Pension industry favours majority regulator approach to multijurisdictional plans

Rules around funding and asset allocation for multijurisdictional pension plans should adhere to those set out by the majority regulator, according to stakeholder submissions to the Canadian Association of Pension Supervisory Authorities’ latest proposal on the topic.

CAPSA’s consultation paper, which was published in July, aims to build an agreement that would clarify how each government’s pension legislation applies to the multijurisdictional 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, such as Quebec and Ontario.

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

CAPSA’s consultation set out two options to consider. The first would be an adherence to the rules of the major authority, the pension regulator with which a plan is registered. 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. The second choice would give more recognition to the minor authority, the pension regulator of the jurisdiction to which some plan members or beneficiaries are subject.

In their submissions, the majority of industry stakeholders favoured the first option, calling it simpler to implement and administer and consistent with the goal of harmonizing pension benefits standards across Canada. An additional advantage, according to PBI Actuarial Consultants Ltd.’s submission, is that it doesn’t burden a pension plan with the responsibility of solvency funding for certain members if the major authority doesn’t require it. “It is essential that members of plans involving multiple jurisdictions be treated equitably on an ongoing basis and in the unlikely event of a plan termination,” the submission stated.

Read: The new agreement for multi-jurisdictional plans

“In other words, there can be no subsidization of one province’s members by another’s because of the legal interaction of the CAPSA interjurisdictional agreement and differing jurisdictions’ permanency of solvency exemptions and the ability or not to reduce accrued benefits.”

The Canadian Institute of Actuaries also favours the first option, referring in its submission to “the goals of uniformity, harmonization and ease of administration” and also noting that option is in line with CAPSA’s 2016 agreement on multijurisdictional plans. “In addition, we assert that option one would support the movement of all jurisdictions to a more uniform funding approach.”

While also siding with the first option in its response, the Association of Canadian Pension Management also acknowledged concerns that defined benefit pensions may engage in “jurisdiction shopping” to register plans in the most favourable place in terms of funding requirements. “To shift the plurality of members in an existing plan would likely not be easy, in part due to the existing requirement to delay any transfer by at least two years.”

The pension plan for the Bakery, Confectionery, Tobacco Workers and Grain Millers International Union (BCTGM) also called the first option the “least damaging” in its submission. However, it pointed out that the consultation appears to be looking primarily at single-employer plans, with little consideration of the unique characteristics of target-benefit or multi-employer arrangements. 

Read: A primer on multi-employer pension plans

“The BCTGM plan’s trustees are concerned that the changes proposed in the consultation paper do not eliminate the problems the agreement creates for plans in which the employer is not responsible for funding shortfalls,” it wrote. “As the pension legislation of several Canadian jurisdictions, including those in which the vast majority of all multi-employer pension plans are registered, has been amended, or is being amended, to permit more plans to be funded only on a going-concern basis, these problems will only occur more frequently if they are not adequately addressed in the next version of the agreement.”