March 21, 2016
Pension Policy Branch
Ministry of Finance
Asser Transfers - MEPPs
7 Queen’s Park Crescent
5th Floor, Frost Building South
Toronto, ON M7A 1Y7
Dear Madam or Sir:
Re: Proposal Number 16-MOF004, Amendments to Ontario Regulation 310/13 - Asset Transfers under Sections 80 and 81 of the Pension Benefits Act
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 multi-employer pension plans (MEPPs) – employers, unions, and professionals. We agree that MEPPs do not fit well into the traditional single employer regulatory model, and generally support the creation of a MEPP-specific regulatory framework.
MEBCO welcomes the recent amendments to the Pension Benefits Act ("PBA") that would expressly permit mergers of multi-employer pension plans ("MEPPs"). We understand that the amendments to the PBA expressly permitting MEPP mergers will not come into effect until regulations addressing such mergers are enacted. Therefore, we are pleased that the government is moving forward to develop regulations to permit MEPP mergers and has released draft amendments to Ontario Regulation 310/13 to address the merger of MEPPs (the "Draft Regulations"). We have reviewed the Draft Regulations and are writing to provide you with some comments on them.
1. Solvency Based Calculations and Conditions
For an asset transfer between MEPPs, the Draft Regulations do not propose any changes to the rules under O. Regulation 310/13 for calculating transfer amounts, to the conditions that must be satisfied for the asset transfer to proceed, or to the financial information that must be reported. Therefore, the usual rules under O. Regulation 310/13 for such matters would apply for asset transfers between MEPPs. These rules provide that the amount to be transferred from an original pension plan to a successor pension plan is to be determined on a solvency basis and that solvency based conditions must be satisfied for an asset transfer with respect to defined benefits to be authorized. They also require that solvency based figures be reported. These solvency based calculations and figures are inappropriate for asset transfers between MEPPs that are exempt from solvency funding (specified Ontario multi-employer pension plans or SOMEPPs). Instead, for transfers between MEPPs exempt from solvency funding, the rules for calculating transfer amounts and the conditions that must be satisfied for the transfer to proceed should reflect the applicable going concern funding requirements. For SOMEPPs, the going concern calculations are the more relevant figures. To address the possibility of differences in going concern actuarial assumptions between the original pension plan and successor pension plan, regulations for asset transfers between MEPPs could require that, for the purposes of the asset transfer, both plans use the actuarial assumptions of the successor pension plan.
O. Regulation 310/13 outlines a tight timeline for asset transfers. The Draft Regulations do not propose to modify this timeline for asset transfers involving MEPPs. This timeline may work for asset transfers involving single employer pension plans. However, given differences between the circumstances of MEPPs and single employer pension plans, meeting this timeline will be particularly challenging and/or impossible for asset transfers involving MEPPs.
For example, because they are dependent on work levels that vary, contributions to a MEPP are much less predictable than contributions to a single employer pension plan. In addition, there are challenges in collecting and reconciling contributions to MEPPs that do not apply for a single employer pension plan. These and other circumstances that distinguish MEPPs from single employer pension plans may make it challenging and/or impossible to meet the timeline and provide certain required information with respect to benefits and contributions as of the reporting date specified in the timeline. The regulations for MEPP asset transfers should include some flexibility around the timeline for asset transfers involving MEPPs and/or the currentness of the information with respect to benefits and contributions.
3. Commuted Values
(a) Section 7(2) of O. Reg. 310/13 requires that the commuted value of a transferred member's benefits be determined as if, "his or her employment had terminated on the effective date of the transfer under section 80 or 81 of the Act and as if an activating event described in subsection 74(1) of the Act had occurred on that date." The Draft Regulations do not propose to modify this section for MEPP mergers. However, it should be modified as follows for MEPP mergers:
(i) It should refer to termination of membership as well as employment since MEPP members may terminate employment without also terminating membership.
(ii) Section 74 of the PBA does not apply to MEPPs while an election under Section 74.1 of the PBA is in effect. Section 74 of the PBA should not apply for any reason to a MEPP for which an election under Section 74.1 of thePBA is in effect. To avoid any uncertainty, Section 7(2) of O. Reg. 310/13 should be amended to indicate clearly that its requirement that the commuted value of a transferring member’s benefits be determined as if an activating event under Section 74(1) of thePBA occurred on the effective date of transfer does not apply to a MEPP while an election under Section
74.1 of the PBA is in effect for that MEPP.
(b) Section 81 of the PBA outlines the conditions for the Superintendent's consent to an asset transfer. These include a commuted value guarantee, as determined as of the effective date of transfer, where the benefits under the successor and original pension plan are not identical (see paragraphs 2 and 3 of Section 81(6)). In addition, Section 14 of O. Regulation 310/13 requires that the transferred member's accrued benefits under the successor pension plan be at least 85% of his or her accrued benefits under the original pension plan as of the effective date of the transfer.
We do not believe these requirements or any other requirement under the PBA or the regulations thereunder would prevent a MEPP from being amended following an asset transfer to reduce the commuted value of the transferred benefits or the accrued benefits under the successor pension plan. However, for the avoidance of any doubt, the regulations for asset transfers involving MEPPs should either exempt MEPPS from these requirements and/or clarify that they are each subject to accrued benefit reductions under Section 14(2) of thePBA.
4. Modifications to Section 11 of O. Regulation 310/13
Proposed Section 11(1.1) of the Draft Regulations provides that if a MEPP merger results in a new going concern unfunded liability or new solvency deficiency, special payments to liquidate it must be made in accordance with section 5, 6, or 6.04.
Most MEPPs operate in a unionized environment in which contributions are set through collective bargaining. As such, any requirement that purports to require contributions beyond the negotiated contributions in the form of special payments is inappropriate for MEPPs. If a MEPP merger results in a new going concern unfunded liability or solvency deficiency, there should be no requirement for special payments to fund that unfunded liability or solvency deficiency. Instead, such liability or deficiency should be liquidated in accordance with section 5, 6, or 6.04, whichever applies. In addition, the sufficiency of the negotiated contributions to provide the promised benefits without consideration of any benefit reductions should be demonstrated.
Section 11(3) of O. Regulation 310/13 provides that, in an asset transfer under Section 81, an employer's obligation to make special payments under the original pension plan continues until the transfer is completed. This Section should be modified to recognize that it has no application for negotiated contribution MEPPs. Employers that participate in such plans are not responsible for special payments, but only the negotiated contributions as set out in a collective agreement.
5. Application for the Superintendent's Consent
The requirement under Schedule 2 of O. Regulation 310/13 that the application for the Superintendent's consent include the amount of the required contributions to the original and successor pension plan before and after the proposed transfer should be modified to address the circumstances of MEPPs. The rate of contributions to MEPPs is collectively bargained and the amount of contributions depends on variable work levels. The requirement that the application to the Superintendent disclose information with respect to contributions should be modified to address these circumstances and the Superintendent should be given some discretion to modify any such condition, where appropriate.
6. Notice Requirements
We make the following comments on the notice requirements:
(a) For asset transfers involving MEPPs, the notice requirements specified under Schedules 3, 4, and 5 of O. Regulation 310/13 should be modified to refer to the possibility of accrued benefit reductions.
(b) For asset transfers involving MEPPs, the requirement in Schedule 5 that the notice include a statement that pension benefits and ancillary benefits provided under the successor plan are not less than those provided under the original plan will be misleading given the possibility of accrued benefit reductions. This statement should be clarified to indicate that the determination is made as of the effective date of the transfer and is subject to accrued benefit reductions under Section 14(2) of the PBA.
(c) The regulations require that notice concerning an asset transfer be provided to trade unions and advisory committees, if applicable, by both the original and successor pension plan. However, there is no requirement to provide any notice concerning the asset transfer to the participating employers. If notice of a MEPP asset transfer will be required to be provided to the trade union and advisory committees, the employers participating in the affected MEPPs should also be provided with notice. However, the notice to the employers need not be as detailed as the notice to the unions and advisory committees.
We would be pleased to discuss any of these comments with you.
Robert Blakely President