March 12, 2015
Ms. J. Seibel
Government of Saskatchewan
Financial and Consumer Affairs Authority
Mr. J. Hall, Senior Crown Counsel
Ministry of Justice and Attorney General
Government of Saskatchewan
Dear Jan and Jim,
Re: Amendments to Saskatchewan Insurance Act, Bill 177
On behalf of our members, MEBCO appreciates the time you took to meet with our Board member Sid
Matthews, on February 26th. We welcome this opportunity to follow up with you regarding MEBCO’s
comments on Bill 177, which will amend the Insurance Act. We understand that the regulations are not
available and that there are many details to be resolved. We understand the government’s desire to
quickly pass Bill 177 and to consult with relevant parties on the regulations. We also understand, and
agree with, the consumer‐safety focus of the amendments to the Insurance Act.
MEBCO SUBMISSION RE NEW BRUNSWICK TASK FORCE
Tom Levy August 3, 2011
Pension Task Force
Attn: Justice and Consumer Affairs
P.O. Box 6000
Fredericton NB E3B 5H1
Dear Ms. Rowland, Mr. McCrossan, and Mr. Desjardins:
MEBCO was established in 1992 to represent the interests of all types of Canadian multi-employer benefit plans, including multi-employer pension plans (“MEPPs”) and multi-employer health and welfare benefit plans (‘MEBPs”). MEBCO is representative of all persons and disciplines involved in these plans, including union and employer trustees, professional third party administrators, non-profit or “in-house” plan administrators, attorneys, actuaries, consultants, investment management professionals and chartered accountants. MEBCO is administered by a Board of Directors consisting of representatives from each of these groups. MEBCO is representative of MEPPs that have, on average, 400 participating employers.
MEBCO members have responsibility for administering benefit plans with accumulative membership of workers and families of over one million persons in Canada.
MULTI-EMPLOYER PENSION PLANS (“MEPPs”)
Over the past decades, labour and management joined together to respond to the problems of delivering retirement benefits to workers and their families in industries typified by small companies and a mobile work force. Members of MEPPs work 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 MEPP may be national, regional, provincial, or local in coverage. Anywhere from two to over 1,000 employers may contribute to one of these plans under collective agreements.
MEPPs provide continuous benefit coverage to workers as they change employment from one contributing employer to another. This portability provides seamless pension coverage, and is essential for workers in mobile or seasonal industries such as construction and entertainment.
A MEPP is typically structured as a pension trust fund for purposes of s. 149(1)(0) of the Income Tax Act (the “ITA”). The trustees, appointed pursuant to a trust agreement, are usually responsible for the administration of the plan and the fund. A plan will either handle its own administration or hire a third party administrator.
Multi-employer defined benefit pension plans based on labour-management negotiations in the private sector are a cornerstone to the provision of retirement income in Canada. Unlike single employer plans (SEPPs), these plans are not being wound up, converted to (or replaced by) defined contribution plans, or subject to wind-up because of the insolvency of a single employer. They are not the subject of disputes about contribution holidays or surplus ownership. Further, the “defined benefit” is in reality a target benefit, because contribution rates typically are fixed in collective agreements.
MEPPs are administered by a Board of Trustees comprised of at least 50% member representatives. All aspects of plan administration, investment of funds, etc. are the responsibility of the trustees, not the participating employers.
All assets in a MEPP belong solely to the participants – there are no issues of surplus ownership or funding of deficits.
MEPPs are fundamentally different from SEPPs and therefore require a different legislative and regulatory framework.
The stated purpose of the Task Force is to “promote the establishment and continuation of appropriate and affordable pension protection” while offering “the best protection possible” and ensuring that “plans are both sustainable and affordable.” Unfortunately, there is a tension between these objectives in a voluntary pension system, and the decline in defined benefit pension plans is in no small part the result of provincial legislation intended to enhance benefit security. Specifically, solvency funding created unmanageable volatility in employer contributions, so employers ceased to provide defined benefit pension accruals. Without solvency funding, benefit security would have perhaps been even lower, but there would likely still be defined benefit pension accruals.
A historical example is illustrative. In the early days of funded pension plans, it was common for all benefits to be fully insured as they were earned. This provided nearly perfect benefit security. However, it made pensions prohibitively expensive, effectively resulted in plan assets being 100% invested in fixed income securities (due to the insurance laws), and required plan designs that fit available insurance policies (which designs often did not meet the needs of either employers or employees). Pension plans became commonplace and started to flourish when, and because, this model was abandoned and replaced by the trusteed uninsured model that has prevailed for decades, but that has less benefit security.
MEBCO urges the Task Force to strike a reasonable balance between benefit security and affordable, attractive pension plans in its deliberations. “The best protection possible” would require a return to fully annuitized pensions, and that would quickly mean almost no pensions at all.
TARGET BENEFITS FOR MEPPS
“Traditional” MEPPs have fixed collectively bargained contribution rates that cannot be changed by the trustees who administer these plans. Minimum funding requirements do not cause MEPPs’ contribution income to increase. The only way to remedy an apparent minimum funding violation is to reduce benefits. In most jurisdictions, the trustees have the authority to make such benefit reductions, often subject to approval by the regulator. Thus, these plans are more accurately described as having “target” benefits, with the members effectively bearing the risk.
Employers are attracted to MEPPs because their pension costs are known in advance, not volatile, and not subject to typical accounting rules on an employer’s books. Employees are attracted to MEPPs because they get substantial defined-benefit-type pensions and broad portability.
In Québec, the position of the regulator is that Trustees are not permitted to make reductions in accrued benefits. However, a withdrawing employer may be subject to an “employer debt” that is over and above its collectively bargained contribution, with the intent of making sure that employers fully fund the accrued benefits of their employees. This has effectively resulted in no Québec employers joining MEPPs, and existing employers and trustees are actively looking to discontinue accruals except on a defined contribution basis. There are MEPPs that explicitly exclude employers in Québec from participation.
Like Québec, New Brunswick does not permit trustees to make reductions in accrued benefits. Unlike Québec, however, New Brunswick does not provide any mechanism to insure that employers pay for the benefits earned by their employees. As a result, New Brunswick employers are willing to participate in MEPPs, but the trustees are sometimes reluctant to provide new accruals except on a defined contribution basis. From a trustee perspective, New Brunswick is the worst regulatory environment – benefits must be provided whether or not there are sufficient contributions to provide them. This may put the trustees and the Superintendent in an impossible situation – disregard the funding requirements or permit reductions in accrued benefits. Theoretically, neither of these options is permissible.
Apparently the only permissible remedy for a MEPP that is not in compliance with New Brunswick’s funding requirements is a reduction in future accruals. This has a number of serious flaws, including:
- After a market crash such as occurred in 2008, elimination of all future accruals may not be adequate to bring a plan into compliance with New Brunswick’s funding requirements.
- The active workers must ratify collective agreements calling for contributions. If those contributions will not provide a reasonable benefit for younger workers as well as for “old-timers,” the active workers will simply refuse to negotiate any contribution and the plan will need to be wound up, which typically maximizes the benefit reductions.
- Trustees are fiduciaries that are required to consider the interests of all participants in an equitable manner. A market crash only affects the funding of existing accruals – it does not make future accruals more expensive. Thus, requiring that the full impact of a market crash be reflected by lower future accruals creates a serious and long-lasting intergenerational inequity.
ISSUES FOR DISCUSSION
As discussed above, in the event of adverse experience such as that experienced in 2008 by almost all Canadian pension plans, MEPPs’ trustees do not have the power to increase contributions, and therefore must respond by reducing benefits. However, such reductions may not be applied to accrued benefits earned in New Brunswick. This creates an impossible dilemma. MEBCO strongly urges the Task Force to recommend that New Brunswick treat MEPPs as they are treated in the jurisdictions that have large numbers of MEPP plans and participants – Ontario, Alberta, and British Columbia. Specifically, the key desirable provisions to keep MEPPs attractive to New Brunswick employers and employees alike include:
- Limitation of employers’ obligations to amounts negotiated in collective agreements or otherwise provided in binding documents.
- Authority to reduce accrued benefits when necessary to meet going-concern funding requirements.
- Authority to reduce accrued benefits when an individual employer terminates participation in the MEPP, regardless of cause, and regardless of whether or not the same employer continues to contribute at other facilities or under other collective agreements.
- No solvency funding requirements. Increased contributions to single employer plans as a result of solvency funding can improve benefit security, but MEPP Trustees have no authority to increase contributions. Benefit security cannot be improved be reducing benefits, the only option available to MEPP Trustees. Indeed, enforcement of MEPP solvency funding requirements takes the very event solvency funding is intended to prevent – reductions in accrued benefits – and makes that event a certainty. Also, wind-ups of MEPPS are extremely rare; the insolvency of an employer is typically an insignificant event with respect to the financial viability of a MEPP.
- Annual disclosure requirements to all participants, participating unions, and participating employers of the fact that the benefits are “targets” and are subject to reduction, both before and after retirement, if that becomes financially necessary.
Canadian MEPPs continue to thrive, unlike other private sector defined benefit pension plans. The current New Brunswick legislative environment, however, is hostile to such plans. MEPPs registered in New Brunswick are subject to solvency funding requirements, which are counter-productive. MEPPs are not permitted to reduce accrued benefits, which creates an impossible dilemma in the absence of the ability to require contribution increases – benefits must be provided, whether or not employers pay for them. And MEPPs have no authority to require employers to pay for the benefits for their employees.
MEBCO would very much appreciate the opportunity to discuss these issues in person with the Task Force members, to answer any questions you may have, and to assist you in your objective to make pensions, through this successful vehicle, “sustainable and affordable.”
- 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.
- 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
- 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.
- 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.
- 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.
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