Among all the legal issues facing DC plan sponsors and administrators, questions around contribution errors is top of mind.
“The industry has been speaking with [the Department of] Finance Canada on the tax side to see what can be done to help support us in fixing these errors,” said Susan Nickerson (pictured, left), a partner in the pensions and employment practice at Torys LLP, during a legal panel at Benefits Canada‘s 2021 DC Plan Summit.
These errors include missing a plan enrolment and subsequently over-contributing to that plan, manually stopping contributions when a member is on a leave of absence and incorrectly coding the payroll system when there’s been a failure to make a type of earnings pensionable.
“Unlike for defined benefit plans, there’s been no mechanism to try to address where we’re putting contributions into the plan in respect of prior years,” said Nickerson. “In fact, we’re required to — up until now, anyway — make any contributions in the actual plan [in the] year in which we make it; in other words, we’re subject to that income tax limit.”
The 2021 federal budget announced an amendment to try to fix those errors, she noted. When introduced, the legislation will allow additional contributions to be made to DC accounts to compensate for any type of under-contribution error, though it will only go back five years.
Another rule announced by the federal government, in its 2019 budget, is the introduction of advanced life-deferred annuities and variable payment life annuities. ALDAs will be similar to traditional annuities in offering a fixed payout, which can be deferred to age 85. “They . . . may be less attractive in a low interest rate environment, but they’re a great tool for us to have in the tool chest to help address longevity issues with DC members and ensuring their money lasts,” said Nickerson.
On VPLAs, she noted these will be introduced when federal and provincial legislation lines up and can only be used through pension plans and pooled registered pension plans. They “have the ability to provide a type of retirement income that could vary a little bit from year to year depending on the experience, but that gives a great option for DC plan members going forward and a great decumulation option for plan sponsors and administrators.”
Other legislative developments include new guidance from the Financial Services Regulatory Authority of Ontario on pension plan administrators’ roles and responsibilities, as well as a new decumulation committee formed by the Canadian Association of Pension Supervisory Authorities.
“They’re looking to develop a framework across Canada for the use of VPLAs and pension plans, with the goal of harmonizing those rules so that we don’t have the variations we see right now — for example, with variable benefits, which can make administering those difficult,” says Nickerson.
The CAPSA is also reviewing the CAP guidelines, she added, which were introduced more than 10 years ago. She expects the updated guidelines will be released for comment before the end of 2021. “Any DC plan administrators and sponsors should be looking for that and seeing if there’s any feedback to be provided before they go final.”
Also speaking to legal challenges, Natalie Bussière (pictured, right), a pension lawyer at Blake Cassels & Graydon LLP, spoke to the different jurisdictional regulations around electronic pension communications and electronic beneficiary designation.
On communications, for example, Alberta, Saskatchewan, Quebec, New Brunswick and Newfoundland and Labrador allow the option electronically. In Ontario, a notice must be sent to members by mail to allow it and is permitted unless a member objects, while pension information can be sent electronically in British Columbia and Nova Scotia if plan members have consented.
“The bad news . . . is that if you have members in a plan in various provinces, we do not have, unfortunately, a unified regime, so you have to take into consideration the various roles of the provinces and territories in which the members are located,” said Bussière.
Read more coverage of the 2021 DC Plan Summit.