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© Copyright 2000 Rogers Media. The following article first appeared in the July 2000 edition of
BENEFITS CANADA magazine.
Evolution of a regulator
With the merger of the Ontario Securities Commission and
the Financial Services Commission of Ontario, plan sponsors
are bracing for another round of regulatory change.
By Murray Gold
Another round of pension regulatory reform is here. In Ontario, the Financial Services Commission (FSCO) is
merging with the Ontario Securities Commission (OSC). This will obviously affect all pension plans
registered in Ontario. More than that, however, it may signal a new regulatory pattern for the rest of the
country.
In the early 1980s, pension regulation was benign, if not neglectful. The industry was much smaller, and
regulatory processes and procedures were much less formal. But low key regulation came to an end with the
Dominion Stores case in 1986. Dominion Stores had received approval for a surplus withdrawal from the
Pension Commission of Ontario (PCO), but the court found that the PCO had provided no notice of the
application to plan members, had ignored their inquiries and had failed to satisfy itself that the company
had any entitlement to the surplus. The court was brutal in its treatment of the PCO's regulatory
practices. Reform followed quickly and a second phase of pension regulation was ushered in. By the end of
the 1980s, the commission had become a watchdog, developed formal procedures and became much more active in
its regulation.
But by the end of the 1990s, active regulation began to recede. The substantive regulatory requirements of
both the Pension Benefits Act and the Income Tax Act (Canada) had weighed heavily on plan sponsors.
Personnel changed again and a third regulatory model emerged. This third stage involved the devolution of
regulatory responsibilities from the regulator to the plan administrator and its agents.
In 1997, as the resources available to the regulator were being reduced, the PCO was also amalgamated with
the Insurance Commission to form FSCO. Today, another consolidation is under way. This time, FSCO will be
merged with the OSC. The same regulator that regulates the capital markets, will also regulate Canada's
largest institutional investors.
At the same time as regulatory models are changing, so too is the attitude of the courts towards pension
disputes. Courts recognize that pension disputes are highly specialized and involve cross-disciplinary
expertise. Consequently, they tend to decline to hear these disputes, and remit them to pension regulators
for resolution.
From an industry perspective, good and effective pension regulation is essential. Without it, we are left
with uncertainty, high transaction costs or risks, and delay. Most important, the collective faith of
members and employers in the pension system is backstopped by effective regulation. So, if pension promises
are not kept, members should have some confidence that they can turn to the regulator for help.
An FSCO/OSC merger holds some promise, especially in the defined contribution (DC) sector, since it brings
all investment service providers under one regulatory roof. But there is a decided risk that regulation of
defined benefit (DB) plans will suffer. The OSC, which will likely dominate the merged entity, has no
expertise or experience in the regulation of these plans. It is not in the habit of reviewing actuarial
reports, much less of understanding their implications. It is not accustomed to a minimum standards regime
in which the rights of spouses (opposite and same sex) and beneficiaries also receive social protection.
Hearings about partial wind-ups triggered by corporate restructurings, or hearings about surplus
entitlements in pension trust funds, may be alien to the disclosure-based consumer protection approach of
the OSC.
The evolution of Ontario's new pension regulatory structure breaches important questions, not only for
plans registered with the regulatory authority in that province, but for pension plans in the country. The
new regulatory structure, successful or otherwise, may well be adopted in other provinces. In the meantime,
the pension industry will watch with great interest to see how the OSC model influences the regulation of
DC and DB plans in Ontario, and the extent to which resources and expertise to properly regulate complex DB
plans are protected in the new regime.
Murray Gold is a partner in the pension law section of Koskie Minsky in Toronto.
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