The Voice of Multi-Employer Plan Interests in Canada

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MULTI-EMPLOYER BENEFIT PLAN COUNCIL OF CANADA 

September 22, 2015 
Ms. Sandy Roberts,
Director Framework for Target Benefit MEPPs
Ontario Ministry of Finance
7 Queen’s Park Crescent 5th Floor, Frost Building South
Toronto ON M7A 1Y7
E-mail:  This email address is being protected from spambots. You need JavaScript enabled to view it. 

 

Dear Ms. Roberts: 

 

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. 

MEBCO represents all stakeholders in target benefit MEPPs – employers, unions, and professionals. We agree that MEPPs do not fit well into the traditional single employer regulatory model, and support the creation of a MEPP-specific regulatory framework.  Creating such a framework requires intimate knowledge of such plans, and specifically the differences between plans, that can only come from years of hands-on experience.  We therefore strongly recommend that a small group from MEBCO meet with Ministry of Finance (MoF) staff early on for an educational session, so that the MoF staff members involved in this project have a better appreciation of the challenges facing such plans and the similarities and differences among plans that should influence the regulatory framework that is being considered. 

MEBCO is pleased to offer its submission on this core topic for our constituents.  While we will answer the specific questions posed in the Consultation Paper (“CP”), we believe it will be helpful if we start with a summary of some of the major philosophical views of MEBCO with respect to target benefit MEPPs. 

 

1. MEBCO fully supports the permanent elimination of solvency funding requirements, subject to changes in the multi-lateral agreement to eliminate the unfair outcomes described in the CP under that agreement as currently constituted. 

2. Federal law permits the Federal Minister of Finance to allow a plan that fails the technical requirements of being a SMEPP nonetheless to be treated as a SMEPP. Ontario needs a similar provision with respect to SOMEPPs. In any event, all SMEPPs registered in Ontario should automatically qualify as SOMEPPs. 

3. Reductions in benefits are, have been, and should be an infrequent event for MEPPs.  Having said that, the critical trade-off is benefit adequacy vs. benefit security. The CP comes out in favour of benefit security. With a fixed negotiated contribution, that inevitably means lower benefits than a MEPP can reasonably afford to provide. 

4.The issues related to intergenerational transfers are an important subject for trustees to consider, but it is not clear why they should be a matter of regulatory concern. In any event, some of the proposals in the CP create a regulatory framework that potentially compels intergenerational inequity, which is undesirable. 

5. The CP raises the possibility of mandating trustee representation for retirees and terminated vested participants, while at the same time noting that trustees are required to represent all participants and treat them in an even-handed manner . Input from retirees and terminated vested participants is perhaps useful, but they presumptively will not represent all participants nor advocate for even-handedness, and therefore mandating that they be voting trustees will often be counterproductive. 

6. The CP focuses primarily on funded levels. For an ongoing MEPP, that is an inadequate measure of plan health. A fully funded plan with contributions less than the normal cost is a plan in financial trouble. A plan that has an unfunded actuarial liability with contributions adequate to pay the normal cost, reasonable amortization of the unfunded actuarial liability, and plan expenses is a healthy plan. MEBCO suggests that any measures of plan health, of the need to reduce benefits, of the opportunity to increase benefits, etc., be based on the relationship between contribution income and actuarially calculated cost, not based on funded ratios. 

7. Part of the CP relates to the proper measure of transfer values. Those concerns all disappear if the requirement to pay transfer values is eliminated altogether for MEPPs – a change that MEBCO supports. A worker’s union has negotiated a defined benefit type pension for its members. There is no obvious reason why a terminating employee should have the option to convert that negotiated benefit into a defined contribution balance. This is particularly true for broad-based MEPPs, where portability is automatic among all participating employers. If transfer values are to remain, they should (1) reflect the funding level of the plan; (2) reflect that the recipient is no longer subject to the risk of benefit reductions; and (3) be computed identically in all jurisdictions (or at least be computed identically for all participants in a single plan). 

8. The primary objective of a MEPP should be to provide an adequate lifetime income to those with a history of attachment to the industry. Each time the legislature mandates that a MEPP provide a benefit other than for that purpose, it forces the trustees to provide a lower pension for the career workers, because the contributions are fixed. Ontario recognized this when it allowed MEPPs to opt out of grow-in benefits.  

9. There is a significant difference between an actuarial report for the purpose of evaluating a MEPP’s financial condition and one for the purpose of changing the relationship between contribution rates and benefit levels. As long as the benefits are not being changed, all stakeholders, including the regulator, are best served by a “best estimate” actuarial valuation, consistent with CIA standards. Margins should be included for discussions of benefit changes. The amount of such a margin depends on more than the asset allocation – it is heavily dependent upon projected employment levels and the potential volatility of those employment levels. The appropriate margin for an industrial MEPP with stable employment will differ significantly compared to a construction industry MEPP with highly cyclical employment, even if they are invested identically.  The trustees and their advisors are better able to reflect those differences than the legislature. 

10. MEPPs require union participation, but they exist in industries such as construction where the employers are competing for jobs and workers with non-union employers. Under current limitations on benefit suspension after retirement, a covered union worker can retire, collect the pension negotiated by the union, and go to work for a non-union employer at a lower wage rate, subsidized by the union pension. This double-dipping interferes with the existing competitive balance between union and non-union employers.  Therefore, MEBCO supports the adoption of US-type suspension rules that permit suspension of pensions being paid in the case of work in the same trade or craft, industry, and geographic location as is covered by the MEPP, whether or not such work requires contributions to the MEPP. 

11. The current regulations dealing with family law matters do not take into account the fact that benefits in a target benefit plan may change after the family law valuation date.  These regulations should be amended so that the calculation of the family law valuation recognizes that accrued benefits in a MEPP may be reduced after the family law valuation date. 

 

 

Our comments on the specific questions raised in the CP follow.  Overall, we are concerned that the CP is proposing simple rules that can be applied mathematically to all MEPPs.  However, the reality is that MEPPs vary substantially from each other in important ways.  What is reasonable for a large national industrial plan may make no sense for a local construction plan.  We therefore do not support a highly rigid regulatory model.  Instead, we favour giving FSCO discretion and review powers for principles-based regulations than to establish bright lines that apply identically to all MEPPs under all circumstances.  We recognize that this is more of a regulatory challenge, but the trustees, with the assistance of their advisors, have the knowledge to reflect differing circumstances differently.  

Funding Requirements 

Q 1.1 How should a plan’s PfAD be calculated?  What aspects of the plan (e.g., plan maturity and demographics) should determine the PfAD, and how much weight should be given to each one? 

A 1.1 MEBCO does not agree with the regulatory imposition of a permanent PfAD requirement.  As indicated above, a PfAD is only relevant at the time when benefit changes are being considered. At that time, plan maturity, demographics, employer diversity, presence or absence of a dominant employer, investment policy, risk of future decline in covered employment, risk of disruption to employers, benefit adequacy, and even the actuarial cost method and assumptions are all potentially important factors. MEBCO could support requiring that FSCO be given a “benefit change report” that outlines the analysis and reasoning that went into a proposed change, along with a 60-day period during which FSCO could either approve the change, deny approval, or request further information.  MEBCO does not support a one-size-fits-all mathematical test. 

Q 1.2 How frequently should target benefit MEPPs file valuation reports?  Do triennial valuations for a well-funded target benefit MEPP provide sufficient disclosure to plan participants? 

A 1.2 MEBCO believes that triennial valuations do not provide sufficient information for participants, trustees, or regulators.  One only needs to look at the change from January 1, 2008 to January 1, 2009 to understand that. The US went to mandatory annual filings nearly forty years ago, and we suggest that Ontario follow that same model.  Having said that, actuarial valuations are snapshots at a single date, so they are subject to giving a distorted view, particularly given the magnitude of short-term fluctuations in asset values.  It would be counterproductive to have benefit increases or decreases every time there is a margin or deficit in a filed report.  Therefore, there needs to be flexibility for trustees and regulators to determine whether a plan’s relationship between benefits, contributions, and investment income needs realignment. MEBCO suggests that mandatory action to reduce target benefits should only be triggered when three consecutive annual filed valuations indicate that minimum requirements are not being met, and that the required changes be as described in A 1.7. The three-year period before action is mandatory should be sufficient so that there is time for business cycle improvements or increases in negotiated contributions to address the shortfall. These are preferred approaches compared to benefit reductions. 

Notwithstanding the above, MEBCO supports triennial valuations for well-funded small plans, given the significance of the added expense incurred of annual valuations for such plans. 

Q 1.3 What limits should there be on uses of excess assets?  Should there be a required order of priority for using excess assets (e.g., previously reduced benefits must be restored before additional benefit improvements can be made or a contribution holiday is taken)? 

A 1.3 The more that trustees’ hands are tied, the more likely it is that they will be forced to take actions that may make little or no sense under the circumstances of the time.  Therefore, MEBCO opposes such limits. 

Q 1.4 Should a plan be required to maintain a funding reserve larger than the PfAD after making a benefit improvement? 

A 1.4 As indicated, above, MEBCO believes that the PfAD concept as outlined in the CP is not appropriate.  This issue is best subsumed into the trustees’ exercise of their knowledge and judgment, as outlined in A 1.1. 

Q 1.5 If employees are making contributions, should there be a requirement that members share contribution holidays with employers? 

A 1.5 MEBCO is not aware of any target benefit MEPP in Canada having ever had a contribution holiday. As indicated in A 1.16, MEBCO believes that employees should not be required to contribute at a higher rate than employers. 

Q 1.6 Are there any other funding rules which should be considered to encourage plans to develop a substantial reserve to reduce the risk of benefit reductions? 

A 1.6 MEBCO believes that the CP already goes too far in the direction of benefit security, given that more benefit security means less benefit adequacy in a MEPP. Because the funding of such a reserve forces lower benefits for current retirees, it causes mandatory generational inequity – an undesirable result. Lower benefits also discourage greater pension coverage. 

The Test for Sufficiency of Contributions 

Q 1.7 Should special payments for going concern unfunded liabilities be amortized over 12 years, or a different period of time, e.g., 10 years? 

A 1.7 MEBCO believes that a 15-year standard is appropriate for benefit changes, but no intervention should be required with respect to existing benefits if the projected contributions are sufficient to amortize existing unfunded liabilities over a new 15-year period. Given the stability of MEPPs and the MoF’s desire to minimize the risk of benefit reductions, this “fresh start” approach (i.e., if the plan were starting today and the projected funding would be adequate, benefit reductions will not be mandated) is superior to one based on PfADs.  This approach also reduces the significant discontinuities that can occur from one year to the next under traditional going-concern amortization.  Consider a new MEPP that never has any gains and losses, but has significant special payments.  At the end of the applicable special payment amortization period, the minimum required contribution drops precipitously due to the sudden elimination of special payments.  Assuming the negotiated contribution remains the same, the trustees will adopt a substantial increase in the target benefit to bring the minimum contribution back to where it was.  This may create special payments all over again; it will certainly create a large generational inequity. 

Q 1.8 Should new funding rules for target benefit MEPPs differ from the funding rules for SOMEPPs in ways different from the description above?  How would these changes help promote benefit security? 

A 1.8 MEBCO believes that there is no reason why a traditional collectively bargained MEPP would fail to be a SOMEPP except for technicalities, such as the merger of employers that reduces the number of contributing employers below 15 or the presence of not-for-profit contributing employers.  For that reason, MEBCO believes that the Minister of Finance or Superintendent of Financial Services must have authority to allow a plan that is substantively a target benefit MEPP to be a SOMEPP.  With that authority, there should be no need for special funding rules for MEPPs that are not SOMEPPs. 

In any event, any SMEPP registered in Ontario should automatically be eligible to be a SOMEPP.  If the Federal Minister of Finance grants SMEPP status to a plan that is not in complete compliance with the SMEPP requirements, that plan should not have to go through the exception process a second time with Ontario. 

Q 1.9 How should the regulations ensure that target benefit MEPPs reduce benefits in a timely way when needed to meet funding requirements?  For example, should the regulations include a default method for reducing benefits? 

A 1.9 Of course, “in a timely way” is essentially undefinable.  However, MEBCO supports giving the Superintendent of Financial Services the authority to order a board of trustees to take action subject to the appeal rights that go with any such order) if a plan has failed to meet funding requirements in three consecutive filed reports, does not meet the “fresh start” test in A 1.7, and the trustees fail to take corrective action within 90 days of the filing of the third consecutive non-complying actuarial report. 

Q 1.10 To guide target benefit MEPPs in developing funding policies, should the regulations establish a priority sequence for which benefits should be reduced? 

A 1.10 First, the term “funding policies” is a misnomer.  Funding is determined by the bargaining parties, not the trustees.  Better terminology would be “benefit policies,” since that is what the trustees control. As with most other elements of the CP, bright line rules are, in MEBCO’s view, counterproductive.  The need to reduce benefits can come about as the result of a variety of different circumstances, and having a simple solution for a complex problem will inevitably lead to sub-optimum decisions. See our A 1.1 above for our preferred alternative. 

Lump Sum Values on Termination 

Q 1.11 Should lump sum values paid from target benefit MEPPs be calculated using the CIA commuted value standards or using the plan’s going concern assumptions?  Should lump sum values be reduced to reflect the funded ratio of the plan, and if so, how? 

A 1.11 As indicated in our opening remarks, MEBCO opposes continuation of the transfer value option for MEPPs altogether. 

If transfer values are to remain, they should (1) reflect the funding level of the plan; (2) reflect that the recipient is no longer subject to the risk of benefit reductions; and (3) be computed identically in all jurisdictions (or at least be computed identically for all participants in a single plan). Québec recently enacted legislation that computes MEPP transfer values on wind-up assumptions. Alberta, British Columbia, and Ontario appear to be moving towards basing the calculation on going concern assumptions.  MEBCO prefers the going concern model, but uniformity is more important than the choice of assumptions.  The provinces appear to be diverging, which is disappointing. 

Q 1.12 Given plan participants of a target benefit MEPP could only be entitled to receive a commuted value that reflects the funded status of the plan on termination of membership, should target benefit MEPPs be required to file periodic updates on their funded position (e.g., every three months) to ensure that commuted value transfers better reflect the funded position of the plan at the time of transfer? 

A 1.12 MEBCO believes that annual updates are sufficient, because, on a going concern basis, the volatility will be solely with respect to the assets. However, trustees should have the discretion to undertake more frequent updates if they deem it appropriate. 

Wind up Entitlements 

Q 1.13 What options for entitlements should different plan participants have when a target benefit MEPP winds up? 

A 1.13 Consistent with MEBCO’s view on transfer values, we believe that, except for small amounts, only annuities should be available on wind-up.  

As an aside, we note that locating all the eligible former participants has been especially problematic in the small number of past MEPP wind-ups (the relevant industries often include a significant number of immigrants who may retire to their country of origin), and this issue needs to be addressed, particularly in the environment of immediate vesting, where the entitlements for many will be less than the cost of trying to locate them. MEBCO therefore recommends that the Ontario government establish a fund or process to manage assets in respect of members who cannot be located, as is the case in Québec and Alberta. 

Q 1.14 How should the value of entitlements of plan participants be determined when a target benefit MEPP winds up? 

A 1.14 MEBCO sees no reason to differentiate between MEPPs and single employer plans under these circumstances. That would generally mean uniform across-the-board reductions. 

Minimum Employer Cost (“50% rule)” 

Q 1.15 What adjustments should be made to the “50% rule” for target benefit MEPPs? 

A 1.15 The 50% rule should remain unchanged, based on the target benefit as at the date of measurement.  Optionally, plans should be allowed to recompute any remaining benefit if benefits are increased or decreased with respect to an affected participant. 

Q 1.16 Should other limits be placed on the extent to which member contributions may fund benefits?  For example, should there be an explicit requirement that member contributions be required to be limited to, at most, employer contributions? 

A 1.16 MEBCO believes that employees should not be required to contribute to a target benefit MEPP at a higher rate than is being paid by their employers.1 

1 Under some CBAs, employers are excused from making contributions during certain non-work periods such as leaves of absence, but the employee can optionally continue to make contributions so as to maintain membership 

Appropriate Actuarial Assumptions 

Q 1.17 What regulations, if any, are needed regarding actuarial assumptions? 

A 1.17 MEBCO believes that best estimate assumptions in accordance with CIA standards are appropriate for filed MEPP actuarial reports, and that FSCO’s current authority to question assumptions that it believes fail this test and, if necessary, retain another actuary (at the plan’s expense) to prepare an alternate valuation is sufficient. 

Q 1.18 If target benefit MEPPs reduced their best estimate interest rate assumption by a margin for adverse deviations, should that affect the calculation of the plan’s PfAD? 

A 1.18 As previously indicated, MEBCO believes that the proposed PfAD concept is fatally flawed in several respects.  However, if it is retained, any required margins should be considered in the aggregate. Therefore, a margin in the assumed discount rate should logically result in smaller required margins elsewhere, such as in a PfAD. 

Q 1.19 Under what circumstances should the regulator be able to order the board of trustees of a target benefit MEPP to prepare a new valuation report because of inappropriate assumptions? 

A 1.19 See A 1.17 above. 

Representation on Boards of Trustees 

Q 2.1 Should the PBA continue to require that at least half of the board of trustees of a target benefit MEPP be representatives of plan members? 

A 2.1 Yes.  As the participants are taking the risks, they should at least have half the trustees. 

Q 2.2 Should retired member representation on the board of trustees of a target benefit MEPP be required? How could representatives be selected to ensure retired member representation is effective? 

A 2.2 No. Appointing trustees to represent any particular class runs counter to a trustee’s duty to treat all beneficiaries even-handedly.  MEBCO believes that every trustee must “represent” all participants in order to act in an even-handed manner.  To the extent that there are designated trustees who are not likely to make decisions within those parameters, they should not be voting trustees.  

The selection of a non-voting retiree representative in order to be sure the retiree position is heard can be by election if that is deemed to be desirable. 

Q 2.3 What measures could be taken to ensure that the board of trustees adequately considers the interests of former members?  Should former members have representation on the board of trustees? 

A 2.3 No. Every trustee must “represent” all participants and act in an even-handed manner. To the extent that there are designated trustees who are not likely to make decisions within those parameters, they should not be voting trustees.  

and continue to accrue benefits. MEBCO supports the continued availability of such arrangements, even though the member will contribute more than the employer under such circumstances. 

Q 2.4 What protections from legal liability, if any, should be given to trustees to encourage members’ and retired members’ participation in governance? 

A 2.4 MEBCO believes that trustees should be protected from personal liability (including litigation costs) except in cases such as gross negligence, self-dealing, fraud, embezzlement, etc.  Otherwise, either it will be difficult to get the best representatives to serve, or there will need to be fund expenditures (thus potentially reducing benefits) for substantial fiduciary liability insurance. 

Q 2.5 Should the proportion of representation on the board of trustees of members, former members and retired members be related to the proportion of liabilities for each group? 

A 2.5 No. Every trustee must “represent” all participants and act in an even-handed manner. To the extent that there are designated trustees who are not likely to make decisions within those parameters, they should not be voting trustees.  Under no circumstances would it be appropriate to make any member trustee a representative of a single constituency, let alone to have every trustee represent some constituency. 

Q 2.6 Would independent trustees improve the governance of target benefit MEPPs? If so, how should independent trustees be selected? 

A 2.6 Independent trustees do not necessarily improve the governance of MEPPs and should be an option but not required.2 The selection process should be embodied in the trust agreement in a manner that the settlors believe to be appropriate; it should not be dictated by law. 

Stress Testing 

Q 2.7 Should stress testing of target benefit MEPPs be required?  For what factors (e.g., investment returns) should the regulations require stress testing? 

A 2.7 MEBCO reminds MoF that, for a target benefit MEPP, any mandated governance costs come out of resources that would otherwise be used for benefits.  Stress testing is unquestionably desirable for most MEPPs.  However, what testing is useful and justifiable by a cost-benefit analysis will vary widely.  MEBCO therefore suggests that stress testing be encouraged as part of good governance, but not mandated. 

Q 2.8 If required, how frequently should target benefit MEPPs be required to perform stress testing? 

A 2.8 Subject to our response in A 2.7, required stress testing should be required every five years, or when circumstances change if sooner. 

Q 2.9 If required, should the regulations specify whether the plans should perform deterministic or stochastic tests? 

2 Anecdotally, MEBCO has heard of a major US MEPP that initially had three trustees – the union president, an executive of a major employer, and an independent trustee. The independent trustee was the union president’s girlfriend. 

A 2.9 Subject to our response in A 2.7, no.  Different risks require different tests.  Stress tests that require projections of a plan’s future financial condition require open group forecasts including assumptions as to future new entrants – a significant financial cost. 

Q 2.10 How should target benefit MEPPs be required to use the information provided by stress tests?  For example, should the regulation specify what a plan should do to address problems identified in a stress test? 

A 2.10 No. MEBCO believes that regulatory micro-managing is unnecessary, inappropriate, and likely to lead to a decline in defined benefit type plans such as target benefit MEPPs – one of the few private sector defined benefit vehicles that is not disappearing.  Most MEPPs are responsibly and successfully delivering benefits in a cost-efficient manner without the government’s interference.  MEBCO supports regulatory authority to police the few “bad apples” effectively, but regulations telling trustees everything they have to do under every circumstance, such as this question reflects, are undesirable, and necessarily ignore the wide variety of different conditions applicable to different MEPPs at different times under different circumstances. 

Q 2.11 Should stress tests also be used in determining contribution requirements for MEPPs? 

A 2.11 No. As discussed previously, MEBCO believes that the CP’s focus on benefit security, to the extent that it impairs benefit adequacy, is misplaced.  Increasing contribution requirements (which really means lowering benefits, because the contributions are fixed in CBAs) is particularly inappropriate when it is based on the speculative possibility of adverse future events.  At some point, the relationship between forgone current wages (in the form of pension contributions) and pension accruals becomes so out of balance that active employees will refuse to continue to negotiate such contributions and the MEPP will be wound up – the worst possible outcome. 

Q 2.12 Should target benefit MEPPs be required to establish a governance policy, and if so, what issues should it address? 

A 2.12 MEBCO believes that the current CAPSA guidelines are sufficient. 

Q 2.13 Should the governance policy also outline the roles of delegates, such as external service providers and consultants, with whom the board has contracted to help fulfil governance responsibilities? 

A 2.13 Subject to A 2.12, MEBCO believes that inclusion of such material in a governance plan is appropriate. 

Q 2.14 Should filing of governance policies be required?  How frequently should reviews of governance policies be required? 

A 2.14 Subject to A 2.12, MEBCO has no objection to required filing of mandatory documents. Annual review by trustees of their governance policy should be sufficient. 

Q 2.15 Should a target benefit MEPP framework require all trustees to complete training?  If so, what topics should be addressed? 

A 2.15 MEBCO strongly supports trustee education.  However, each individual’s background will dictate what would be useful, so a mandatory set of topics is undesirable.  Further, some MEPPs set aside time for trustee education at each meeting. Mandatory requirements can compel attendance, but not education.  Each board and individual trustee needs to take responsibility for learning what is needed to be a trustee; that should not be legislated. 

Investment Policy 

Q 2.16 What information currently required for SIP&Ps should be included in the investment policy for target benefit MEPPs, and why? 

A 2.16 MEBCO believes that the current requirements are sufficient. 

Q 2.17 What methods of managing risk and promoting intergenerational equity could be included in an investment policy for a target benefit MEPP? 

A 2.17 As indicated previously, we do not believe that intergenerational equity is an appropriate regulatory topic.  Managing investment risk should already be part of a useful SIP&P. 

Funding Policy 

As indicated previously, the term “funding policy” is a misnomer for a target benefit MEPP, as the contribution income is determined by collective agreements and is not within the control of the trustees. Therefore, throughout this section, we will change the term to “benefits policy,” as that is what is in control of the trustees. 

Q 2.18 Should target benefit MEPPs be required to develop a benefits policy? If so, what information should benefit policies contain? 

A 2.18 In a perfectly predictable world, the trustees would have a benefits policy specifying the circumstances under which benefits would be increased or decreased, and the priorities that would apply in such situations.  In the real world, however, the facts and circumstances when the relationship between contributions and benefits might be changed never seems to be what was contemplated in advance. Therefore, a formal benefits policy is often counter-productive – it creates expectations that may turn out to make little or no sense when it comes time to apply those policies.  Also, the need to change benefits is often the result of multiple unanticipated adverse events, not a single one contemplated by the benefits policy.  Therefore, MEBCO’s experience is that benefit policies contribute much less to the orderly and predictable determination of benefits than the CP imagines they will. 

MEBCO can support a requirement for a governance policy outlining the procedure the trustees will follow when altering target benefits, but not one that dictates the decisions themselves. 

Q 2.19 Should benefits policies and amendments be filed with the regulator? 

A 2.19 If in spite of MEBCO’s views a benefit policy is required, MEBCO has no objection to having it filed with the regulator. 

Q 2.20 How often should the benefit policy of a target benefit MEPP be reviewed? 

A 2.20 Subject to A 2.18, an annual review would be sufficient. 

Q 2.21 Should the regulations specify a priority sequence for benefit reductions in target benefit MEPPs to manage concerns such as intergenerational equity? 

A 2.21 Absolutely not.  The range of causes and combinations of causes is too great for there to be a simplistic priority scheme.  At most, the Superintendent of Financial Services may be given review and approval authority (subject to prompt action, such as within 60 days of notification) so as to ensure that the trustees have appropriately considered the alternatives and have a justifiable reason for their decision 

Information for New Members 

Q 3.1 Do the proposed additional requirements listed above address the type of disclosure that would be of assistance to members who are new to a target benefit MEPP?  Should additional information also be provided? 

A 3.1 MEBCO agrees that the suggested information provided to new members would be helpful in their understanding of how the MEPP operates.  However, in many circumstances, new members may not actively enroll in the MEPP.  Contributions are remitted in accordance with a collective agreement and the administrator creates pension records.  The administrator may only know the individual’s name, social insurance number and hours worked.  Administrators normally diligently attempt to enroll new members, but this could take many months or longer.  Thus, any requirement for MEPP administrator to provide information to new members should provide flexible time limits. 

Annual Statements to Plan Participants 

Q 3.2 Do the proposed additional requirements listed above address the type of disclosure that should be included on an Annual Statement for members of a target benefit MEPP?  Should any additional information also be provided? 

A 3.2 MEBCO agrees that the suggested information provided to members in an annual statement may help in their understanding of how the MEPP operates, with the following exception.  Any adjustments to accrued benefits (increases or decreases) should only be disclosed in the year in which they were implemented.  Continually reporting benefit reductions implemented in the past would be detrimental to the relationship between members and trustees. 

Q 3.3 When should the statements for target benefit MEPPs be sent so that members receive timely notice of benefit adjustment, whether reductions or increases?  Would notice in addition to the normal periodic statements be needed? 

A 3.3 MEBCO supports a requirement that any change in benefits as a result of a plan amendment be communicated to the affected participants within 60 days after final action, including completion of any required regulatory approval. 

Termination, Retirement and Survivor Benefit Statements 

Q 3.4 What additional information, if any, should be included on termination, retirement and survivor benefit statements? 

A 3.4 MEBCO believes that the response to this question depends on the nature of the regulatory framework as finally implemented, and therefore we are deferring a response to this question. 

Statements at Wind-up 

Q 3.5 Do the proposed additional requirements listed above address the type of disclosure that should be included on a wind-up statement for a member of a target benefit MEPP?  Should any additional information also be provided? 

A 3.5 As indicated in A 1.14, MEBCO sees no reason to differentiate MEPPs from single employer plans in an actual windup. 

Enforcing Plan Policies 

Q 4.1 Under what circumstances should the regulator be able to order the wind-up of a target benefit MEPP? 

A 4.1 Generally, the Superintendent’s current authority is sufficient. . 

Q 4.2 Under what circumstances should the regulator be able to replace the administrator of a target benefit MEPP? 

A 4.2 Generally, the Superintendent’s current authority is sufficient. 

Q 4.3 Under what circumstances should the regulator be able to issue a special order for a target benefit MEPP to file a new valuation report? 

A 4.3 See A 1.17 and A 1.9, above. 

Q 4.4 To what extent should the regulator be able to enforce the terms of filed governance, investment, and benefit policies of a target benefit MEPP? For example, should the  regulator be able to ensure that benefit reductions are carried out as specified in a plan’s benefit policy? 

A 4.4 See A 2.18, above. 

Q 4.5 Are there disadvantages to allowing the regulator to enforce plan policies? 

A 4.5 The regulator will want to ensure consistent application of regulatory requirements; whereas trustees will adopt policies which are best suited to the needs of their plan.  Accordingly, this regulatory obligation for consistent enforcement should not interfere with the trustees’ ability to tailor policies to the needs of each particular plan.  Further, the regulator should not be able to compel trustees to adopt policies they do not believe to be appropriate for their plans and also regulatory enforcement of policies should not impede the ability of trustees to amend their policies. 

Reducing Risk to Benefits of  Ontario Members Q 5.1 Would either of the options described above allow multi-jurisdictional target benefit MEPPs to operate effectively while minimizing the disproportionate risk to Ontario members, retired members and former members, both while a plan is ongoing and on wind-up? 

A 5.1 Hard and fast rules that would force the split of MEPPs may have the unintended consequence of denying workers in Ontario or elsewhere the opportunity to have a defined-benefit type pension altogether. For instance, prior to recent Québec changes, there were national MEPPs that excluded employers subject to the Québec SPPA.  Likewise there were national plans that refused to accept large groups under Federal jurisdiction, because of the risk that they might later become subject to solvency funding if the registration were to change. Trustees should at least have the option to design creative solutions to these problems if they wish to do so and the regulations should not force a plan split. 

Q 5.2 Under the first option, what measures may be needed for target benefit MEPPs whose membership changes so that the plan no longer passes the test? 

A 5.2 The multi-jurisdictional agreement needs to be changed to provide equitable treatment to participants in MEPPs from different jurisdictions. 

Q 5.3 Are there other options that should be considered that would reduce the additional risk to Ontario members in multi-jurisdictional target benefit MEPPs? 

A 5.3 Revising the multi-jurisdictional agreement to prevent a jurisdictional change from affecting benefits already accrued would certainly be desirable. However, it may be sensible for trustees to provide lower benefits to participants in jurisdictions that have dissimilar regulatory frameworks from Ontario. In effect, employers and participants in those jurisdictions would be “pre-funding” for potential future “benefits” to them of jurisdictional differences. 

Transition 

Q 6.1 What transitional measures may be needed for SOMEPPs once a new framework for regulating target benefit MEPPs is enacted? 

A 6.1 As a minimum, the bargaining parties need a full bargaining cycle (often, but not always, three years) so that it is possible to adjust contribution rates (in preference to benefit adjustments) if the economics of labour costs permit that option. 

Q 6.2 Would transitional measures be required for MEPPs that would be eligible for target benefit status but were not previously SOMEPPs? 

A 6.2 As indicated previously, MEBCO believes that there needs to be authority with the regulator or minister so that all plans that meet the traditional target benefit MEPP structure can become SOMEPPs.  With that proviso, it appears to us that transitional measures would not be required for such plans. 

Q 6.3 How should the regulations accommodate MEPPs that wish to be regulated as defined benefit plans? 

A 6.3 A simple election procedure not to be a SOMEPP should be made available. 

Q 6.4 Is a three year transition period sufficient for MEPPs to comply with a new target benefit regulatory scheme? 

A 6.4 As a general rule, MEBCO believes that in the case of many MEPPs three years may be an adequate transition period, although there should be regulator authority to provide extensions where justified – for example, where existing collective agreements extend beyond that time frame. 

Broader Target Benefit Issues 

MEBCO’s membership is limited to traditional collectively bargained target benefit MEPPs, so we are not responding to the questions in this section of the CP.  

MEBCO understands that in order for MEPPs to be successful there must be a democratic approach for members to be able to participate in the plan’s governance.  From our experience, only union plans and plans in the religious and not-for-profit sectors have such structures.   Further, it would be very difficult for other organizations to mimic these structures, given the potential employment ramifications for dissenting employees.  MEBCO therefore believes that other non-bargained multi-employer pension plans, whether defined benefit or target benefit, that pool experience across employers are not a realistic possibility.  In a traditional MEPP, the union3 is the “glue” that protects participants and keeps all eligible employers in the plan. Without that glue, it will be difficult to protect participants. Further, “low-cost” employers for example those with a relatively young workforce may drop out of the MEPP in order to reduce their labour cost. That will increase the required contribution rates (or lower the target benefits) for the remaining employers, which will add additional employers to the drop-out group. In short, the non-bargaining MEPP model is likely to find itself in a death spiral, thus defeating the concept of a target benefit MEPP. 

Summary 

Many of the challenges for MEPPs have resulted from the historic attempts to “shoe-horn” MEPPs into the same regulatory scheme that applies to single employer defined benefit plans.  MEBCO applauds and supports the fundamental concept of the CP – that MEPPs are different and need a different regulatory scheme in order to serve the participants and their employers well. 

MEBCO reminds MoF that the target benefit MEPP model is the success story among the otherwise bleak picture of private sector defined benefit type pension plans.  Indeed, legislators are looking for ways to extend that model in hopes of stemming the rush to drop defined benefit plans for defined contribution plans or no retirement plans at all.  The proposed design of the Ontario Retirement Pension Plan (ORPP), which exempts most defined benefit plans and target benefit MEPPs (but not many defined contribution plans) from participation, is a clear acknowledgement by the Ontario government of what works and does not work when it comes to satisfactory retirement income programs. 

As is apparent from the responses in this submission, MEBCO believes that regulatory micro-managing is unnecessary, inappropriate, and likely to lead to the decline in defined benefit type plans such as target benefit MEPPs – one of the few private sector defined benefit vehicles that is not disappearing.  Most 

3 Or religious or not-for-profit organization 

MEPPs are responsibly and successfully delivering benefits in a cost-efficient manner within the current level of government regulation.  MEBCO supports regulatory authority to police the few “bad apples” effectively, but regulations telling trustees everything they have to do under every circumstance, such as the CP reflects, are undesirable, and necessarily ignore the wide variety of different conditions applicable to different MEPPs at different times under different circumstances. 

MEBCO reminds MoF that, in the private sector, target benefit MEPPS have been stable while SEPPs are becoming dinosaurs.  To the extent that the CP foreshadows a new regulatory model for target benefit MEPPs that mirrors the objectives of the current SEPP framework, MEBCO is concerned that such new framework will reduce the attractiveness of MEPPs for employers and workers, providing nominally better protection but in fact reducing the availability of DB-type pensions in Ontario even further. 

Further, the costs of compliance are reflected in lower benefits because the trustees must manage a plan within the limits of contributions over which they have no control.  This suggests that any regulatory requirements be kept to those that are necessary to assure participants that the relationship between benefits and contributions is within appropriate limits and that communication is transparent but not excessive.4 

The vast majority of MEPPs are well run and serve the participants and their employers well.  MEBCO fully supports regulatory authority to identify and police rare instances where this is not always true, or where trustees refuse to acknowledge and act on the need for reduced benefits or increased contributions.  MEBCO representatives are available to meet with the appropriate legislators, Ministers and MoF staff to facilitate the process of establishing a new and appropriate regulatory framework for target benefit MEPPs. Thank you for the opportunity to express our views in this submission. 

 

Robert Blakely President 

4 This concept, which applies in many non-pension situations, is referred to as the “inverted U curve.”  Providing too little information to participants is inappropriate. As more information is provided, the participants become better informed. But at some point, so much information is provided that the participants “glaze over” and no longer read or understand any of it. In our experience, a benefit statement of more than a few pages is sliding down the back side of the inverted U curve, doing more harm than good. 

 

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.