The Canadian Association of Pension Supervisory Authorities recently released a proposed agreement which attempts to establish a framework for determining how the laws of different provinces and the federal jurisdiction will apply to multi-jurisdictional pension plans.
Beginning in 1968, the federal government and most of the provinces entered into bilateral and multilateral reciprocal agreements (Reciprocal Agreements) designed to simplify plan administration by delegating powers and duties of other jurisdictions to the jurisdiction in which the plurality of the multi-jurisdictional pension plan’s (MJPP) members were employed (the Major Authority). This resulted in the Major Authority applying its rules for plan administration to the MJPP, leaving member entitlements to be determined according to the legislation of the other jurisdictions where plan members were actually employed (the Minor Authorities).
In its decision in Leco, the Ontario Divisional Court questioned the application of this practice to certain issues such as surplus entitlement and allocation. The court’s approach made pension regulators much more cautious in their regulation of MJPPs and, in turn, made it more difficult for employers to administer MJPPs. For example, administrators of MJPPs often face uncertainty when trying to determine whether a given issue, particularly one that may affect the plan as a whole (e.g., funding, investments or an asset transfer) is governed by the law of the Major or Minor Authorities. It is also unclear whether Reciprocal Agreements permit plan administrators to simply ignore other jurisdictions’ requirements for plan administration, such as the requirement in the Québec Supplemental Pension Plans Act that plans be administered by a pension committee.
Proposed CAPSA Agreement
On October 21, 2008 the Canadian Association of Pension Supervisory Authorities (CAPSA) released the Proposed Agreement Respecting Multi-Jurisdictional Pension Plans (the Proposed Agreement). The Proposed Agreement is intended to provide a framework for the regulation and administration of MJPPs. Its key provisions are as follows:
- The rules of the Major Authority will apply to matters that affect the MJPP as a whole (e.g., funding, investment and plan registration). These matters are specifically listed in a schedule to the Proposed Agreement;
- Generally, the Major Authority will apply the legislation of each Minor Authority jurisdiction to the applicable members for matters that are not contained in the schedule (e.g., vesting, locking-in and surplus distribution);
- Any recourse from decisions affecting the plan as a whole will be made in accordance with the requirements of the Major Authority’s legislation. Recourse from decisions affecting member entitlements will be made in accordance with the requirements of the Minor Authority’s legislation as if the initial decision had been made by the applicable Minor Authority;
- The “final location” method will be used to determine benefit entitlements. This means that a member’s entire benefit accrual will be calculated in accordance with the pension legislation of the jurisdiction where the member is located at the time of his or her retirement, termination of employment or death.
Issues to Consider
While it appears that the Proposed Agreement is intended to simplify the administration of MJPPs, certain rules may prove onerous for some plan sponsors. For example, if the Major Authority changes from a jurisdiction that permits funding via letters of credit to one that does not, the plan will be required to pay down the letter of credit no later than 30 days before the date of the change in Major Authority. However, this requirement may be mitigated by the fact that the plan administrator should have at least one year’s notice of the impending change.
The Proposed Agreement leaves certain issues unresolved, including the following examples:
- While the Proposed Agreement makes it clear that issues such as surplus distribution are not "administrative," in practice, these issues will still be difficult to address in the context of MJPPs as divergent rules in various jurisdictions will continue to apply;
- The effective “importation” of a Minor Authority’s legislation into a Major Authority’s regulatory scope may prove difficult for some regulators not readily familiar with the other jurisdiction’s legislation. As well, some jurisdictions may simply not have the authority to enter into such an arrangement under their current pension legislation.
- Aside from advocating a need for pension regulators to co-operate and reach an “amicable solution” in disputes involving the interpretation of the Proposed Agreement, the Proposed Agreement does not provide a specific mechanism for dispute resolution. Thus, unresolved disputes could lead to a jurisdiction’s withdrawal from the Proposed Agreement, thereby requiring MJPP administrators, yet again, to comply with the varying laws of several jurisdictions.
CAPSA is conducting consultation sessions on the Proposed Agreement in various locations across Canada in November and December of 2008. Any comments on the Proposed Agreement must be submitted by January 30, 2009.