The year of 2008 has been an eventful year for pension regulation. There were a number of legislative changes, court decisions and consultation papers which have a direct impact on pension plans. In addition, the recent volatility in the financial markets has caused concerns with the funding of pension plans resulting in reaction from regulators and stakeholders.
This December 2008 Pension Alert outlines some major developments and events in 2008. Some of these events and developments were covered and discussed in previous Pension Alerts circulated earlier in the year.
Legislative and Regulatory Changes
- Phased-in Retirement. Four jurisdictions have responded to the amendments to the Income Tax Act Regulations which provide an exception to the existing rule that prohibits members of Canadian registered pension plans who are receiving pension benefits from continuing to accrue further defined benefits under the same plan. The federal pension legislation and the pension legislation of British Columbia and Quebec have been amended to permit phased-in retirement but only the Quebec amendments have been proclaimed into force. Both Alberta and Saskatchewan consider phased-in retirement to be an optional benefit which exceeds the minimum standards provided under its pension legislation and therefore no statutory amendment is required to accommodate phased-in retirement.
- Unlocking. The federal pension legislation has been amended to provide for new unlocking options and to create two new locked-in vehicles: the restricted locked-in savings plan and the restricted life income fund. The new unlocking options consist of a one-time conversion of up to 50% of a life income fund account into an unlocked tax-deferred savings vehicle, small pension unlocking and disability-related or medical-related financial hardship unlocking. All new life income fund and locked-in savings plan contracts must contain the applicable new unlocking options.
In Ontario, the Ministry of Finance has released a draft regulation to amend the Pension Benefits Regulation. The amendments would harmonize the features of the old life income funds with those of the new life income funds and would simplify the rules for locked-in retirement accounts. Stakeholders are invited to submit their comments on the draft regulation by February 13, 2009. A private member's Bill 116 was introduced in October to allow the unlocking of locked-in pension funds.
- Pension Division on Marriage Breakdown. In Ontario, the Ministry of the Attorney General introduced Bill 133 which will change the manner in which pension is valued and divided on marriage breakdown. The first reading of the Bill was November 24, 2008.
- Plan Funding. In the summer, the British Columbia Pension Benefits Standards Regulation was amended to permit the administrator of a multi-employer negotiated cost pension plan (MENC plan) to apply to the Superintendent for a moratorium on solvency special payments and to permit the use of letters of credit to fund solvency deficiencies of pension plans other than MENC plans.
In response to the recent market instability, the Saskatchewan Financial Services Commission has issued a Solvency Relief Discussion Paper with two possible options to address the significant decline of the funded status of defined benefit pension plans: a temporary solvency deficiency payment moratorium and an extension of the amortization period for solvency deficiencies from 5 years to 10 years. Stakeholders are invited to submit their comments by January 31, 2009.
The federal government issued its November Economic and Fiscal Statement setting out proposed actions to strengthen Canada's economic and financial fundamentals. Such proposed actions include the grant of temporary funding relief and changes to solvency funding rules for federally-regulated pension plans. In the meantime, OSFI issued a bulletin on "Implications of Market Conditions on Defined Benefit Pension Plans" to encourage administrators to understand the plans' risk tolerances, to undertake scenario testing to identify potential exposures and to undertake initiatives to manage risks to safeguard pension benefits.
The Ontario government has also proposed legislative changes in the spring of 2009 to provide pension plans with solvency funding relief. The proposed measures would include an extension of solvency amortization periods from 5 years to 10 years with the consent of active members or their collective bargaining agent and retired plan members, deferral of catch-up payments to provide one year of cash flow relief and permission to use actuarial gains to reduce annual cash payments.
- Bankruptcy. The Wage Earner Protection Program Act (Canada) has been proclaimed into force, along with complementary amendments to the Bankruptcy and Insolvency Act (Canada) (BIA). The new program protects a limited amount of unpaid wages of an employee when the employer becomes bankrupt or is placed into receivership. Amendments to the BIA provide for the priority of certain unremitted pension contributions.
- Final Standard of Practice for Pension Commuted Value (Final CV Standard). The Canadian Institute of Actuaries has approved the Final CV Standard, which will be effective on April 1, 2009. Amendments to the pension legislation in Ontario, Quebec and New Brunswick are required to adopt the Final CV Standard in their jurisdictions while legislative amendments are not required in other jurisdictions for such adoption. The Ontario government has indicated that it will adopt the Final CV Standard.
- Tax-Free Savings Account (TFSA). Beginning in 2009, any Canadian resident individual who is 18 years of age or older may establish one or more TFSAs. Any income, losses or gains in respect of investments held within a TFSA, as well as amounts withdrawn, will not be included in computing income for tax purposes.
- Cousins v. Canada (Attorney General) (Marine Atlantic decision). The Federal Court of Appeal held that the Pension Benefits Standards Act, 1985 (Canada) does not require a distribution of a portion of actuarial surplus in a defined benefit pension plan at the time of a partial plan termination. OSFI has issued a bulletin confirming that it will follow the Federal Court of Appeal decision.
- Nolan v. Ontario (Superintendent of Financial Services) (Kerry case). The appeal to the Supreme Court of Canada was heard in November 2008. The court reserved its decision.
- Burke v. Hudson's Bay Company. The Ontario Court of Appeal held that on the sale of a division of a company and a transfer of employees, a proportionate share of surplus need not be transferred to the successor plan. The Ontario Court of Appeal's decision was based on the plan language which provided that the transferred employees had no entitlement to surplus.
- Lloyd v. Imperial Oil Limited. The Alberta Court of Queen's Bench dismissed a claim by certain former employees of Imperial Oil in a mirror case to the 1995 Pension Commission of Ontario (now the Financial Services Commission of Ontario) decision Re Imperial Oil on the basis that the issue had been definitively determined by the Ontario tribunal. The Court also held that even if it was incorrect to dismiss the case on this basis, the amendment to an early retirement provision by adding an additional requirement was proper; it did not reduce an accrued benefit as none of the affected employees had reached the eligibility age at the time of the amendment.
- Multi-Marques Distribution Inc. v. Régie des rentes du Quebec. The Quebec Court of Appeal held that the benefits of participants in a multi-employer pension plan were defined by plan provisions and not the Quebec Supplemental Pension Plans Act (QSPPA) and that the benefits could accordingly be reduced where there were insufficient contributions to pay them in full. The Régie's application for leave to appeal was denied by the Supreme Court of Canada. As a result, the QSPPA was amended by Bill 68 and provides that defined benefit and hybrid pension plans cannot limit or reduce (among others) accumulation of benefits unless expressly permitted by the QSPPA.
- Nortel Class Action. A proposed class action was commenced against Nortel Networks Corporation (NNC) by a representative employee seeking a declaration that NNC's proposed plan amendments were void for NNC's failure to give proper notice.
- Wronko v. Western Inventory Service Ltd. The Ontario Court of Appeal held that where an employee did not consent to changes to his/her terms of employment, an employer could make unilateral changes only if it preceded them with reasonable notice of termination and offered re-employment to the employee on the new terms. This is not a pension law decision but it is relevant to pension plan amendments as such amendments may be considered as changes to terms of employment.
- Montreal Trust. The Superintendent in Ontario issued a Notice of Proposal refusing to consent to a withdrawal of surplus by Montreal Trust from the Montreal Trust Pension Plan (2001) on the basis that Montreal Trust did not satisfy the Superintendent that it owned the surplus even though the surplus sharing agreement was approved by the court in a class proceeding. Both Montreal Trust and the member committee requested a hearing before the Tribunal which reserved its decision.
- Ontario. The Ontario Expert Commission on Pension has released its report "A Fine Balance". Stakeholders are invited to submit their comments by February 27, 2009.
- Alberta/British Columbia. The Alberta-British Columbia Joint Expert Panel on Pension Standards released its report "Getting our Acts Together". Stakeholders are invited to submit their comments by March 2, 2009.
- Nova Scotia. The Nova Scotia Pension Review Panel has issued an interim review report on its review of the Pension Benefits Act (Nova Scotia). The Panel is expected to deliver its final report in early 2009.
- Federal. In its November Economic and Fiscal Statement, the federal government announced that it would undertake a review of the Pension Benefits Standards Act, 1985 (Canada) in 2009.
- CAPSA. CAPSA issued its consultation paper "Proposed Agreement Respecting Multi-Jurisdictional Pension Plans". Stakeholders are invited to provide their comments on January 30, 2009.
CAPSA also issued a report on "CAPSA's Work on Regulatory Principles for a Model Pension Law".