Improved Funding Framework for Nova Scotia Pension Plans – The Road Forward Comments by the Multi-Employer Benefit Plan Council of Canada (MEBCO)
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 (MEPs). MEBCO consults 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 trustees (union, independent, professional and employer), professional third-party administrators, non- profit or “in- house” plan administrators, and professionals including actuaries, benefit consultants, lawyers, investment managers, investment counsel and chartered public accountants. MEBCO is administered by a Board of Directors consisting of representatives from each of the above groups. The Board of Directors serve MEBCO on a volunteer basis, and are responsible for identifying issues that impact MEPs, developing a strategy to address those issues, and then carrying out the strategy. MEBCO’s member-plans provide comprehensive health coverage to over 1,000,000 Canadians.
MEBCO welcomes the opportunity to provide feedback on the Nova Scotia proposal of new funding rules presented in the paper entitled “Improved Funding Framework for Nova Scotia Pension Plans – The Road Forward”. As the representative organization for traditional target benefit multi-employer pension plans, our comments are limited to the changes affecting SMEPPs (Specified Multi-Employer Pension Plans – SMEPPs – under the Nova Scotia PBA) as outlined below.
Minimum Funding Rules – Solvency Exemption
MEBCO is pleased that the Province of Nova Scotia has confirmed the permanent solvency exemption granted to SMEPPs through legislative reforms in June of 2015 with the latest announcement.
Minimum Funding Rules – Enhanced Going Concern
MEBCO’s position is that there should be reasonable going concern funding requirements for SMEPPs. Establishing a lower SMEPP PfAD, if required at all, would strike a better balance between benefit adequacy, affordability and security that is appropriate for the individual plan. A lower PfAD would also permit greater flexibility to better balance the various plan objectives, including benefit adequacy, affordability, security, stability and intergenerational equity.
It is important that any required PfAD be simple to administer. Of the two PfAD options presented, Option 1 considers the ratio of the duration of assets to the duration of liabilities, and would be more complicated to calculate and understand, and would create more variability relative to Option 2. Therefore, MEBCO does not support the proposed Option 1. In addition, if a PfAD is to be required by legislation, it should be less than any PfAD required for traditional single employer pension plans (SEPPs). The risk assumption, contribution structure and governance are different for SMEPPs compared to SEPPs. As a result, we would support a SMEPP specific funding framework. In particular, SMEPP trustees are best suited to determine the appropriate PfAD and a “one size fits all” PfAD for SMEPPs should not be dictated in legislation.
The proposal notes that the PfAD is to be funded in the same manner as the pension plan’s other going concern obligations. This results in increased funding variability which is detrimental to SMEPPs. This is because SMEPPs have fixed contributions negotiated by the bargaining parties, not the SMEPP’s trustees. Benefit security can perhaps be enhanced by higher employer contributions, but SMEPPs do not have that option. Higher funding requirements for SMEPPs due to funding of the PfAD simply results in lower benefits, and that cannot improve benefit security. It also shifts assets from one generation of members to another generation of members. MEBCO’s position is that any PfAD applied to the pension plan’s liabilities should be funded from experience gains. It would be built up during times of positive plan experience and drawn upon during periods of adverse plan experience.
The new rules include an “improved ability” to improve benefits for solvency exempt plans. These plans will be able to pay for improvements over 5 years if the plan is fully funded on a going concern basis and 85% funded on a solvency basis.
This restriction may or may not apply to SMEPPs. If applied to SMEPPs, it would result in imposing a restriction not currently in place for SMEPPs in Nova Scotia and would therefore have the opposite effect of improving the ability to improve benefits. It will also create intergenerational inequity, as the current generation of members would be required to fund the PfAD primarily for the benefit of future members. Funding regulations should not unduly skew plan design and funding in the direction of benefit security, resulting in inadequate benefits.
Currently, a SMEPP can improve benefits if it meets the usual contribution sufficiency test, including amortizing any increase in the unfunded liability over 5 years. With the new rules, a plan which does not meet the funded levels required may be restricted from improving benefits. MEBCO suggests that, in respect of any plan changes, decisions be based on the relationship between contribution income and actuarially calculated cost, not on funded ratios, and not on the requirement to have a fully funded PfAD before improvements could be made.
MEBCO would support no change to the current regulations for SMEPP benefit improvements.
Valuation Filing Frequency
MEBCO supports the new rules which allow solvency exempt plans, including SMEPPs, to file triennial actuarial valuations, reducing red tape and plan costs, while still monitoring the funded level of plans with solvency concerns (i.e., the ratio of the pension plan’s solvency assets to solvency liabilities is less than 85%) through the filing of annual cost certificates. More frequent full actuarial valuations, such as on an annual basis, should not be mandated, but should be optional as a governance exercise at the discretion of the trustees of the SMEPP. Thank you for the opportunity to express our views in this submission.
Main Submissions Page