British Columbia Proposes New Pensions Act, Alberta Expected to Follow
The British Columbia government has introduced Bill 38, a new Pension Benefits Standards Act (the “Act”), to replace its current pension legislation. The new Act provides private-sector employers with more design options, such as target benefit plans, but will require the adoption of governance policies by all plans and funding policies by defined benefit or target benefit plans.
The key changes found in the new Act are the following:
- Members employed in British Columbia at the date of their termination from the plan are vested immediately in their entitlement to receive a pension for the entire period during which they were an active member of the plan.
- Plan sponsors and the Superintendent are no longer allowed to partially wind up a pension plan.
- A plan with no active members will only be permitted to continue without winding up with the consent of the Superintendent.
- Plan sponsors can introduce a target benefit provision. The introduction of such a provision allows plan sponsors to have a predetermined benefit formula, but benefits, including accrued benefits, can be reduced if the circumstances warrant such a reduction. It appears that target plans may include non-unionized employees, in contrast to Ontario.
- Plan administrators must establish a governance policy structuring the processes for overseeing, managing and administering the plan.
- In addition, administrators of defined benefit or target benefit plans must establish a funding policy that outlines the funding objectives and the methods for achieving those objectives.
Locked-in arr angements will be required to allow a person suffering from financial hardship to withdraw a lump sum amount.
The plan document can permit refund of optional ancillary contributions while the member is active and/or at termination of membership.
The plan text may allow members to suspend active membership while remaining employed.
The Superintendent can levy administr ative penalties for non-compliance without the requirement for a prosecution.
Collectively bargained and non-collec tively bargained multi-employer pension plans are distinguished from one another. While most of the differences will be set out in the Regulation, presumably terms and conditions regarding communications, benefit reductions, governance and plan amendments will differ bet ween collectively bargained and
non-collectively bargained muIti-empIoyer pension plans. Also, the use of a letter of credit in lieu of required solvency payments is not permitted for collectively bargained multi-employer pension plans.
A framework for the governance of jointly sponsored plans, including the private sector, will be introduced. A jointly sponsored plan will be permitted to reduce accrued benefits with the Superintendent's consent.
- The administrator of a pension plan, other than a target benefit plan, may set up a separate account, named a "solvency reserve account ", within the plan's pension fund. The only funds that can be deposited are payments made in respect of a solvency deficiency. Any actuarial excess in this account may be withdrawn by the employer, subject to the Regulation.
The Regulation containing many of the details of the above changes has not yet been released. The success of many of the above changes will be affected by such Regulation.
Some small designated plans (many of which are individual pension plans) currently exempt from B.C. pension regulation could now be captured by the new legislation. This is due to new wording in the Act that specifically exempts plans where all members are connected persons, as defined under the Income Tax Act, as opposed to the previous exemption which would also exclude plans with high earners who are not connected to the employer. This means that individual pension plans or designated plans where any of the members are non-owner employees or executives could now be subject to significant additional regulation and resulting loss of flexibility. Details of what this means exactly to these sponsors will likely be spelled out in the Regulation.
Alberta is expected to soon follow with a closely harmonized act, in line with the 2008 recommendations of the Alberta/British Columbia Joint Expert Panel on Pension Standards. Alberta legislation is expected to be introduced in the fall of 2012, although it may be introduced as early as this spring.
We will closely follow legislative developments and will be prepared to assist clients with the challenges and opportunities presented by this new legislation in Alberta and British Columbia.