The Voice of Multi-Employer Plan Interests in Canada

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MEBCO's primary activity is to monitor and assess the impact of legislative reforms that affect Canadian multi-employer pension and benefits plans. In many cases, we advocate our position through written submissions to government, and regulatory and administrative agencies.

To view a submission, just click on a title of interest from the list below. In the interest of avoiding repetition, we have deleted standard introductory remarks that provide background information on MEBCO from many of these documents.

Documents that are presented as Adobe Acrobat PDF files require Adobe Acrobat reader to properly view. If you would like an original copy of any of these submissions, you can obtain one by contacting MEBCO.

Multi-Employer Benefit Plan Council of Canada (MEBCO)

MEBCO a été établi en 1992 pour représenter les intérêts des régimes de retraite interentreprises (RRIE) canadiens auprès des gouvernements provinciaux et fédéral en ce qui a trait aux lois et politiques proposées ou existantes entraînant des conséquences sur ces régimes. MEBCO est une société fédérale de financement sans actions qui exerce ses activités sur une base à but non lucratif.

 

TOM LEVY DRAFT #1 MARCH 2, 2010

Under the Income Tax Act (ITA), there are a variety of limitations with respect to the maximum benefits and contributions that are permissible with respect to registered pension plans (RPPs).  With respect to most defined benefit pension plans, those limits are expressed in terms of new benefit accrual constraints.  Contribution limits only apply when there is “excess surplus” – that is all accrued benefits are not only fully funded, but are in fact significantly overfunded.

SUBMISSION TO THE HOUSE
OF COMMONS STANDING
COMMITTEE ON FINANCE
2004 PRE-BUDGET
CONSULTATIONS
2004
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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:

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

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. 

BENEFIT SECURITY

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.

CONCLUSION

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.”

 

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.