With the three expert panel reports now out on the pension reform table, it’s time for a little compare and contrast.
For years, the federal and provincial governments (except Quebec) appeared disinterested in undertaking any significant pension reform. In Ontario, it has been more than 20 years since the last major review of its Pension Benefits Act. Yet pension reform has recently become a hot topic, as evidenced by the quick succession of reports released by expert panels appointed by the Ontario, Alberta, British Columbia and Nova Scotia governments. Running through these reports are a number of common themes but also a number of disparities.
Some differences can be attributed to the varying mandates given to the commissions. The Ontario Expert Commission on Pensions (OECP) confined its review to defined benefit (DB) plans, whereas both the Alberta/B.C. Joint Expert Panel on Pension Standards (JEPPS) and the Nova Scotia Review Panel (NSRP) reviewed the pension system as a whole.
While all three reports emphasize that pension legislation must apply different rules to different types of pension plans, only the JEPPS and NSRP included specific recommendations aimed at defined contribution (DC) plans. For example, they recommended permitting default enrollment in DC plans and avoiding safe harbour rules. (Although the JEPPS suggested that plan sponsors demonstrating adherence to a “pension judgment rule” be provided with a statutory defence similar to the protection that corporate directors receive through the business judgment rule.) For DC plan sponsors, this is a positive step forward from the regulatory vacuum in which these plans operate.
Despite any differences in mandates, all of the panels devoted a portion of their reports to certain main issues. They all recommended improving governance, including increasing transparency and developing best practices. But only the OECP favoured joint governance models and advocated mandatory pension advisory committees.
All of the reports recognize the flaws in the federal investment rules. However, the OECP suggested that only jointly governed plans “with the requisite capacity to make complex investment decisions” be specifically exempt from the 30% rule. (This restricts plans from owning more than 30% of the securities of a corporation to which are attached rights to elect directors, except in limited circumstances.)
The panels all agreed that there should be no right to surplus distribution on a partial windup, but only the NSRP proposed eliminating partial windups in favour of an immediate vesting requirement. The NSRP also proposed the elimination of mandatory grow-in benefits. Ontario, the only other jurisdiction providing grow-in benefits, recommended that such benefits be extended to all single employer pension plan (SEPP) members who are involuntarily terminated.
Each report recognizes that DB plan funding is a chief concern, proposing that surplus withdrawals and contribution holidays be subject to retaining a funding buffer in the plan and requiring annual valuations for plans that fall below a certain threshold. However, the OECP and NSRP recommended extending funding amortization periods for SEPPs to between eight and 10 years, while the JEPPS advocated maintaining the five-year period for SEPPs. Both the OECP and JEPPS reports suggest that SEPPs continue to be funded on a solvency basis, whereas the NSRP recommended doing away with going concern and solvency valuations in favour of a new “accrued benefit measurement.”
While some of these differences may be significant—and, if implemented, have the potential to lead us away from the goal of harmonization—in the end, one key common theme to these reports is that we are all in need of significant and thoughtful pension reform to address the numerous challenges facing the industry.
It remains to be seen if—and how—the governments of Ontario, Alberta, B.C. and N.S. will respond to these blueprints and implement much-needed reform.
Paul Litner is a partner in the pension and benefits department at Osler, Hoskin & Harcourt LLP.
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© Copyright 2009 Rogers Publishing Ltd. This article first appeared in the March 2009 edition of BENEFITS CANADA magazine.