Update To Mebco Work On Ontario Ministry Of Finance Proposal For A Permanent Framework For Target Benefits
MEBCO has engaged the Ministry of Finance (MoF) in many ways since the March 15threlease of the proposed framework for target benefits. MEBCO’s engagement includes meetings with policy advisors at MoF and the Minister of Finance himself. Much outreach is taking place and we appreciate member support.
MEBCO’s position is that MoF has the benefit of the mistakes made in other provinces, notably British Columbia and Alberta and should therefore take advantage of that learning. MoF must also realize that target benefit plans are governed by a fiduciary board of trustees and regulations should be principles based and thus should not prescribe specific board actions.
MEBCO is pleased to see that the proposal will, finally, over-ride the current Ontario requirement that commuted values be paid on a solvency basis and will be paid, prospectively ,on the going concern basis. However, we note that the proposal does not allow the trustees to apply the plan’s funded ratio to the commuted values, which is allowed under the Canadian Institute of Actuaries’ professional standards. The current Ontario position that our plans pay commuted values based on solvency is regressive, not endorsed by the Canadian Institute of Actuaries, out of step with all other major jurisdictions and costs our plans millions of dollars every year.
Here is a summary of MEBCO’s key concerns about the MoF proposed framework:
- The PfAD- provision for adverse deviation.
- We have seen no evidence MoF did any real back-testing of the impact of its proposed formula. MEBCO’s broad and detailed back-testing which included a large portion of plans in Ontario shows substantial swings in the amount of margin required for a pension plan – and high margins of over 15% and as high as 25%
- MEBCO’s position is that any PfAD should be determined by each plan's board of trustees, but if regulations do prescribe a minimum PfAD, it should be fixed and modest – 5% to 7.5% with any plan that feels their margin should be lower making an application to FSRA
- Contribution Sufficiency
- MoF’s model doubles down for pension plans that require a PfAD and have experience losses that are being amortized.
- MEBCO’s position is that only the greater of the PfAD or the experience loss being amortized is added to the normal cost.
- MEBCO’s position is that experience losses being amortized should be reset with each valuation.
- MoF’s proposal requires that plans advise members of benefit changes have taken place over the last 10 years in communications to new members and in annual benefit statements.
- MEBCO’s position is that similar communications are not required in other jurisdictions or for single employer plans or jointly sponsored pension plans, and is an unnecessary burden which creates a negative perception of the plans. Plans are already required to provide communication around recent changes. MEBCO agrees that plans should have a communication policy that is suitable for the size of the plan and its resources.
- MoF’s proposals require continued communication of transfer ratios whereas this information is not applicable.
- MEBCO’s position is that transfer ratio/solvency ratio information is not required in the target benefit framework.
- MoF’s proposal is that plans have a funding policy and governance policy. b. MEBCO’s position is that this is reasonable and that most plans have these in place already. However MEBCO wants the outline for these policies to be given and not prescriptive so policies can align with plan size and resources. MEBCO agrees that pension plan actuaries should perform risk measures and scenario analysis as prescribed by the Canadian Institute of Actuaries, with additional analysis being discretionary.
- MOFs proposals diminish the role of fiduciary boards of trustees that have the ultimate responsibility for the plan. MoF proposals for example require that boards reinstate any past benefit reduction before a benefit improvement can take place. MoF’s proposals do not take into account the due diligence performed by boards before changes are made, including consideration of funding and industry risk. MoF’s proposals do not consider that for some plans benefit improvements or reductions are voted upon by plan membership.
- MEBCO’s position is that there should be no prescriptive measures for boards of trustees around benefit improvements or restorations.
- MoF’s proposal provides for a communication that a pension plan is becoming a target benefit including communications to employers, bargaining agents, members and others.
- MEBCO’S position is that the plans that would be “converting” have been target plans for decades and that nothing is changing for the members of the plans or the employers. MEBCO believes plans should simply signify they have accepted the new legislated framework by signifying this on their annual information return filed with FSRA.
MEBCO was established in 1992 to represent the interests of Canadian multi-employer pension plans (MEPPs) 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.
Multi-employer pension plans (MEPPs) are typically administered by a board of trustees. The trustees in most MEPPs are appointed by some combination of the trade union(s) representing plan members and employer association(s) representing the participating employers. Both the trade unions and the employer associations are not-for-profit organizations with limited resources. The trade unions and the employer associations typically receive most of their funding through dues payable in accordance with the applicable collective agreements.
Alex McKinnon, President
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