Last week at a conference on securities regulation, someone made the pithy observation that “complex systems fail.” This remark can be applied to many things but few of them as aptly as pension legislation in Canada. The fact that every province has its own legislation is a factor behind the decline in pension coverage, which is now down to just 20% of paid workers in the private sector—and that includes both DB and DC pension plans.
One might dismiss this as old news were it not for the results of 60 Second Survey conducted recently by Morneau Shepell. A significant majority of plan sponsors polled agreed that Canada is suffering a retirement crisis. No surprise there. More interesting, though, are the views of the same sponsors on the one action governments can take that would be most effective in addressing this crisis. Among a list of options, I expected the No. 1 choice would be a modest expansion of the Canada/Quebec Pension Plan (C/QPP), but only 12% of respondents chose this. An even smaller percentage chose a more comprehensive expansion of the C/QPP. The other response that was expected to be popular was the introduction of pooled registered pension plans (PRPPs), though only 18% selected this as the one most effective action.
No, the No. 1 action by governments that respondents felt would be most effective was the adoption of a national strategy for pensions rather than attacking reform province by province. This was the choice of 37% of all respondents, which made it three times as popular as an expanded C/QPP.
I am trying to make some sense of this survey result. Do plan sponsors really care if pension legislation differs in numerous subtle and not-so-subtle ways from province to province? Of course they do, since it makes administration of plans and compliance with regulations more difficult than it has to be. But sponsors have coped with this complexity for a quarter century now, and, frankly, compliance can be assured at a relatively reasonable cost by engaging experts to deal with it.
I think the widespread desire for a national pension strategy means something else. Given that C/QPP, old age security and RRSPs are already national programs, what plan sponsors must want is for occupational pension plans to be addressed in the same manner. Should PRPPs be part of our retirement system or not? The answer should be the same in all provinces, and the PRPPs themselves should have the same features and rules in all provinces.
Similarly, there would be just one set of rules applicable to registered pension plans in all provinces, but this cannot happen without a change to the constitution, which gives each province jurisdiction over its own citizens. If we are going to introduce target benefit plans, why should they be different in Ontario than they are in New Brunswick? You would be hard-pressed to find a plan sponsor that thinks that the provincial variations in pension legislation are a good idea. Indeed, when it comes to major variations from the consensus—such as grow-in or a pension benefits guarantee fund in Ontario—they are usually a bad idea or a good idea gone bad as circumstances changed but laws didn’t.
As Bismarck observed, politics is the art of the possible. No province will give up jurisdiction over pensions willingly, but maybe they can live with seeing the legislation applied a little differently. For a given pension plan, why can’t the legislation of the province where the plurality of plan members work apply to all members in that plan? For example, if 50% of employees are in Alberta and the rest are scattered across Canada, this rule would see Alberta pension legislation apply to plan members in the other provinces as well. This greatly simplifies life for the plan sponsor, which would have to abide by just one set of laws and regulations instead of up to 10.
It isn’t as if this concept is totally foreign. Federal legislation already applies to workers in federally regulated business regardless of the province they are in. So why can’t provincial legislation, based on plurality, do the same? In a similar vein, the funding rules of the province of registration apply to plans as a whole so plan sponsors do not have to comply with funding rules on a province-by-province basis.
Of course, if it were easy, it would have happened already, but it is not readily apparent where the resistance lies. Is it with the politicians or with the regulatory authorities and civil servants who devise policy? To the extent that each regulator wants to maximize the number of pension plans it oversees, this proposal will result in winners and losers, but, to be candid, no one outside of government really cares. If nothing is done and we continue to tackle pension reform on a piecemeal basis, we will have many more real losers, being future employees without coverage because our overly complex system failed them.