MEBCO is providing its comments on the recent survey issued requesting the opinions of Alberta- registered pension plan sponsors.
Ms. Lois Stewart,
Director of Pension Policy
Alberta Treasury Board and Finance
MEBCO is providing its comments on the recent survey issued requesting the opinions of Alberta-registered pension plan sponsors.
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 pension and health coverage to over 1,000,000 Canadians.
1) Please identify any issues you experience with the current pension funding rules in the Employment Pension Plans Act (EPPA) and the Employment Pension Plans Regulation (EPPR).
- Please include comment on the requirement for certain defined benefit plans to fund for 100 per cent solvency, as well as amortize solvency deficiencies over five years, as appropriate.
- For collectively bargained multi-employer plans (CBMEPs), please include comments regarding provision for adverse deviation (PfAD) funding requirements, as appropriate.
MEBCO will respond in respect of collectively bargained multi-employer plans (CBMEPs).
MEBCO members have been clear that the current PfAD legislation in the province of Alberta is deeply flawed. Pension plans have provided many examples of the volatility of the PfAD and that in fact it reacts in the opposite way to which it was intended. The PfAD results in higher surplus requirements in times of funding challenges, such as low interest rates.
The fact that the PfAD was not appropriate for Alberta registered pension plans was made clear by the Canadian Institute of Actuaries prior to its enactment.
As has been described, the PfAD requirements under the EPPA create intergenerational inequities. Unfortunately, not turning minds to the correction of this legislative flaw has resulted in thousands of retirees passing before they could receive a pension increase that was affordable by the plan.
CBMEPs are governed by fiduciaries. As such fiduciaries are responsible for the good governance of the pension plan, including its funding. The fiduciaries should be responsible for determining the appropriate margin for the pension plan.
MEBCO’s July 27, 2020 submission on funding issues in British Columbia and Alberta legislation is attached for reference.
2) What approaches and opportunities for improvement do you suggest to treat the above identified issues?
For CBMEPs there should be a moratorium on the funding of the PfAD until there has been a full review of the PfAD. The fiduciaries responsible for the applicable plan should provide the appropriate funding for the pension plan.
3) Over the past number of years, other jurisdictions have revised their funding rules for pension plans.
- What has been your experience with the funding rules used in other Canadian jurisdictions?
- What do you find effective about their funding rules?
- What do you find not effective about their funding rules?
To date, the province of Saskatchewan has implemented the clearest legislation regarding funding of margins. Whereas MEBCO does not endorse a minimum PfAD, at least the Saskatchewan legislation provides for a reasonable amount.
The province of Ontario has a moratorium on solvency funding for CBMEPs in recognition that solvency funding is not appropriate for CBMEPs.
MEBCO does endorse a moratorium on the funding of PfADs until more appropriate legislation is developed.
4) How might we best balance funding rule changes with member expectations for benefit security?
The level of benefit security and its cost is a decision best left to the plan fiduciaries. The balancing of funding and benefit security is the responsibility of the fiduciaries that govern CBMEPs. Over funding of a pension plan reduces benefits that would otherwise be payable to plan members.
Innovation and Modernization
1) As with funding rules, rules regarding life annuity purchases and liability discharge have also been updated in a number of jurisdictions in recent years. Please identify issues you have experienced with current annuity purchase rules in the EPPA and EPPR, as well as possible approaches for resolving these issues. In particular, we invite you to comment on the following: - What should be the requirements of the annuity in order to permit discharge (e.g., generally same form and manner as pension from the originating plan)?
- How to resolve situations in which an annuity that matches the plan provisions (e.g., indexation) is not available? For example, what are your thoughts on allowing the unavailable characteristics to be replaced by an annuity providing similar characteristics (e.g., fixed indexation as opposed to indexation based on the pension fund return)? - Should there be any limitation to the discharge provided or transitional features?
- Should retroactive discharge be permitted (i.e., discharge for annuities purchased before the legislation is amended)? - For what members should annuity discharges be allowed (e.g., retirees, former members, and survivors)?
- Should annuity discharges be required to be filed with the regulator (e.g., require an actuarial valuation at the date of the buy-out; require actuary to file a certification that discharge is in compliance with legislation; require administrator to provide a copy of the contract(s) under which the benefits will be provided; or other)?
- Should disclosure to affected members be required? Should member consent be required?
- What funding requirements should there be (e.g., solvency ratio for the plan to be maintained at the lesser of one and the solvency ratio reported in the latest filed valuation report; if the cost of annuities exceeds the product of the commuted values times the solvency ratio then an additional contribution is required before the annuity is purchased)?
MEBCO members do not broadly report the use of life annuity purchases in satisfaction of benefits under the applicable plans. However in other jurisdictions a major legislative weakness has been that purchase of annuities by the plan did not relieve the sponsor of the liability. The EPPA and the EPPR must provide that, when life annuities are purchased with qualified financial institutions, the liability therefore is satisfied. The EPPA and EPPR may provide that such satisfaction is granted provided the life annuity purchase does not exceed the insured limit at the time of the annuity purchase.
2) In the Budget 2019, the Federal Government announced their intention to amend legislation to permit the purchase of an Advanced Life Deferred Annuity (ALDA) from a registered plan. The budget also proposed a Variable Payment Life Annuity (VPLA). While federal legislation is still pending, would you support the EPPA being similarly amended to provide for those products (e.g., as a potential portability option)?
3) Many of Alberta's CBMEPs are currently classified as defined benefit for accrued benefits, but have been exempted from that requirement by s.10.1 of the EPPR. What are your thoughts on the ability of a defined benefit plan to convert benefits – including accrued benefits – into target benefits? Consider: — How would member consent be obtained prior to conversion? That is, what conditions should be imposed (e.g. union can consent on behalf of all members; if not represented by a union, then some threshold of consent or deemed consent, unless respond in the negative).
MEBCO supports legislation that allows conversion of accrued benefits into target benefits. This should be at the discretion of the plan administrator – ie the fiduciary board of trustees. Notice should be provided to all plan members. CBMEPs regularly provide information to plan members – the plan’s status as a target benefit plan including what that means should be part of the communication. MEBCO does not support communication requirements that are negative and that cause distrust in the pension plan.
4) Do you have other ideas to support innovation and modernization with regards to pension legislation and regulator requirements?
MEBCO supports innovation and modernization. MEBCO supports the regulator establishing permanent and ad hoc working committees to support these ambitions. MEBCO representatives are regularly invited to serve on similar committees in other jurisdictions where our input is valued.
Red Tape Reduction
1) In 2014, the EPPA was amended to provide for the establishment of the Alberta Employment Pensions Tribunal. While members have been appointed to the Tribunal, the Tribunal has not been used since its establishment. - Do you think it is an effective mechanism to address appeals? What other approaches might be taken to the review of a certain decision of the Superintendent of Pensions to determine if the decision is consistent with the requirements and intent of the EPPA?
MEBCO believes the Tribunal could be an effective approach for addressing appeals. In advance of using the Tribunal mechanism the Superintendent of Pensions should have an open and less formal process for dealing with appeals.
2) The EPPR prescribes different pension partner waiver forms, used in different instances depending on certain circumstances. What are your views on the potential consolidation of waiver forms (similar to the waiver forms which existed prior to 2014) or the potential elimination of all waiver forms (replaced, instead, by an obligation that the plan administrator obtain “pension partner consent” without a prescribed form)?
MEBCO supports the use of waivers applied to specific circumstances and not a consolidated form. We believe that plan members and beneficiaries should have access to prescribed forms that are in plain language.
3) The EPPR requires member disclosure statements, used in different instances depending on certain circumstances. What are your views on: - Replacing the member disclosure requirements in the regulation with an obligation on plan administrators to disclose information to members (but not prescribe the content)?
- Changing the annual pensioner statement from a mandatory statement issued to all retired members of a pension plan to a statement where members must “opt-in” to receive it.
MEBCO supports annual communications to plan members. This is an opportunity for the plan operational staff to communicate with members to provide them with the basic information prescribed in an annual pensioner statement but also to share broader information about the plan. MEBCO’s experience is that the annual statement is shared by the pensioner and a potential beneficiary which enhances overall knowledge about the plan. CAPSA has opined on the issues related to “missing members” and having an annual contact with plan members assists in avoiding these problems. MEBCO would support opt-out or opt-in of electronic communications.
4) Do you have other ideas that reduce inefficiencies with regards to pension legislation and regulator requirements
Overall MEBCO’s members report that, aside from the substantial issues with the PfAD, their interactions with the regulator are collaborative and productive. MEBCO stresses that the most significant issue present in the current legislative environment is the flawed PfAD and the remaining uncertainty around the treatment of accrued benefits that have not been converted to target benefits under CBMEPs.
In future legislative guidance and interpretations issued in respect of CBMEPs, MEBCO endorses principles-based regulation and that those changes be the result of broad consultation with CBMEP experts. All focus should be on encouraging the sustainability and formation of pension plans.
Development of effective legislation and guidance is dependent on inclusive consultation of stakeholders including plan members, plan sponsors and industry. Each stakeholder has a unique perspective that is valuable.
MEBCO would be pleased to consult further on any of these subjects.
Encls. July 27, 2020 MEBCO submission on BC-Alberta funding issues.
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