Pension reform is on the minds of many legislators in Canada these days and British Columbia is no exception. Bill 38, which represents a major overhaul of BC’s current Pension Benefits Standards Act (“PBSA”), received final approval on May 31, 2012, but is not yet in force. Bill 38 will only come into force once the new Regulations are completed (a big task), so we do not expect it to become law before mid-2013. However, prudent sponsors and plan administrators should start preparing now for the arrival of the new law.

Bill 38 represents the BC government’s long-awaited response to the 2008 report of the Joint Expert Panel on Pension Standards (“JEPPS”). JEPPS was an independent expert review process undertaken by the BC and Alberta governments based on a desire to harmonize their pension legislation in recognition that many employers have operations in both provinces. The new legislation is intended to promote increased pension coverage by being more “principles-based” than its predecessor and will rely heavily on Regulations to achieve that goal.

The key changes to the PBSA and their impact on plan sponsors, administrators and employees, are summarized below.

New Plan Designs

Bill 38 permits new plan designs including target benefit plans, which limit an employer’s funding obligation to what it is contractually required to contribute, and jointly sponsored pension plans which, in addition to regular contributions, require employees to contribute to unfunded liabilities and solvency deficiencies that arise in a defined benefit environment. Under both of these designs, employers would not be required to fund deficiencies following plan terminations; instead, benefits could be reduced.

Superintendent’s Discretion and Regulatory Powers

Bill 38 “arms”the Superintendent of Pensions (“Superintendent”) with, among other things, increased inspection and intervention powers; power to reduce or stop payments that could prejudice plan members; and power to take preventative action where the plan administrator attempts something “contrary to safe and sound pension practices.” It also empowers the Superintendent to levy administrative penalties of up to $250,000.

Funding

Bill 38 permits defined benefit plan administrators to establish a “solvency reserve account” into which solvency deficiency payments may be directed. If the plan develops a “solvency excess” in subsequent years, the employer may be entitled to withdraw part of the “excess”regardless of the language in the plan text. In addition, pension funds must be invested without “undue risk of loss”and with a reasonable expectation of return commensurate with the level of risk; and all financial decisions, including investments, must be made “in the best financial interests” of plan beneficiaries.

Governance and Administration

Bill 38 requires plan administrators to complete a written “Plan Administration Assessment”addressing such things as legislative compliance, governance practices, funding, investments and performance of plan trustees, administrative staff and agents. The Assessment must be available for inspection by the Superintendent. In addition, Bill 38 mandates a written Governance Policy, Statement of Investment Policies and Procedures and, in the case of defined benefit or target benefit plans, a Funding Policy detailing the intended method for reaching funding objectives.

Minimum Benefits, Plan Documents and Administration Requirements

Bill 38 requires plan documents to address a number of new requirements including: (1) members be immediately vested for all service; (2) locked-in pension benefits be unlocked in cases of shortened life expectancy and financial hardship; and (3) pre-retirement death benefits for all service be equal to 100% of commuted value. It also mandates that the plan document specify (1) who pays investment expenses; and (2) that assets must be invested in accordance with the PBSA and Regulations.