The Voice of Multi-Employer Plan Interests in Canada

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SUBMISSION TO THE HOUSE
OF COMMONS STANDING
COMMITTEE ON FINANCE
2004 PRE-BUDGET
CONSULTATIONS
2004
You can reach us at:
135 Queen's Plate Drive, Suite
200, Toronto ON M9W 6V1
T 416 745 6466 | F 416 745 51
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Multi-Employer Benefit Plan Council of Canada
EXECUTIVE SUMMARY
The Multi-Employer Benefit Plan Council of Canada (MEBCO) represents the interests of
Canadian multi-employer pension and benefit plans (MEPs) and is representative of all persons
and disciplines involved in MEPs, including union and employer trustees, third party
administrators, non-profit or “in-house” plan administrators and professionals.
Among MEBCO’s many constituents are multi-employer pension plans (MEPPs), which provide
pensions to their members. There are approximately 360 MEPPs in Canada, which have
membership of almost 900,000 individuals. Employee contributions to MEPPs exceeded $2
billion.
In addition, MEBCO represents the interests of multi-employer benefit plans (MEBPs), of which
there are approximately 400 in Canada.
Combined, these multi-employer plans cover well over 1 million workers and their families, in
industries as diverse as construction, retail, trade, entertainment, food, transportation, garment
manufacturing and textiles. The majority of Canadians who participate in MEPPs and MEBPs
earn middle to low incomes.
Multi-employer plans in Canada are a unique labour and management response for meeting the
needs of workers and their dependents.
This role should not only be recognized by government, but should be preserved and indeed
encouraged with the continuation of tax incentives to both provide necessary health and dental
care benefits which are not otherwise available under Canada’s public health care system and
to promote retirement savings. Multi-employer plans are the predominant form of benefit
arrangements in the unionized sector of the above-mentioned industries. Often, these
employees are highly mobile, working for several employers in a year. If it were not for the
multi-employer plans, such employees would be forced to switch plans as often as they do
employment. Benefit coverage would be haphazard, if not non-existent. Accordingly, multiemployer
plans fulfill a very important social objective of providing necessary health and related
benefits, which are not otherwise available under Canada’s public health care system, as well
as providing supplementary pension benefits.
Any assumption that the treatment of contributions to health care plans and pensions is
inequitable or constitutes a tax “loophole” is erroneous. The tax system has a multitude of
incentives for a multitude of purposes. The social objectives of preserving the well-being of
Canadians and the financial independence of seniors have led to the placement of certain
incentives in the tax system. Those who have chosen to avail themselves of these incentives
should not be penalized for doing so.
The purposes of our submission are to both assist the government in meeting its fiscal and
monetary objectives; and, to represent the interests of our members with respect to retirement,
health and welfare, and taxation issues.
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Highlights of our Recommendations
Preservation of “EET” Approach for Registered Plans
MEBCO opposes any taxation of investment earnings or contributions to registered pension
plans and RRSPs. Canada’s approach should remain exempt, exempt, tax (“EET”) meaning no
tax on contributions, no tax on investment earnings, and tax on receipt of the benefit or lump
sum payout.
Provide Relief for the “Solvency Crisis” facing Multi-Employer Pension Plans
MEBCO is gravely concerned that the collapse of value in Canadian and worldwide financial
equity markets, the decline in long-term returns on high-quality fixed-income investments and
increasing longevity has imperiled the security of pension plans in general and multi-employer
pension plans in general. Single employers can address the solvency deficiency by funding
supplemental contributions. Since (specified) multi-employer pension plans are limited to
contributions set forth in Collective Bargaining Agreements (CBAs), the additional contribution
solution is not readily available to MEPPs. MEBCO recommends a two-fold solution.
First, MEBCO suggests that MEPPS be permitted an “action plan” to address any solvency
deficiency by providing for special payments over 15-years. Technically, this solution requires
changes to the Pension Benefits Standards Act, and similar provincial Acts, but we believe the
House can “strongly encourage” such a solution for federally regulated MEPPs, which should
encourage similar action through the Canadian Association of Pension Supervisory Authorities
(CAPSA) with the leadership of the Office of the Superintendent of Financial Institutions (OSFI).
Second, at the present time, Members of MEPPs receive a Pension Adjustment (“PA”) on all
contributions made by an employer under CBAs. Employers are not permitted to remit
contributions to a MEPP that are not in respect of a specific Member, and which result in a PA
to individual Members. MEBCO recommends that the Income Tax Act regulations be modified
to permit a CBA to negotiate special payments designed to liquidate a Solvency Deficiency, and
that those special payments not generate a PA for any individual Member. In this way, MEBCO
believes that there can be a solution, over time, to the current solvency crisis that does not
involve reducing benefits to active and retired Members.
Goods and Services Tax (GST) Rebate for MEBPs
We are seeking improvements to the tax treatment of MEBPs to address the inequity between
single-employer benefit plans (“SEBPs”) and MEBPs, which negatively impacts the value of
MEBP benefits to employees. MEBPs incur GST costs in respect of various administrative
expenses considered to be taxable supplies under the Excise Tax Act. Unlike single-employer
benefit plans (“SEBPs”), there is no possibility of offsetting these GST costs by claiming Input
Tax Credits (“ITCs”). Due to the current GST legislation and the inherent nature of multiemployer
plans, neither a MEBP nor a contributing employer can claim ITCs. To the extent
necessary, MEBCO urges the Department of Finance to implement legislation that will permit
Revenue Canada the latitude necessary to provide such rebates.
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No Taxation of Supplementary Health, Dental and Group Life Insurance Benefits
MEBCO continues to oppose any taxation of group supplementary health and dental benefits
plans. Taxation would discourage participation in MEBPs, thereby placing an additional burden
on the public health care system. Therefore, MEBCO supports maintaining the current tax
exemptions for supplementary health and dental premiums and benefits, and re-introducing the
pre-1994 exemption on group term life insurance premiums.
Health Care
The Federal Government in cooperation with the provinces must continue the process of
modernizing Medicare with meaningful reforms. The recent ten year agreement between the
first ministers is a positive step towards health care reform, but falls far short, particularly in the
area of drug cost containment. The release of two major parliamentary reports on the future of
health care in Canada, by Senator Michael Kirby and Former Saskatchewan Premier Roy
Romanow, should provide the catalyst for much needed reforms.
Canada needs a health care system that meets the needs of a modern society and can adapt to
newer and more effective technologies. The pressures on our health care system must be
addressed in this context and not solely in terms of dollars and cents. Further, the increasing
costs associated with pharmaceuticals cannot be sustained. These rising costs are a burden on
Canadians, Governments, and the benefit plans we provide for our members.
Introduction
(a) Who we are
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 (MEBPs) in
relation to existing or proposed federal and provincial legislation and policies affecting MEPs.
MEBCO is a federal non-share capital corporation operating on a not-for-profit basis. MEBCO’s
Board of Directors consists of representatives from a diverse cross-section of the employment
benefits field. MEBCO represents all persons and disciplines involved in MEBPs, including
union and employer trustees, professional third party administrators, non-profit or “in-house”
plan administrators, and professionals including actuaries, benefit consultants, lawyers and
chartered accountants. All MEBCO Executives and Directors serve in a voluntary (i.e., unpaid)
capacity.
MEBCO currently has over 190 members in jurisdictions across Canada. MEBCO’s members
have responsibility for administering pension plans providing lifetime retirement income for over
1 million retired and future retired Canadians, and administering health and welfare plans
providing supplemental hospital, drug, vision care, dental and / or similar benefits to a
cumulative membership of workers and dependants of more than 2 million people throughout
Canada. There are hundreds of MEBPs registered in Canada covering approximately workers,
and the dependants of those workers, in industries such as building and construction, food
service, retail, hotel and restaurant, graphic art, garment manufacturing, security, textile,
transportation, and entertainment. A MEBP may be national, regional, provincial or local in
coverage. Anywhere from two to over one thousand employers may contribute to a single
MEBP pursuant to several collective agreements.
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(b) Our Submission
MEBCO is pleased to once again participate in the pre-budget consultation process. Because
MEBCO’s focus is on employee pensions and benefits, the initiatives we are recommending are
aimed at improving the quality of life of working Canadians and thereby productivity.
Specifically, our initiatives address three broad concerns many Canadian workers have had
over the past few years:
(i) The adequacy of health and welfare benefits
(ii) The adequacy of retirement income sources, and
(iii) The quality of health care
We provide our specific input in the following sections.
I. RETIREMENT INCOME AND MULTI-EMPLOYER PENSION PLANS
1. Ensuring Adequate Retirement Income for Canadians
MEBCO RECOMMENDATION
MEBCO opposes any taxation of investment earnings or contributions to
registered pension plans and RRSPs. Canada’s approach should remain
exempt, exempt, tax (EET) meaning:

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.