The Association of Canadian Pension Management is urging the Ontario government to ensure its proposed rules for multi-employer target-benefit pension plans don’t undermine existing incentives that enable employers to create and maintain workplace pension plans.
In an open letter, the ACPM said it believes the provision for adverse deviation will overly restrict the ability of MEPP trustees to manage their plans and properly balance the interests of active members and pensioners. In particular, it said the requirement to base the PfAD on a variable component based on Government of Canada long bond rates introduces short-term market volatility, resulting in a highly variable and potentially excessive PfAD.
The association also noted British Columbia has eliminated the volatile PfAD formula and Alberta is in the process of doing so. It suggested the proposal be amended to instead require the PfAD be a fixed minimal amount with no variable components, plus a supplemental PfAD determined by plan trustees based on their plan’s risk assessment.
The ACPM supports adopting the Canadian Institute of Actuaries’ professional standards for commuted values for target-benefit plans, but it noted the proposal doesn’t allow trustees to apply the plan’s funded ratio to terminating members’ commuted values. This creates inequities with terminating members receiving a windfall at the expense of members, including deferred members and pensioners, whose benefits remain in the plan. Instead, the association suggested the proposal permit trustees to apply the funded ratio to commuted values so all classes of members are treated equitably.
The letter also recommended the removal of restrictions for multi-jurisdictional pension plans, particularly the stipulation that plans are only allowed to provide target benefits if no more than 10 per cent of their membership is in a jurisdiction that doesn’t allow reductions in benefits. It argued the stipulation would be very difficult to administer, given that a plan’s membership can be highly mobile, resulting in frequent changes to a plan’s status. The administrative burden to monitor this situation could be significant, said the ACPM, noting the current multi-jurisdictional agreement, to which Ontario is a signatory, addresses this issue and shouldn’t be overridden by this new framework.
As well, the association said the proposed rules for conversion to a target-benefit plan for existing MEPPs would be too onerous and don’t reflect the fact that these plans already provide target benefits. The government’s proposals would make the conversion dependent on the timing of the consent of the Financial Services Regulatory Authority of Ontario’s chief executive officer. If consent isn’t provided in a timely manner, a MEPP may be required to start funding on a solvency basis, which would be devastating to its members, according to the ACPM.
The solvency funding exemption should be extended for a MEPP that has applied to convert to a target-benefit plan, said the letter, suggesting any conversion requirement be simplified to avoid unnecessary costs and confusion to plan members.