Alberta’s public-sector pension plans reassuring members amid worry over ministerial order

The Canadian Institute of Actuaries is supporting several of the Alberta government’s proposed legislative and policy updates for private sector pension laws, including the move towards a going-concern plus regime for defined benefit plans and the introduction of automatic features in defined contribution plans.

In its response to the consultation draft, the CIA cited the benefits of a going-concern plus regime, such as the harmonization of the funding requirement with other Canadian jurisdictions and the potential for reduced contribution volatility, which it noted has been a primary reason for the closure and freezing of DB plans.

Read: Alberta seeking feedback on private sector pension legislation

The CIA noted the proposed solvency funding threshold of 85 per cent could constitute a reasonable compromise between benefit security and affordability, consistent with the threshold set in several other Canadian jurisdictions. It also recommended that Alberta model its provision for adverse deviation after Ontario or Quebec rather than British Columbia, which bases its PfAD primarily on interest rates.

“If interest rates rise significantly, the PfADs could become inappropriately high, which could unduly restrict plan sponsors’ ability to use surplus to fund contribution holidays and/or to grant benefit improvements,” wrote the CIA. “The PfAD will not help contribution stability if long-term bond rates fall significantly below one per cent. Economic experience in early 2020 at the onset of the pandemic exhibited this very real possibility.”

The organization also said it supports legislation that provides for a discharge of liabilities upon the purchase of a buyout annuity, adding the legislation should allow for the provision of a reasonable level of fixed indexation rather than inflation-linked indexation for an annuity purchase.

Read: Alberta’s DB pension funding rules fail to balance sustainability, affordability: ACPM

“Allowing retroactive discharge of liabilities would be beneficial for plan sponsors that have already purchased annuities. This also avoids any potential differential treatment from plan sponsors that purchase annuities after the legislation is amended.”

The CIA also expressed support for the proposed implementation of automatic features in DC pension plans, recommending that Alberta not require notice of these features beyond a clear description in pension plan booklets and other educational materials in order to minimize administrative burden.

It also encouraged the province to authorize variable payment life annuities and advanced life deferred annuities and to make them as accessible as possible to DC plan members. “VPLAs, in particular, have the potential to become a very important part of the retirement system, since they could allow the growing number of Albertans in DC plans to decumulate their assets in an orderly fashion, protect themselves against longevity risk and receive an adequate retirement income.”

Read: PIAC providing feedback on potential updates to Alberta’s private sector pension legislation