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Alberta introduces new pension act

The Alberta government has introduced Bill 10, the Employment Pension Plans Act, to replace its current pension legislation. Bill 10 closely follows British Columbia’s Bill 38, which was passed in June. Please see our News & Views article from May 2012, as all of the key changes discussed in the article will also apply in Alberta.

The Alberta Ministry of Treasury Board and Finance summarizes the key features of the new legislation as follows:

  • Harmonized pension rules between Alberta and British Columbia, making it easier for pension plans to both start up and operate effectively for their members.
  • More flexibility in pension standards, making it easier for private sector employers to design pension plans that meet both their needs and the needs of their employees.
  • Extended timelines for dealing with funding shortfalls.
  • More clarity around the roles and responsibilities of those involved in managing pension plans.
  • Standards for two new types of plans: target benefit plans and jointly sponsored plans.
    • Target benefit plans provide a specific pension amount when a member retires, similar to a defined benefit plan. The benefit amount may be reduced if funding difficulties arise, lowering employer funding risk. To ensure plan members can have reasonable confidence that their promised benefit will be delivered, specific funding rules for these plans will be put into place.
    • Jointly sponsored plans see members share in the total cost of the plan with the employer, as opposed to contributing only towards their own benefit.
  • Increased focus on disclosure, helping all parties understand the terms, risks and health of their plan, as well as their responsibilities around the plan.
  • Qualification for vesting, which is the entitlement of a member to the benefit promised under their pension plan, has been changed from two years of plan membership to immediate, recognizing that pension benefits are a part of an employee’s compensation, rather than a reward for long service.
  • Locking in will no longer be based on years of service, but on a minimum dollar amount that is increased annually. This will eliminate the locking in of amounts that are too small to provide a meaningful pension, and means that locking in rules will keep pace with inflation.

The final bullet refers to the fact that both vesting and locking in will be immediate, but the small benefits unlocking rule may be expanded. The full details of the new unlocking threshold will be specified in the regulations.

Of particular note is the point regarding extended timelines for dealing with funding shortfalls. While B.C. and Alberta are making efforts to harmonize their legislation, the one area where the two provinces have differed materially in recent years is in regard to solvency relief, particularly with respect to single employer plans. The reference point on this topic in Alberta’s summary did not appear in the summary that accompanied B.C.’s new legislation. We understand that the two provinces are undertaking consultations with stakeholders regarding funding issues, but it remains to be seen whether the new rules in either province will provide permanent relief measures or if the two provinces can agree on one consistent approach.

Further, as noted in our May issue, the treatment of small designated plans (many of which are individual pension plans) is still somewhat up in the air. Historically, Alberta and B.C. have treated this category of plans quite differently. Our consultations lead us to believe that B.C. is moving to an environment more closely resembling Alberta’s, with increased regulatory requirements facing sponsors of these plans.

As in British Columbia, the complete details of the new regulatory system will not be known until the regulations are published and finalized. We will closely follow legislative developments and be prepared to assist clients with the challenges and opportunities presented by new legislation in Alberta and British Columbia.