The Voice of Multi-Employer Plan Interests in Canada

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MEBCO's primary activity is to monitor and assess the impact of legislative reforms that affect Canadian multi-employer pension and benefits plans. In many cases, we advocate our position through written submissions to government, and regulatory and administrative agencies.

To view a submission, just click on a title of interest from the list below. In the interest of avoiding repetition, we have deleted standard introductory remarks that provide background information on MEBCO from many of these documents.

Documents that are presented as Adobe Acrobat PDF files require Adobe Acrobat reader to properly view. If you would like an original copy of any of these submissions, you can obtain one by contacting MEBCO.

May 7, 2018

Via Email: Department of Finance and the Canada Revenue Agency 

The Multi-Employer Benefit Plan Council of Canada (MEBCO) is a non-profit corporation representing the interests of Canadian multi-employer pension and benefit plans. We are writing to submit our recommendations and comments with respect to the transitional rules and amendments to the Income Tax Act to govern the phase-out and conversion of Health and Welfare Trusts (HWTs) to Employee Life and Health Trusts (ELHTs). MEBCO previously made a submission on the Canada Revenue Agency's (CRA) Income Tax Folio S2-F1-C1 which was released in 2015. One of the concerns in the Folio submission related to the differential treatment of these two vehicles and MEBCO recommended harmonization of the HWT and ELHT rules. While MEBCO did not advocate for the sunset of HWTs, we appreciate that the CRA and Department of Finance has recognized MEBCO’s concerns and is taking steps to harmonize the rules albeit now under ELHTs only. MEBCO would be pleased to work with the CRA and Department of Finance to assist with the development of the transitional rules as a stakeholder advisor.

 

Read entire submission via PDF

 

April 27, 2018
Target Benefit Funding Framework
Pension Policy Branch
Ministry of Finance
5th Floor, Frost Building S
7 Queen's Park Crescent
Toronto, ON M7A 1Y7
Dear Madam or Sir:
Re: Target Benefit Multi-Employer Pension Plan Framework (the “Framework”)

MEBCO appreciates the recognition that the funding regime for target benefit multi-employer pension plans (MEPPs) ought to differ from the regime for single employer pension plans (SEPPs), and that solvency funding requirements are not appropriate for MEPPs. Beyond that, however, MEBCO is disappointed that its prior submission
dated December 15, 2017 appears to have been disregarded in critical ways. The Ministry of Finance (MoF) proposed framework, if implemented, would be adverse to the continued accomplishments of the one private sector pension model that is working well, preserving essential retirement benefits, and not being abandoned – MEPPs.

MoF seems persuaded that benefit security can be enhanced by its proposed funding requirements (particularly the high PfADs – even higher than for SEPPs), whereas the reality is that the primary impact will be to lower benefits and increase intergenerational inequity with no added benefit security.1 Further, MoF does not appear to recognize that the contributing active participants will resist giving up current cash compensation by agreeing to higher pension contributions when little or none of the added value goes to them. If the relationship between MEPP benefits for active employees and their negotiated contributions becomes adverse, the active members may think that a defined contribution plan (for which all contributions fund benefits for actives) is a much better deal. Of course, under a defined contribution arrangement, the individual takes on all investment and longevity risk.

Early indications are that the best-funded MEPPs may barely meet the new requirements, whereas others will need to reduce benefits unless the active employees are somehow willing to increase contributions (resulting in lower wages) and get no added benefits for those contributions. MEBCO notes that the last ten years have generally been years of favourable investment returns and high employment. That is not likely to persist indefinitely, particularly in cyclical industries like construction. That suggests that the MEPPs that can meet the proposed requirements will, sooner or later, be faced with benefit reductions because, at a time of lower employment, it will simply be impossible to negotiate higher contributions. Those benefit reductions may be solely to satisfy the proposed requirements, even though the probability of the unreduced benefits being paid indefinitely is quite high.

As MEBCO previously indicated, holding large PfADs compels lower benefits than a plan can reasonably afford. In the likely case where those PfADs are not needed, they get released in the form of higher benefits to a future generation – today’s active plan members and retirees paid for benefits that go instead to future retirees – and the rigidity of the proposed funding model will compel those deferred higher benefits to be delayed until several generations later.

The MoF proposal treats benefit improvements for future years of service more favourably than spending the same amount on increases for all years of service. The reality is that diverting money from wages to pensions is most likely to be acceptable if those near retirement prevail on their younger colleagues to increase pension contributions. A “future service only” enhancement does little or nothing for those near retirement, thus making it difficult or impossible to negotiate additional pension contributions.

We have an overriding concern with respect to the rigidity and inflexibility of the MoF proposal. Once again, we urge you to review our submission dated December 15, 2017, a copy of which is attached for your ease of reference. As indicated in those submissions, MEBCO would support a minimum requirement for PfADs, but these minimum PfADs should be established at much lower thresholds than in the current MoF proposal. Establishing lower minimum PfADs would strike a better balance between benefit adequacy, affordability and security that is appropriate for the individual plan. Lower minimum PfADs would also permit greater flexibility to better balance the various plan objectives, including benefit adequacy, affordability, security, stability and intergenerational equity. The greater flexibility in our earlier submissions would also permit PfADs to be built up in favourable times and drawn down in times of adverse plan experience. This highlights a major drawback of the MoF proposal as MEPPs would not be able to utilize PfADs to offset adverse plan experiences; rather, the MoF proposal simply creates a fixed additional liability that is of no utility to current pensioners and active members.

MEBCO is concerned about the implication that, when benefit reductions are required,2 the regulators will dictate the details of how those reductions must be implemented. Regulators are often concerned with uniform rules that are easily monitored – that means that different situations are treated alike. That is likely to give worse  outcomes than the current deference in such matters to a MEPP’s trustees, who are best qualified to reflect appropriate responses for specific circumstances. For example, a regulatory requirement to protect pensioners may force benefit cuts to actives that undercut their support for continued contributions, whereas a requirement to  protect actives may lead to increased poverty among pensioners. And some forms of reduction, such as changes in early retirement rules, may make it difficult for employers to retain the experienced skilled workers that are critical to their operations. Trustees who are knowledgeable about their membership are in the best positon to manage equity in rendering decisions concerning both possible benefit reductions and benefit improvements.

MEBCO is also concerned that continually adding to the panoply of funding, benefit, and governance policies that differ by jurisdiction will lead to unmanageable or illogical intra-plan differences for multi-jurisdictional MEPPs. Examples would be different reductions required for members in different provinces in bad times, or different transfer value computations for members in the same plan. Once again, MEBCO strongly urges MoF staff to meet with us to design jointly a framework that protects benefits without forcing pensions that are unnecessarily low or compelling intergenerational inequity. The proposed framework is not an appropriate model for the MEPP environment.

Robert Blakely
President
This email address is being protected from spambots. You need JavaScript enabled to view it.

Thank you for sharing your interpretation of the long-awaited funding rules for multi-employer target benefit plans in Ontario. It is erroneous. We have a number of concerns with the proposed funding rules and are making a submission identifying them. However, we wanted to correct an error in your release which states “As such, the framework suggests that if the total contribution requirement under the new framework is greater than under the current specified Ontario multi-employer pension plan or defined benefit multi-employer pension plan funding rules, the transitional rules would let the contribution increase be phased in over a three-year period following the transition”. This statement is  simply not true. More stringent funding rules will NOT increase contributions to a target benefit multi-employer benefit plan, they are funded from collective agreement contributions (the money of the worker and not from top by the employer). The impact of more stringent funding rules is a reduction in benefits. It is this wrongminded view of these plans that have historically led to inappropriate funding requirements, including the current proposal to include an excessive provision for adverse deviation. At best, these provisions just create a cushion of funds that can’t be used for benefits but provide comfort for regulators,

Respectfully,

Bob Blakely
President
Multi-Employer Benefit Plans Council of Canada

April 25, 2018

Application:

To all MEPPs and TBPs where accrued benefits have the ability to be reduced. Pension benefits may be fully or partially established under a collectively bargained agreement. These plans exist in both the for-profit and not-for-profit environment and may have union staff or plan staff who participate in the MEPP or TBP who may or may not be covered by a collective agreement.

Main Objectives of Proposed Regime:

  • Permanent exemption from funding solvency deficiencies
  • Establishment of minimum requirements for Going Concern (GC) Provision for Adverse Deviations (PfADs)
  • Establishment of criteria for benefit improvements / reductions
  • Allow commuted value payouts to be based on GC discount rate and mortality assumptions and GC funded ratio
  • Provide for enhanced member communications
  • Provide for enhanced documentation of governance procedures
  • Minimum 50% member representation on Board of Trustees appointed by the union sponsor

Guiding Principles of Proposed Regime:

  • Pension sustainability – a reasonable cost to plan sponsors and members over the long term with effective risk management strategies in place
  • Flexibility – Board should be able to make decisions that are appropriate for the individual circumstances, characteristics and needs of their plan
  • Benefit security – a reasonable level of benefit security for plan members and retirees, regardless of plan experience
  • Equity and transparency – all generations of members should be treated equitably and provided with enough information to understand their plan
  • Balancing of various plan objectives, including benefit adequacy, affordability, security, stability and intergenerational equity, should be established by the Board

PfAD Principles:

  • Simple to administer
  • Flexibility that PfAD can be in different forms – this could be a percentage load on liabilities and current service cost, a margin in the discount, the present value of expected excess contributions, etc.
  • Strikes a balance between benefit adequacy, affordability and security that is appropriate for the individual plan as determined by the Board
  • Built up in favourable times and drawn down in times of adverse plan experience
  • Application of a PfAD should not increase funding variability

Funding (after transition period):

Minimum funding standards should recognize that different MEPPs may be designed to meet different levels of benefit security/risk. Some may adopt minimum margins focusing on intergenerational equity with more frequent increases and decreases to benefit levels, while others may adopt larger PfAD provisions focusing on contribution/benefit stability. It is the Board’s responsibility to ensure that the PfAD is set that meets the needs of the plan and the minimums set.

  • Methodology
    • Best estimate assumptions (no margins)
    • Market value of assets
    • Minimum PfAD (MP) for both current service cost and liability purposes based on the following chart:
      Equity Allocation Minimum Required GC PfAD (%)
      0 0
      10 1
      20 2
      30 3
      40 4
      50 5
      60 6
      70 7
      80 8
      90 9
      100 10
    • The Board may establish a Target PfAD (TP) that is higher than the minimum
    • This is consistent with Saskatchewan but eliminates administrative fluctuations associated with the “cliff” structure and is a prudent balance between the Quebec and Alberta/BC models for MEPPs
  • Current service PfAD
    • The current service MP must be funded, with the objective being to fund the TP
    • In practice, the actual current service PfAD at any given time may fluctuate between the MP and some level greater than the TP depending on market conditions/experience
    • Contributions must cover the current service cost, expenses, the amortization of benefit improvements and the greater of (i) unfunded liability payments in respect of experience shortfalls and (ii) the MP
    • In the event of insufficient contributions, then either benefits must be reduced and/or contributions increased
  • Liability PfAD (or Contingency Reserve)
    • The liability MP would be funded from experience gains, with the objective being to fund the TP
    • The idea is that it will be built up during times of positive plan experience and drawn upon during periods of adverse plan experience
  • Unfunded liabilities must be funded over a maximum period of 15 years
  • Actuarial gains/surpluses may be used to
    • Reduce or eliminate the outstanding balance of any previously established UFL
    • Reduce special payments on a prorated basis or reduce the amortization period
    • Reduce current service contribution requirements
  • As long as the plan demonstrates that the minimums have been met, there is flexibility in the actual funding methodology and use of other types of margins through asset smoothing, value of contribution excess, value of margin in the discount rate, etc.
  • Solvency position will still be disclosed, but not funded
  • Stress testing must be performed at the time an actuarial valuation is performed and discussed with the Board in order to identify the risks most applicable to the plan, but results would not be required to be reported to regulators. Types of stress testing could include:
    • Significant decline in the value of the fund
    • Hours of work assumption
    • Withdrawal of the largest participating employer(s) or significant portion of members
    • New groups joining with potentially different demographic profile
    • Cash flow analysis from new contributions versus internally generated from invested assets
    • Any other relevant risk identified by the plan actuary or Board
  • A written funding/benefit policy in accordance with CAPSA guidelines must be prepared and discussed with the Board in order to establish the objectives and priorities of the plan.

Benefit Improvements and Reductions:

Reductions:

  • The contributions have to cover the following costs:
    • Current service cost
    • Expenses
    • Greater of
      • Current service MP
      • UFL special payments, if any
  • If contributions are insufficient, the plan would be required to reduce benefits in accordance with the funding/benefit policy (in the absence of increased contributions)
  • Accrued and/or future benefits can be reduced
  • The order of benefit reductions would not be mandated but left to the discretion of the Board, as it is a complex process that depends on each plan’s circumstances and history

Improvements:

  • Benefit improvements do not need to be fully funded prior to being granted
  • Benefit improvements can be funded through a provision in the contributions over an amortization period not exceeding 10 years

Benefits on Termination:

  • The determination of minimum benefits payable upon individual termination from the plan using
    the GC CV methodology
    • GC CV = pension amount as per plan formula x value factor using GC valuation assumptions (discount rate and mortality) based on most recently filed actuarialvaluation report
  • Payout = GC CV x GC Funded Ratio of plan based on most recent annual update (unless more
    recent update available)
  • If GC Funded Ratio is < or = 1, no future payments to member required
  • If GC Funded Ratio is > 1, optional to include surplus but must be applied on a consistent basis
  • The plan’s current filing schedule may be triennial; however, regardless of the filing schedule, at a minimum quarterly updates to the GC Funded Ratio must be performed
  • If benefits are kept in plan, benefit is not reduced but has risk that could be reduced in future likeall other members
  • Must be given choice, otherwise pay full benefit if forcing out

Benefits on Pre-retirement Death:

100% of GC CV calculated as above paid on pre-retirement death which may be paid as a lump sum or immediate or deferred pension to the surviving spouse.

Communications:

Additional requirements on member statements include:

  • GC Funded Ratio
    • Steps being taken to address shortfall
    • Statement that failure to pay the UFL may result in benefit reductions
    • An explanation of what benefit would look like if membership terminatedIf < 100% funded then:
  • The above would be in addition to the current requirement of disclosing the transfer ratio and associated implications should plan termination occur

Administration and Governance:

  • Administrator can be a Board of Trustees, association, or any other body or group organized for the purpose of being responsible for the pension plan and acting in the best interest of the members
  • May be jointly governed between employers and members, but members must have at least 50% representation given the nature of the underlying risk of a MEPP
  • A governance policy is required that sets out the applicable requirements, but not required to be filed with regulators and must be reviewed/updated tri-annually
  • Actuarial valuation reports can be filed triennially if the GC Funded Ratio is greater than 85%, otherwise they must be filed annually
  • Retired members will be eligible to participate in plan governance – either as a member of the Administrative body (if permitted under the plan’s current rules) or through an advisory role.

Transition:

  • The first filed actuarial valuation report after would be required to reflect the new rules, including all PfADs, but funding would not be required
  • Timing must be sufficiently flexible to reflect the collective bargaining cycle
  • Must amend plan for GC CV methodology and then can apply immediately
  • Benefit improvement provisions apply immediately
  • Retiree participation in governance cannot require amendments to trust documents

---

MEBCO- The Multi-Employer Benefit Plan Council of Canada (MEBCO) was established in 1992 to represent the interests of Canadian multi-employer pension and benefit plans (MEPs). MEBCO consults with provincial and federal governments regarding proposed or existing legislation and policies affecting these plans. MEBCO is a federal no-share capital corporation, operating on a not-for-profit basis.

MEBCO is representative of all persons and disciplines involved in MEPs, including trustees (union, independent, professional and employer), professional third party administrators, non-profit or “in-house” plan administrators, and professionals including actuaries, benefit consultants, lawyers, investment managers, investment counsel and chartered public accountants. MEBCO is administered by a Board of Directors consisting of representatives from each of the above groups. The Board of Directors serve MEBCO on a volunteer basis, and are responsible for identifying issues that impact MEPs, developing a strategy to address those issues, and then carrying out the strategy. MEBCO’s member-plans provide comprehensive health coverage to over 1,000,000 Canadians.

February 21, 2018

The Honourable William Francis Morneau, P.C., M.P.
Minister of Finance
House of Commons
Ottawa, Ontario
K1A 0A6

Dear Minister Morneau:

MEBCO is making this submission on behalf of our member pension plans - target benefit multi-employer pension plans (MEPPs). MEBCO’s mission is to represent MEPPS to governments and regulators across the country. MEBCO’s membership includes all stakeholders of our member plans – employers, unions (and thus plan members) and professionals expert with MEPPs (actuaries, lawyers, administrators, auditors and money managers). MEBCO’s structure is unique in that its representation covers the complete universe of stakeholders of MEPPs and makes all submissions with the approval of all of its stakeholders.

One of the major philosophical views of MEBCO is that MEPPs do not fit well into the traditional single employer regulatory model, and we support the creation of a MEPP-specific regulatory framework appropriate for this type of plan. The risk assumption, contribution structure and governance are different for MEPPs compared to other defined benefit pension plans. As such, the applicable regulatory framework should reflect these differences. A MEPP plan type, the Negotiated Contribution Plan, currently exists in the Pension Benefits Standards Act (PBSA), but the applicable regulatory framework hinders MEPPs from providing a reasonable level of retirement financial security to their members and should be altered to address the specific characteristics of MEPPs.

MEBCO’s core position is that solvency funding should not apply to MEPPs, and an appropriate funding framework should only include reasonable going concern funding requirements. This is due to the fact that MEPPs have fixed contributions, negotiated outside the MEPP by the bargaining parties. Benefit security can perhaps be enhanced by higher employer contributions, but MEPPs do not have that option. Higher funding requirements for MEPPs (through the legislated imposition of solvency funding) simply result in lower benefits, and that cannot improve benefit security. Rather, it results in today’s pensioners receiving smaller pensions than the MEPP can reasonably afford to provide. Further, by implementing benefit reductions to address a deficiency that would exist in a hypothetical scenario that is highly unlikely to occur, there is forced generational inequity – the amounts withheld from today’s pensioners will be distributed in the form of larger pensions for future pensioners.

Solvency funding further complicates MEPPs in that its results are highly volatile. This funding volatility translates into either an unreasonably low level of benefits or benefit level volatility. Neither of which are desirable for MEPPs, or any pension plan. The current significant funding requirements due to solvency shortfalls caused by continued low long-term interest rates and challenging market conditions have magnified this issue. In the absence of funding reforms, federally registered MEPPs will have to reduce benefits and advise their members that these benefit reductions are the direct result of the current regulations and the Federal government's failure to act and implement measures appropriate for MEPPs.

We note that the federal jurisdiction is the last major pension regulator to still require MEPPs to be subject to solvency funding. This poses another significant risk to MEPPs if the jurisdiction of registration is forced to change. For example, if a large federally regulated employer were to join a MEPP currently registered in Ontario - and exempt from solvency funding - resulting in the jurisdiction of registration becoming Federal, this could result in extensive benefit reductions as a result of now being required to fund on a solvency basis.

The PBSA currently permits a Negotiated Contribution Plan to make an amendment that has the effect of reducing pension benefits or pension benefit credits, subject to the authorization of the Superintendent. MEBCO believes that this current requirement for Negotiated Contribution Plans to receive regulatory approval of reductions in accrued benefits should be eliminated. Experience elsewhere suggests that this is problematic and unneeded. It delays required balancing of benefits and contributions. It requires intervention by someone who is not close to the situation and who may be more interested in uniformity among plans than in recognition of real differences between plans. And the patchwork of differing rules is a nightmare for multi- jurisdictional MEPPs.

Lastly, another key issue of great importance is the computation of transfer values for MEPPs. MEBCO is opposed to providing transfer values from MEPPs at all, as that permits a terminating participant to convert the defined benefit type pension negotiated by the union into a defined contribution account. If transfer values continue to be available, MEBCO strongly recommends that MEPPs be permitted to determine the amount as the funded percentage determined on a going concern basis (but not in excess of 100%). This will recognize the risk of a post-transfer benefit reduction and, given the emerging pattern in other provinces, it will promote uniformity among jurisdictions and within multi-jurisdictional plans.

In closing, MEBCO would like to highlight that the MEPP model continues to be a success story among the otherwise bleak picture of private sector defined benefit type pension plans. MEBCO supports a regulatory framework specific to MEPPs, including an exemption from the solvency funding requirements, to maintain their continued success in serving the participants and their employers well. MEBCO representatives are available to meet with you to facilitate the process of establishing the appropriate regulatory framework for MEPPs. Thank you for the opportunity to express our views in this submission.

Respectfully submitted,

Robert Blakely
President

Joining MEBCO

Five reasons why your MEBCO membership is critical
Your MEBCO membership guarantees that multi-employer plan interests will be considered whenever change is on the horizon. With your support, MEBCO will continue to be a strong and effective voice. Join today!
  1. The threat to multi-employer plans is real.
    The legislative framework is constantly changing, and cost-management and cost reduction are at the top of every agenda.
  2. Legislative changes can be significant.
    Recent proposed changes have threatened to offload costs onto plans, restrict plan coverage, and have compromised the viability of some plans
  3. Multi-employer plans are worth protecting.
    Multi-employer plans play a vital role in providing health services and retirement plans to over 1 million workers and their families in industries typified by small companies and a mobile work force.
  4. Multi-employer plans need a united lobby.
    Multi-employer plans carry a low profile due to the fact that the coverage is thinly spread over many employer groups and mobile workers.
  5. MEBCO is committed to protecting your interests.
    When governments propose changes, MEBCO is the single, clear voice at the table representing the unique interests of multi-employer plans.