On April 21, 2015, the Nova Scotia government declared that the new Pension Benefits Act (passed in 2011) and new Pension Benefits Regulations will come into effect on June 1, 2015. The new Regulations follow the new Act and draft Regulations summarized in our previous updates:
- New Pension Benefits Act Introduced
- New Draft Pension Benefits Regulations
- More Draft Pension Regulations
Plans have until June 1, 2018 to file amendments to comply with the new legislation. While the actual amendments do not need to be filed until that time, plans must be administered in accordance with the new legislation from June 1, 2015 onward.
The new Act and Regulations introduce changes including:
- New types of pension plans, including jointly sponsored pension plans ("JSPPs") and target benefit plans ("TBPs").
- Immediate vesting of pension benefits.
- Greater disclosure of information.
- Payment of periodic pension benefits from defined contribution plans rather than being required to purchase an annuity or transfer out to a locked-in account ("variable benefits").
Changes in the new Regulations, most of which are consistent with those previously announced, include:
- Annual Valuations: Plans must file valuations annually (instead of up to every three years) for reports prepared after June 1, 2015 if the plan has "solvency concerns". For most plans, solvency concerns will exist if the solvency ratio is less than 0.85 (85%). This does not apply to designated plans (under the federal Income Tax Regulations) or individual pension plans.
- JSPPs: The previously proposed approach of applying a different solvency concerns threshold of 0.80 to JSPPs has been removed. JSPPs must therefore fund in the same funded situations as other plans. This removes a primary reason to establish a JSPP.
- The solvency liabilities that must be funded by pension plans have not changed from those previously proposed and exclude special allowances, prospective benefit increases and "grow in" benefits.
- As originally proposed, escalated adjustments (e.g. indexation benefits) accrued up to June 1, 2015 will be excluded from solvency liabilities but any accrual on or after June 1, 2015 will need to be funded. Future escalated adjustments must be pre-funded on both a going concern and solvency valuation.
- Exemptions from solvency funding will continue for certain specified plans including:
- Municipality pension plans
- University pension plans
- Specified multi-employer pension plans
- Actuarial valuation reports must be filed no later than nine months after the valuation date instead of 12 months.
- Provisions for letters of credit are generally the same as previously proposed and are consistent with the comparable Ontario provisions.
- One time solvency relief has been continued for plans that have not already sought solvency relief for valuations as of a date from January 3, 2011 to January 2, 2014. Pension plans may continue to seek this relief but no new solvency relief has been offered.
- With the relief, a solvency deficiency can be funded over a period of up to 15 years (instead of five) provided that no more than one third of plan members object. Consent or objection will be given by members' union, if applicable.
- A plan cannot be amended to increase cost of benefits or worsen the funded status of the plan without fully funding the cost of amendment.
- Annual Member Statements: New information must be provided on annual statements to active members for plan years ending after June 1, 2015. Such information includes:
- For defined benefit plans, the transfer ratio from the last two valuation reports filed and an explanation of how it relates to the level of funding members' benefits.
- Where applicable, a statement that special payments are being made.
- For multi-employer pension plans ("MEPPs") and defined benefit plans that limit employer contributions to a fixed amount, a statement that, if the plan is wound up and the assets are not sufficient to meet the liabilities of the plan, benefits may be reduced.
- As the funding level for JSPPs is no longer different, the statements previously proposed identifying those differences have been removed.
- Information for Inspection: Specified documents must be made available for inspection without charge and some documents must be available by mail or electronically at a cost capped by the Regulations.
- Information to Trustees: A summary of contributions must be given to fund trustees no later than 60 days after the beginning the plan's fiscal year. A summary of contributions is not required for MEPPs.
- Notice to all persons affected by an amendment must be provided at least 45 days before the amendment is filed unless the amendment is of a technical nature, will not substantially affect pension benefits or will not adversely affect any payments. In the latter circumstances, notices must be given no later than six months after registration.
- Amendments to supporting plan documents must be filed within 60 days.
Other changes are generally consistent with those as originally proposed including:
- Audited financial statements for a pension fund must now be filed no later than six months after the end of the plan's fiscal year. This does not apply to plans with less than $5 million in assets or if the plan's assets were held by one insurance company or pooled funds provided by a single trust company, which are audited. MEPPs must also file audited financial statements. Financial statements must disclose each investment that has a market value more than 2% of the investments of the pension fund.
- The investment restrictions are essentially the same as previously proposed, including removal of restrictions on investment in real property and Canadian resource properties. Changes recently adopted under the federal Pension Benefits Standards Regulations, such as the amendment of the "10% rule" to be based on market value instead of book value, have not been followed.
- In addition to provisions previously proposed, if a member opts forphased retirement, their regular hours of work cannot be reduced by more than the difference between their hours before phased retirement and the number of hours of work represented by the maximum amounts payable as phased retirement benefits under the federal Income Tax Regulations.
- JSPPs are now declared by a "statement" instead of an election. Documents must also set out how decisions on terms and conditions of the plan and any amendments are made and how administrators or members of body that administers are appointed. JSPPs may opt out of "grow-in" through a new voting procedure set in the Regulations.
- Plan records must be retained for seven years.
Areas that are still not addressed in the regulations include:
- Target benefit plans
- Asset transfers between pension plans
Other provisions not yet proclaimed include the restriction against amendments from increasing benefits if that increase would reduce the funded ratio of the plan, and provisions relating to insolvencies.