Amid the activity — and inactivity — of this past summer, the federal government and several provinces reached an important milestone affecting plan sponsors and administrators of multi-jurisdictional pension plans. On July 1, 2020, a new agreement regarding the administration and regulation of these plans came into force.
A little history
Pension plan oversight primarily falls under the jurisdiction of Canada’s provinces. While each legislation covers similar topics, there have been significant differences from one to the next since they were first introduced in the 1960s. On the federal level, the Parliament of Canada established minimum standards legislation for members of federally-regulated plans.
Read: Feds and eight provinces sign new MJPP agreement
Employers with employees in multiple jurisdictions often establish a single Canadian registered plan — an MJPP — for the entire workforce or a large segment of it. In light of the legislative patchwork across provinces, absent special relief, every MJPP would have to be compliant with — and registered under — the pension benefits minimum standards legislation in each applicable jurisdiction on a member-by-member basis. This would apply even in respect of plan operations that are collective in nature, such as plan funding or the investment of defined benefit plan assets.
Recognizing the inherent challenges of MJPPs, provincial governments and pension regulators adopted the memorandum of reciprocal agreement in 1968. Similarly, the federal government and each of the provinces, besides Quebec and Newfoundland, entered into bilateral agreements.
The reciprocal and bilateral agreements introduced a number of concepts, including that the major authority for each MJPP is the pension regulator of the jurisdiction in which the greatest number of its members are employed and that the minor authority or authorities is the pension regulator of the jurisdiction(s) in which any other members are employed.
Read: CAPSA consulting on funding, asset allocation for multi-jurisdictional pensions
Under the agreements, an MJPP was only required to be registered with the major authority, which was then responsible for enforcing applicable rules from the minor authority or authorities. As well, a custom evolved whereby, generally speaking, plan-level matters were governed by the provisions of the major authority’s legislation, while member-level matters, such as vesting and locking-in, were governed by the provisions of the applicable minor authority or authorities’ legislation.
An MJPP timeline
1968 — The memorandum of reciprocal agreement was adopted by provincial governments and pension regulators, while the federal government and each of the provinces, besides Quebec and Newfoundland, entered into bilateral agreements.
2011 — The first attempt to overhaul the agreement was produced by the CAPSA, but it was only signed by Ontario and Quebec, with the previous version continuing to govern other jurisdictions.
2016 — A new agreement, signed by B.C., Saskatchewan, Ontario, Quebec and Nova Scotia, took effect.
2020 — The latest agreement, adopted federally
and by all provinces besides Manitoba, Newfoundland and Labrador and Prince Edward Island, came into force.
While these agreements provided a general framework for the oversight and administration of MJPPs, they were brief documents and led to many interpretative issues.
The first attempt at an overhaul was the 2011 agreement respecting MJPPs, which was produced by the Canadian Association of Pension Supervisory Authorities. It set out comprehensive rules for determining the major authority and transition rules if the plurality of active membership shifted. It also set out a prescriptive list of topics where the legislation of the major authority applied on a plan-wide basis and, by default, matters that were governed by the legislation of the minor authority or authorities. Unfortunately, it was only signed by Ontario and Quebec, so the 1968 agreements continued to govern the other jurisdictions.
Read: Ontario, Quebec multi-jurisdictional pension rules are changing
In 2016, a new agreement respecting MJPPs came into force. It found more success than its predecessor with British Columbia, Saskatchewan and Nova Scotia joining Ontario and Quebec in its ratification. However, before the ink was dry, DB pension funding reform was underway and the CAPSA undertook further consultation and review of the agreement.
The 2020 agreement
On July 1, the 2020 agreement respecting MJPPs was adopted federally and by all provinces, besides Manitoba, Prince Edward Island and Newfoundland and Labrador. The 2020 agreement covers more than 95 per cent of Canadian pension plans and members, which means it will allow for more streamlined and efficient administration of MJPPs.
The new agreement maintains the distinction between the major/minor authorities and sets out comprehensive rules for determining which jurisdiction is the major authority, the role of that authority and rules for transitioning major authority status from one jurisdiction to another if the plurality of active membership shifts. It also codifies the final location approach for determining member benefit entitlements.
In addition, it maintains and updates sections of the 2011 and 2016 agreements whereby the major authority’s legislation is applied to certain plan-level matters, such as plan and amendment registration requirements, record-keeping responsibilities, plan funding and the investment of plan assets.
Read: Pension industry favours majority regulator approach to multi-jurisdictional plans
Of particular note, the 2020 agreement specifies that the content of annual and biennial member statements is governed by the legislation of the major authority. As a result, a plan administrator with a cross-Canada workforce will no longer be required to monitor and ensure compliance with the requirements of every jurisdiction when preparing these statements. However, MJPP administrators will still be required to continue to adhere to differing requirements across Canada on member-level matters, such as small benefit rules and unlocking requirements.
Under the new agreement, an ongoing plan is governed solely by the funding rules of the major authority’s legislative and regulatory regime. It also includes rules relating to annuity buyout transactions, as well as detailed prescriptive asset allocation rules to be followed on a plan’s windup. Very generally, this covers defined contribution benefits first, followed by DB plan benefits payable to members in all jurisdictions. Next, assets are allocated to other DB benefits that are only provided in certain jurisdictions, such as grow-in benefits. Specified DB benefits are excluded from the allocation.
The administration and regulation of MJPPs is wrought with complexity and, to date, has entailed uncertainty in many areas. While it would be ideal to see unified pension benefits standards legislation across all Canadian jurisdictions, the adoption of the 2020 agreement by most jurisdictions is an important step in the right direction to simplify the administration of MJPPs.
Terra Klinck is a senior pension lawyer and founder of Brown Mills Klinck Prezioso LLP.