While it’s impossible to predict exactly how pension case law will evolve in future, one can offer an educated guess at some legislative developments and other issues that may confront pension plan sponsors and administrators in the coming year.
Plan sponsors can expect a continued focus on risk management as a key part of the pension governance process. Following the release of its draft guideline on pension plan risk management last spring, the Canadian Association of Pension Supervisory Authorities is set to publish its final inclusive risk management guideline in the first quarter of 2024. This process was conducted concurrently with a separate consultation paper published by the Office of the Superintendent of Financial Institutions on pension investment risk management, which included a stakeholder comment process.
The CAPSA’s guideline is expected to encompass a range of common risks, including risk related to environmental, social and governance factors, leverage risk and cyber risk, in addition to investment risk, the use of third parties and special risks related to target benefits. The CAPSA intends to provide more information and direction to plan administrators on managing the risks associated with the pension plan, particularly for new risks, such as those related to ESG and cybersecurity.
The focus is on plan administrators embracing good risk management practices, which will vary depending on the size of the plan and the complexity of its investments. Plan administrators must be prepared to react and address these issues once the final risk management guidance is released. They should also expect pension regulators to request to review the plan’s risk management framework and for plans to be examined based on risk-based criteria in the future.
Evolution of DC plan governance
With the joint initiative conducted by the OSFI and the Financial Services Regulatory Authority of Ontario on the regulation of defined contribution pension plans and the expected release of revised capital accumulation plans guidelines in the coming year following a second stakeholder consultation process, there will likely be more attention paid to the effective governance of DC plans in 2024.
The quality of plan communications, member retirement income projection tools and investment education are all key to increasing member engagement and more specific guidance on investment lineups and default options is expected. Disclosure of information to members regarding fees and their impact on long-term returns will likely need to be strengthened to comply with new regulatory guidance and to reduce the prospect of litigation.
Lastly, more robust guidance regarding the decumulation phase, combined with recent statutory changes relating to variable benefits, will be an area of focus in the future.
Governance and funding policies
More jurisdictions are likely to follow the lead of Alberta, British Columbia and New Brunswick in enacting requirements for establishing written plan governance and/or funding policies.
With draft amendments proposed in the federal jurisdiction for a new framework for transferring unclaimed balances from terminated federally regulated pension plans, plan sponsors can expect to see a new federal entity designated for this purpose. Other jurisdictions may follow the lead of the federal jurisdiction and a few of the provinces in enacting measures to deal with the thorny issue of dealing with the pension entitlements of missing members.
Reporting on cybersecurity incidents
The federal pension regulator has released a draft technology and cybersecurity incident report form for federally regulated pension plans that it already expects plan administrators to use, within 24 hours of occurrence. Other jurisdictions may soon follow suit.
Following the lead of New Brunswick, Alberta and British Columbia, Ontario recently launched consultations on proposed regulations for implementing a permanent target-benefit framework in Ontario. With continued decline in DB plan coverage, target-benefit or shared-risk plans — which offer plan members a targeted monthly retirement income at a predictable cost to employers while pooling investment risk — are expected to attract further attention as the regulatory framework governing them is expanded.