The West has certainly been an active contributor to the incredible activity on the pension reform front that we have seen since 2007. Following a comprehensive review process, the Alberta/B.C. Joint Expert Panel on Pension Standards (JEPPS) put forth recommendations that were described by pundits as both innovative and pragmatic.
Having gained considerable momentum, this broader reform agenda was nonetheless relegated to the back seat as the economic upheaval in 2008 focused regulatory and political activity on stop-gap funding solutions for defined benefit (DB) plans. The ensuing speed with which these relief measures were introduced in western Canada was unprecedented, yet each province took a different approach. Figure 1 offers a sense of the diversity across the West as well as a comparison with central and eastern Canada.
In sum, the regulatory response to the 2008 market turmoil reverted to the old piecemeal approach, introducing yet another level of confusion for DB plans—just when we were beginning to see some light from the concerted efforts of the pension reviews.
Western reformation
The JEPPS report was felt to be reasonably balanced between sponsor and member concerns, but it is difficult to comment on whether the resulting legislation will reflect the same balance until it is drafted—a process that is expected to take at least another year. In addition to having the unique trait of being a joint effort between two provinces, the JEPPS report stands out in recommending two specific changes related to surplus ownership and benefits security in DB plans: “ring fencing” and the pension security fund.
Both provinces were relatively quick to respond to the financial crisis, although some of the temporary measures may not provide as much relief as it first appeared. In B.C., plan sponsors are finding the documentation requirements onerous. In Alberta, recent experiences with the new solvency relief rules suggest that it is not clear what is acceptable and what is not. It is also interesting that Alberta’s solvency moratorium applies to all solvency deficiency payments, while the amortization period extension applies only to deficiencies created after Aug. 31, 2008 and before 2010.
While not the first to introduce solvency relief legislation, the Saskatchewan regulator was the most aggressive and direct in implementing a full solvency moratorium for three years on the next valuation filing, with only limited strings attached. This truly plan sponsor-friendly piece of legislation is expected to be used judiciously. In fact, plan sponsors in Saskatchewan face a unique dilemma: the relief provisions are so wide open and the regulator so accommodating and flexible that advisors may caution sponsors to examine their fiduciary responsibilities and refrain from taking full advantage of the relief offered.
Finally, we saw the recent introduction of the long-awaited regulations to the Manitoba Pension Benefits Act, a journey that began in 2005. Once proclaimed, the Manitoba changes will offer a mixed bag of sponsor- and member-friendly items. Plan members will appreciate the immediate vesting, the ability to retire within 10 years of the normal retirement date, the option for a plan sponsor to provide flexible benefits and the access to locked-in funds for non-residents and members with shortened life expectancies. Sponsor-favourable provisions include the ability to restrict commuted value transfers for members eligible for an immediate retirement benefit and the limited requirement to include ancillary benefits in commuted values. Members and plan sponsors will both like being able to establish phased retirement arrangements.
Few Manitoba plan sponsors will relish the obligation to have a pension committee as the plan administrator—a new rule for plans with more than 50 members—particularly as this involves relinquishing control of the investment policy to the committee. The short-term relief provided by the Manitoba regulator is not as significant as was hoped and is less than in some other jurisdictions. As well, some relief measures are difficult to implement, with member consent being a major stumbling block.