On April 30, 2012, British Columbia introduced Bill 38, Pension Benefits Standards Act, for first reading. If passed, the current British Columbia Pension Benefits Standards Act (PBSA) would be repealed and replaced in its entirety by Bill 38.
Bill 38 marks the first significant amendments to British Columbia’s pension regime since the Joint Expert Panel on Pension Standards released their report on November 14, 2008. This panel was established by the Finance Ministers of Alberta and British Columbia to study the pension legislation of the two provinces and to make recommendations on pension reform.
Bill 38 introduces significant changes to British Columbia’s pension regime. According to a B.C. government press release, the amendments are designed to encourage “wider private-sector pension coverage”. In addition, the explanatory notes to the proposed reforms indicates that the reforms are intended “to harmonize British Columbia’s pension legislation more closely with that of Alberta.” (This statement seems to imply that we may see some similar amendments in Alberta in the near future.)
A number of the proposed changes to the PBSA are similar to changes that have already been introduced in other jurisdictions, including in Ontario. For example, there are amendments to enhance plan member disclosure requirements and to require immediate vesting.
However, Bill 38 also introduces a number of novel and interesting pension reforms, including the following:
- Governance & Funding Policy Requirements: Plan administrators would be required to establish governance policies. In addition, plan administrators of defined benefit and target benefit plans would be required to establish funding policies. (This would appear to build on the requirements set out in the guidelines established by CAPSA.)
- Distinguishing Between Actuarial Excess and Surplus: The PBSA would distinguish between excess assets over liabilities in an ongoing plan (i.e., actuarial excess) and excess assets over liabilities in a plan that has been terminated (i.e., surplus).
- Solvency Reserve Account: Administrators of a defined benefit plan (other than a target benefit plan) would be permitted to establish a separate account within the pension fund and deposit payments into this account made in respect of a solvency deficiency. Prescribed “actuarial excess” in the reserve account will also be permitted to be withdrawn by a “prescribed person”.
Innovative Plan Designs: New plan designs would be added to the PBSA, including:
- negotiated cost plans – a pension plan established under a collective agreement where contributions are determined and limited by the collective agreement;
- target benefit plans – a pension plan where contributions and benefits are fixed according to a pre-determined formula (as in a defined benefit plan). However, in a target benefit plan, accrued benefits can be increased or reduced from time to time based upon the funded status of the plan. (Other provinces, such as Ontario, have likewise introduced target benefit provisions through recent pension reforms. However, British Columbia will permit target benefit provisions to be used in non-unionized environments. By contrast, it seems that currently an employer in Ontario will only be permitted to adopt target benefit provisions where their contribution obligations are limited to a fixed amount set out in one or more collective agreements); and
- jointly sponsored pension plans (JSPP) – the proposed amendments create the framework for a cost-sharing plan model for private sector plans which is similar to that which is currently used in British Columbia’s public-sector pension plans. (This differs from Ontario, where the focus has been on moving public sector plans to the JSPP model.)
As is typically the case with pension reforms, these provisions will not come into force until accompanying regulations (which provide the details of how these reforms are to be applied) are released. We will be reviewing these regulations once they are released, and will provide any additional commentary in future posts.