Canada’s multi-employer pension plans are facing a wide range of challenges, from funding requirements to future growth, according to a recent webinar hosted by the Association of Canadian Pension Management.
The group benefits and pensions division of Newfoundland & Labrador Municipal Employee Benefits Inc. is currently seeking a renewal of its solvency-funding exemption from the provincial government, said Terry Taylor, general manager of the division, branded as TRIO. While the province has been reluctant to renew the exemption, he says with municipalities falling under the jurisdiction of the provincial government, it may have no choice.
“[We’re] $100 million short on a wind-up basis. If we didn’t get a solvency exemption, we’d have to send those 57 towns their pro-rated share of $100 million and to avoid bankruptcy, they’d just send their bills to the provincial government. The solvency exemption is up for renewal this year and I’m not saying it’s guaranteed, but I like our odds.”
Although the current TRIO board is diligent and committed to the process, Taylor said the plan also contends with the challenge of finding new board members. “I think the main reason is the complexity of the subject matter. You can sit there for 12 days in a row and not figure out how the discount rate works.”
The TRIO is also seeing stable growth, he said, with the number of municipalities participating in pensions has doubled from 33 to 57 over the last decade with new plan members steadily replacing retirees. In addition, municipal amalgamation is also driving an increase in participation.
Also speaking during the webinar was Derrick Johnstone, chief executive officer for the British Columbia-based IWA–Forest Industry Pension Plan & LTD Plans. While the plan isn’t required to fund for solvency, he said challenges arise from that province’s funding provision for adverse deviation in addition to normal funding requirements. It’s an issue the BC Financial Services Authority is currently working on with the province’s plans to recalculate this rate moving forward.
“What we’ve found is the design developed to calculate the PFAD has turned out to be quite volatile in how quickly the values can swing and in terms of absolute numbers, it’s probably a little too high. But our plan has fluctuated from a PfAD value of mid 20s to more than 42 per cent. We’re hitting the theoretical maximum of a PfAD but to say you’ve got to put 43 per cent of your assets aside before you can even consider a benefits increase probably isn’t the best way to manage the risk of a plan.”
With the modernization of the forestry industry, however, Johnstone said the pension’s active base is contracting, which may lead the plan to consider participation from outside of the sector. “That’s where MEPPs can show they’re much more than an industry-specific design. It hasn’t been discussed yet but it’s certainly a possibility.”