the plan; authorized decision-makers and their roles; performance measures; code of conduct and conflict procedures; educational and skills requirements; and internal risk management controls.
Funding policies – Pension plans with DB or TB provisions will need a written funding policy that sets out funding objectives, tolerances and internal controls for material risks. The governance and funding policies must be in place by Aug. 31, 2015.
Compliance assessments – A pension plan’s legal administrator will need to perform annual governance and rules self-assessments.
Solvency reserve accounts – A solvency reserve account for a DB provision can be established exclusively for payments relating to a solvency deficiency, with the ability to later withdraw amounts in accordance with the rules. The regulations stipulate that the administrator can apply to Alberta’s Superintendent of Pensions for consent to withdraw an amount that doesn’t exceed 20% of the plan’s accessible solvency excess annually over three years. [Accessible solvency excess is the amount by which the plan’s solvency asset value exceeds 105% of its solvency liabilities (i.e., ensuring a margin remains), based on the most recently filed actuarial valuation report.]
Disclosure – The regulations set out a number of new disclosure statements, including those for individuals receiving pensions, and specify new data requirements about existing disclosure statements. Plan sponsors need to comply with the new disclosure rules by Dec. 31, 2014.
Vesting – A member’s entitlement to receive a pension will vest immediately on termination of active membership. Plan amendments to reflect new requirements must be filed by Dec. 31, 2014.
Termination and windup – Partial terminations and windups of pension plans will be eliminated.
Default investment options – For plans in which members provide directions about investments, the default investment option must be a balanced or target-date fund by Dec. 31, 2014.
The release of the regulations is a milestone in Alberta’s pension reform initiative, but the process isn’t complete. Bill 10 was introduced in the legislature last April, and several amendments to the new act have been proposed. While Bill 10’s amendments are mostly minor and technical, a number were more substantive, including provisions allowing annuity buyouts and conversions of accrued defined benefits to target benefits. Currently, Bill 10 is stalled pending further review, and the timing is uncertain.
Michael Wolpert is a partner in Lawson Lundell’s Calgary office.
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