CAPSA consulting on funding, asset allocation for multi-jurisdictional pensions

The Canadian Association of Pension Supervisory Authorities is asking industry stakeholders to weigh in on its proposed changes to funding and asset allocation rules for multi-jurisdictional pension plans.

Read: Five provinces enter into multi-jurisdictional pension agreement

CAPSA’s consultation paper aims to build an agreement that would clarify how each government’s pension legislation applies to the multi-jurisdictional pension plans operating in its jurisdiction. The agreement would also reflect updated pension legislation from provinces that have changed or plan to change their funding requirements.

“The current [agreement] is based on the assumption all provinces have similar funding regulatory requirements and that they are all based on solvency,” says Michel St-Germain, vice-chair of the Association of Canadian Pension Management’s national policy committee. “Now that some provinces are dropping the solvency requirements, there is a need to review the reciprocal agreement.”

Specifically, CAPSA is considering options for how an active multi-jurisdictional defined benefit pension plan must be funded and for allocating the assets between jurisdictions when a major event such as a windup occurs.

Read: The new agreement for multi-jurisdictional plans

CAPSA set out two options for pension stakeholders to consider. The first focuses on adhering to the rules of the major authority, the pension regulator a plan has registered with. In regards to plan funding, that option would apply the major authority’s pension legislative requirements, instead of those from the other pension regulators that have some plan members in their jurisdiction.

As for asset allocation when a major event occurs, that option would allocate the assets proportionally to the plan’s defined benefit liabilities related to each applicable jurisdiction under the legislation of the major authority.

Read: New CAPSA reviews to look at decumulation, missing members

The second choice would give more recognition to the minor authority, the pension regulator of the jurisdiction that some plan members or beneficiaries are subject to.

St-Germain notes that while this option is more complex, it’s also more fair for plan members who work or reside in a jurisdiction overseen by a minor authority because it recognizes that province’s funding regulations.

The second option states that plans would follow the funding requirements of the major authority as a starting point. But it would also include an additional requirement for plans in the event that a major authority doesn’t require funding on a solvency basis but a minor authority does. In that case, plan sponsors would have to calculate the additional liability needed to meet the minor authority’s strict solvency funding requirements.

Read: Ontario announces long-awaited DB solvency reforms

As for asset allocation when a major event occurs, the second option would be similar to the first one, except that it would also require plan sponsors to adjust a jurisdiction’s defined benefit liabilities upward if the plan required any additional funding in the last 10 years.

Actuaries would have to make additional calculations and adjustments under that option, according to St-Germain. “The adjustments are reasonable but they’re complicated,” he says.

Read: A look at Quebec’s pension solvency changes one year on

“At the end of the day, the issue is whether these special calculations add any value,” he adds, noting pension stakeholders will have to choose between simplicity and fairness.

While there’s currently a 2016 agreement governing multi-jurisdictional pension plans in British Columbia, Saskatchewan, Ontario, Quebec and Nova Scotia, CAPSA notes it’s an interim measure until all governments with pension legislation in Canada sign a deal.

CAPSA is accepting comments from industry stakeholders until Aug. 31, 2017.