Why Canada needs just one pension regulator

Each Canadian pension statute creates a regulatory infrastructure typically including a superintendent, his or her entourage, and a myriad of support staff, all of which requires office space, equipment, technology and some sort of tribunal or appeal mechanism which inevitably engages the court system as the appellate of last resort. Multiply this infrastructure by 11 and the magnitude of pension bureaucracy in Canada becomes apparent. It’s extensive, expensive, inefficient and serves neither employers nor plan members particularly well.

The current fractured, inefficient and divided system of provincial and federal jurisdiction over pension regulation stems from the Constitution of Canada, which defines the scope of power of the federal and provincial governments. While provinces enjoy exclusive jurisdiction over workplace pensions provided to employees working in the province, our Constitution creates exceptions for members employed in sectors that fall within federal areas of constitutional authority (e.g., banking) regardless of where they work. All of this creates significant regulatory issues, especially for multi-jurisdictional employers that are often forced to deal with multiple regulators over the same issue with different outcomes. It also adds to the complexity and cost of designing and administering pension plans, and results in an inefficient retirement system that makes our economy less competitive.

To create synergies and uniformity, pension regulatory authority needs to shift to a single, bilingual entity capable of representing national, provincial and local interests. Pension activity extends across Canada, including the three territories, and can most efficiently be overseen by a single national regulator, which can also represent Canada at international forums and in negotiations with foreign jurisdictions.

One possible solution, which does not require a constitutional amendment, is to extricate the bilingual pension plans division of the Office of the Superintendent of Financial Institutions (OSFI) from OSFI, rename it Pensions Canada/Rentes Canada, and appoint it as the sole minimum pension standards regulator for all of Canada. Its mandate would be to regulate Canadian pension plans in accordance with the Pension Benefits Standards Act, 1985 (Canada) (PBSA).

There are precedents surrounding this proposal:

• Prior to 1965, before minimum pension standards legislation existed, the federal government was the de facto regulator of pension plans in Canada. It regulated pensions directly (via the Income Tax Act (ITA)) and indirectly (via Information Circular IC72-13, which included some minimum standards provisions). A pension plan had to satisfy the requirements of IC72-13 to be registered under the ITA.
• The majority of provinces have already adopted the federal pension investment rules under the PBSA. It’s not too far-fetched to consider the adoption of the entire PBSA for the sake of harmony.
• British Columbia and Alberta recently adopted new minimum pension standards legislation specifically designed to harmonize pension legislation between the two provinces. If two provinces can do it, country-wide harmonization of pension legislation should be possible.
• Agreements Respecting Multi-Jurisdictional Pension Plans already exist between governments in Canada. These have one jurisdiction applying the other’s minimum pension standards for certain employees. The provinces and federal government could execute similar agreements, granting Pensions Canada the requisite regulatory authority over the pensions of non-federally regulated employees working in each province.

Provincially regulated pension plans would be required to register with Pensions Canada and comply with the PBSA. The provinces would not relinquish legislative jurisdiction over pensions, they would simply adopt the PBSA as the minimum pension standard and delegate regulation to Pensions Canada. They could, of course, continue to use other provincial legislation (e.g., Family Law, Employment Standards) to address unique local issues like marriage breakdown and maternity leave, so long as it does not conflict with PBSA requirements.

Pensions Canada would regulate federal and provincial pension plans and, to create continuity, would assume the operations of existing provincial pension regulatory offices and engage their personnel. Other important issues, such as data and technology transfers, would have to be addressed as part of the overall pension regulatory realignment.

The federal government should accept the increased regulatory responsibility and associated costs as part of a greater desire to achieve harmony within the Canadian economy (think, Harmonized Sales Tax initiatives) and to maintain a leadership role in retirement issues. (It already regulates the taxation side of pensions, why not minimum standards as well?) Economic benefits will flow to the federal government, due to increased competitiveness, which aids in attracting foreign investment. Authority to amend the PBSA would remain with the federal government, however, each province would nominate a representative to a pension regulatory body, which must be consulted and could propose legislative changes itself.

I propose that provinces adopt the PBSA as the minimum pension standard and delegate regulatory authority to a bilingual national pension regulator. As a result, provinces should experience immediate cost savings, fewer regulatory headaches and increased satisfaction among plan members and employers due to a more efficient regulatory system. The federal government should experience a sense of accomplishment and economic benefit arising from increased competitiveness. The cost of pension regulation would be borne by the federal government, which would retain legislative authority over the PBSA, subject to a new consultation mechanism, which encourages input from the provinces.

There are at least two ways to implement this proposal: One destined to fail, like the Meech Lake and Charlottetown Accords, and the other with at least a fighting chance for partial success. “Destined to fail” seeks unanimous agreement among all parties before anything can be accomplished. “Partial success” takes the form of bilateral agreements between the federal government and any province brave enough to implement the proposal. Assuming the federal government is keen, all it takes is one enterprising province (Prince Edward Island, perhaps?) to actually accomplish something.

With each new bilateral agreement, Pensions Canada would gain valuable experience and confidence in assuming provincial regulatory responsibility. Positive results from one province will create believers among others, who will quickly recognize the potential benefits. The federal government can prime the pump by initially creating Pensions Canada, amending the PBSA and PBSA Regulations to accommodate provincial participation, drafting necessary agreements and convening a conference designed to educate and persuade provincial counterparts.

Retirement savings is a priority for all levels of government in Canada but pension regulation is inefficient and serves no one particularly well. As such, it’s time for provinces and the federal government to harmonize pension regulation. Plan members, employers, and governments will all benefit from the synergies created by a national pension regulator and the adoption of a minimum pension standard applicable to all pension plans. All Canadians will benefit directly and indirectly from a uniform retirement system.