According to Statistics Canada, there are almost 3,000 registered pension plans in Canada with members in more than one province—hence the need for a national framework to coordinate pension administration in a country with 10 different sets of minimum standards.
July 1, 2011 marked the beginning of a new chapter for multi-jurisdictional plans in Ontario and Quebec, with the enactment of the Agreement Respecting Multi-Jurisdictional Pension Plans developed by the Canadian Association of Pension Supervisory Authorities (CAPSA). The agreement provides a detailed framework for the application of pension legislation to multi-jurisdictional plans, including such areas as the plan administrator’s duties, member communications and funding and investment rules. Though it will not significantly alter how these plans are administered, it will bring some much needed simplification and clarification of how the rules apply.
Although only Ontario and Quebec have signed on to the agreement so far, the remaining provincial governments and the federal government are expected to become signatories in due course. Until then, however, the 1968 CAPSA Memorandum of Reciprocal Agreement will remain in effect for those jurisdictions.
Under the agreement, a pension plan is registered in the jurisdiction where a plurality of active members is employed (i.e., the jurisdiction in which more members are employed than in any other), and the pension regulator of that jurisdiction is the “major authority.” The rules of the major authority apply to the following areas:
- the plan’s registration and filings, including amendments;
- the eligibility criteria for the plan administrator and the right of plan members to establish an advisory committee;
- the duties and powers of the plan administrator and other persons involved in the plan administration, including requirements to hold periodic or annual meetings with plan members;
- the applicable records retention periods;
- the applicable funding standards (with specified exceptions), including the ability to take contribution holidays;
- the requirements for contributions, including the deadlines for making them;
- the requirements for actuarial reports, including content, deadlines and standards;
- the investment of the pension fund, including requirements regarding the statement of investment policies and procedures;
- member communication requirements, including plan summaries, annual member statements and information regarding plan amendments; and
- acceptable classes of employees and the ability to establish separate plans for full-time and part-time employees.
The pension legislation of the member’s jurisdiction of employment will continue to govern minimum benefit standards (e.g., vesting, locking-in, portability, spousal protection, pension payment options, “grow-in” rights) and information requirements upon termination of active membership.
Role of the PBGF
In signing the agreement, Ontario has finally accepted a “final location” approach for determining the benefit entitlements of a member with service in more than one jurisdiction during his or her career. However, the agreement stipulates that the Ontario Pension Benefits Guarantee Fund (PBGF) continues to only apply to the benefits accrued while employed in Ontario. The administrator of a pension plan that is subject to the PBGF must therefore continue to maintain a record of all periods of members’ service in Ontario to support a potential application to the PBGF on plan termination.
Full or partial wind-ups
Plan sponsors and administrators should also take note of the provisions in the agreement dealing with the allocation of plan assets among jurisdictions in cases of full or partial wind-up. Changes in a plan’s active membership (e.g., due to a plant closure or regional downsizing) may trigger a change in the major authority, which could have implications on funding strategies, as well as plan administration. For example, a change in a DB plan’s major authority could impact the use of alternative funding arrangements, such as letters of credit. The agreement and related commentary set out detailed transitional provisions for such situations, addressing short-term funding requirements and the filing of actuarial valuation reports.
Gaps in the agreement
The agreement falls short of attaining the long-sought goal of greater harmonization of pension standards. That goal was set aside when CAPSA failed to obtain stakeholder consensus on the more contentious aspects of the model pension law initiative in the mid-2000’s and there is nothing in the agreement to prevent each jurisdiction from adopting individualized approaches to pension plan regulation.
However, insofar as the agreement permits administrators to apply a single set of disclosure rules for member statements and plan amendments, and reduces uncertainty in other areas of plan administration, it will be a positive development in the ongoing modernization of Canada’s pension regulatory system.