The Voice of Multi-Employer Plan Interests in Canada

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Ms. Judy Cameron

Managing Director
Private Pension Plans Division
Office of the Superintendent of Financial Institutions
255 Albert Street
Ottawa ON  K1A 0H2

Dear Ms Cameron:

The Multi-Employer Benefit Plan Council of Canada (MEBCO)

MEBCO was established in 1992 to represent the interests of Canadian multi-employer pension and benefit plans (MEPs) 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 union and employer trustees, professional third party administrators, non profit or “in-house” plan administrators, professionals including actuaries, benefit consultants, lawyers and chartered accountants. MEBCO is administered by a Board of Directors consisting of representatives from each of the above groups.

Background of MEPs

Over the past quarter-century labour and management have joined together to develop a response to the problem of delivering quality health services and retirement plans to workers and their families in industries typified by small companies and a mobile work force. There are hundreds of MEPs in Canada covering well over 1,000,000 workers and their families in industries as diverse as building and construction, food, service, retail, hotel and restaurant, graphic arts, garment manufacturing, security, textiles, transportation and entertainment. A single MEP may be national, regional, provincial or local in coverage. Anywhere from 2 to over 1,000 employers may contribute to a single MEP pursuant to several collective agreements.

Collective agreements negotiated by one or more unions establish MEPs and the contributions necessary to finance and provide benefits under these plans. MEPs are “Trust Funds” and are generally administered by a joint board of trustees, comprised of an equal number of trustees appointed by the union(s) and the employer. Theses trustees are responsible for receiving contributions from employers, paying certain benefits directly to members and their dependents and entering into insurance contracts for the provisions of other benefits. In the event that an employer is delinquent in making contributions, the trustees pursue collection proceedings.

At the recent OSFI Pension Industry Forum, there were two comments with respect to standard “defined benefit type” MEPPs that, if implemented, would be counter-productive, both to participants and to OSFI as a regulator.

Void Amendments

OSFI indicated that it intends to apply the “void amendments” rule to MEPPs.  Fundamentally, this rule prohibits amendments improving past service if the solvency ratio (SR) would be less than 85% after the amendment.  While there is an exception if an immediate contribution is made to maintain the SR, that option is not available to MEPPs, because contributions are negotiated on a cents-per-hour or other similar basis.

In order for a contribution rate increase to be negotiated for a MEPP, that increase must be ratified by the members of the union, as it amounts to an election to defer compensation from immediate wages to a later pension.  Consider a MEPP whose SR is below 85%.  Its funding would obviously be improved by an increased contribution rate.  However, the union members will make their decision on raising the contribution rate by comparing the wages that are being deferred to the resulting improvement in pension expectations. MEBCO suggests that MEPPs be permitted to improve past service benefits even if the SR is less than 85%, provided that the combined impact of the higher contribution rates and the improved benefits includes a margin that is anticipated to improve funding.  Otherwise, there will be no new contributions or benefits, which is adverse both to the members and to the funding level of the MEPP.

Benefit Reductions Solely to Meet Solvency Funding Requirements

In answer to a question at the Forum, OSFI indicated that it would require benefit reductions for a MEPP that is anticipated to meet the PBSA’s going-concern funding requirements but not its solvency funding requirements.  MEBCO strongly opposes solvency funding requirements for MEPPs altogether, and notes that the various provincial pension review commissions have recommended that they be eliminated.  However, as long as the PBSA continues to require solvency funding, MEBCO urges that it not be applied to reduce benefits that, when adopted, were anticipated to comply with all funding requirements.

The whole idea of solvency funding requirements is to prevent benefit reductions in the unlikely event of a plan wind-up.  OSFI’s proposed policy forces the very event that it is intended to prevent to happen prematurely and unnecessarily.  Fundamentally, it fails to recognize that benefit security can be improved by raising contributions, but benefit security cannot be improved by lowering benefits.

Consider a MEPP that has a 1% chance of winding up (which is if anything a high probability for most MEPPs) and a 99% chance of continuing indefinitely.  That MEPP currently has a $100 benefit that, when adopted, met both going-concern and solvency funding requirements.  However, circumstances have changed, and today the MEPP can still afford $100 on a going-concern basis, but only $80 on a solvency funding or wind-up basis.  OSFI proposes to require the Trustees to reduce the benefit to $80 so the MEPP once again complies with both going-concern and solvency funding.

If no reductions are required, the participants receive $100 in the highly likely (99%) event that the MEPP continues indefinitely, and an $80 benefit in the highly unlikely (1%) event of a wind-up.  If, on the other hand, reductions are required, the participants receive $80 both if the MEPP continues and if it winds up.  It is hard to imagine a single participant supporting a benefit cut now solely so that there won’t have to be an additional cut in the highly unlikely event of a future wind-up.  As discussed above, this is taking the very event that solvency funding is intended to prevent – a $20 reduction if the MEPP winds up – and making it a certainty.  It is hard to imagine a public policy that would be supportive of this regulatory action.

Conclusion

MEBCO supports proper funding of MEPPs and believes that plan amendments should, when adopted, be expected to comply with regulatory minimum funding requirements.  However, if circumstances change thereafter, MEBCO believes that benefit reductions to comply with solvency funding and absolute limitations on benefit improvements are adverse both to improving plan funding and to benefit security, and we strongly recommend reconsideration of OSFI’s policies in this regard.

We would be pleased to meet with you and your staff to discuss these matters further.

Sincerely,

William D. Anderson
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.