The latter part of 2008 was a turbulent time, not only for capital markets and investors in general, but for retirement plans. According to one study, Canadian pension plans suffered their worst year on record in 2008 as their assets dropped almost 16% to $310 billion. In addition to dealing with the increasingly underfunded status of their pension plans, employers and other pension plan administrators may have noticed a significant level of activity in late 2008 and early 2009 from pension legislators and regulators in various Canadian jurisdictions. Even the tax rules went through some measure of renewal with the advent of tax-free savings accounts and registered disability savings plans, which came on stream on January 1, 2009.
In late 2008, four provinces — Alberta, British Columbia, Nova Scotia and Ontario — were in the midst of expert commission reviews of their pension standards legislation, intended to act as a general review of the pension delivery system. Nova Scotia had released an interim position paper in October 2008, requesting comments by November 14, 2008. The Ontario expert commission, which had a mandate slightly different from its counterparts, released its report in November 2008. The Provinces of Alberta and British Columbia, which had elected to commission a joint report, also released their report in November 2008. In January 2009, the Federal government issued a white paper seeking views by March 16, 2009 on a number of pension issues, many of which are in respect of defined contribution plans.
The three expert commissions have taken surprisingly different approaches to what are, in fact, issues common to all of them. The Ontario report in particular has not been well-received; it has been almost unanimously criticized by regional commentators as missing the mark. Time will tell whether any of the recommendations in the Ontario and the Alberta/British Columbia reports and the upcoming Nova Scotia report will lead to change. The recommendations, if they are all adopted (which is highly unlikely) would likely make pension rules even more disparate than they already are — a result clearly at odds with the current push for a single securities regulator.
In October 2008, the Canadian Association of Pension Supervisory Authorities (CAPSA) issued a consultation paper on recommendations to replace the existing multilateral pension agreement between the various Canadian jurisdictions. This agreement provides for registration in one jurisdiction only where there are plan members in more than one jurisdiction, and ensures that the jurisdiction of registration upholds the law of the other relevant jurisdictions. CAPSA was seeking to obtain submissions by January 30, 2009. The proposal is much more complex than the existing agreement, which dates back to 1968.
As concerns the response to the impact of the global financial crisis on pension plans, many jurisdictions have proposed temporary solvency funding relief, by either extending the amortization period for such deficiencies from five to 10 years and/or by allowing the use of letters of credit to cover the solvency deficiency, as an alternative to the expensive proposition of having the employer actually fund the deficit on a current basis. Unfortunately, some of these jurisdictions — such as the federal government, Ontario, Manitoba and Newfoundland — require some form of member consent, which may be difficult to obtain. Most recently, Québec undertook steps to deal with the fallout from unfunded defined benefit pension plans of insolvent employers, resulting in the adoption of Bill 1 on January 15, 2009.
McCarthy Tétrault Notes:
On the one hand, the sheer volume of activity underlines a recognition that the retirement system in Canada is in need of attention. On the other hand, the recommendations and funding proposals, whether enacted or not, remain somewhat piecemeal responses to pension issues, some of which have been festering for years. While change is definitely needed, and even appears, for the first time in a long time, to be imminent, the ad hoc and disparate nature of the responses is such that the more pessimistic among us do not see a meaningfully coherent broad-based solution to some of the core issues.