CAPSA releases revised multi-jurisdictional pension plan agreement
On June 2, 2020, the Canadian Association of Pension Supervisory Authorities (CAPSA) announced that representatives of the governments of Alberta, British Columbia, New Brunswick, Nova Scotia, Ontario, Quebec and Saskatchewan and the federal government have signed a new interim Agreement Respecting Multi-Jurisdictional Pension Plans (the MJPP Agreement). The new MJPP Agreement comes into effect on July 1, 2020.
The 2020 MJPP Agreement replaces the previous MJPP Agreement adopted by British Columbia, Nova Scotia, Ontario, Quebec and Saskatchewan effective July 1, 2016 (and whose introduction was discussed in the June 2016 News & Views). The other provinces and the federal government did not sign the 2016 version of the MJPP Agreement. The 1968 Memorandum of Reciprocal Agreement, which was signed by all provinces except for Prince Edward Island (which has no pension legislation in force), remains in effect for Manitoba and Newfoundland and Labrador, which have not yet signed the 2020 MJPP Agreement.
According to CAPSA, the 2020 MJPP Agreement was developed to serve as a practical solution to coordinate and harmonize pension regulation across Canada. The revised agreement extends the legal framework established by the 2016 MJPP Agreement to the vast majority of multi-jurisdictional pension plans in Canada.
The 2020 MJPP Agreement is broadly similar to the 2016 MJPP Agreement it replaces, with the following differences.
Major authority’s funding rules
The 2016 MJPP Agreement was adopted at a time when pension legislation generally required that defined benefit pension plans be funded on both a going concern basis and a solvency basis. Since then, jurisdictions such as British Columbia, Nova Scotia, Ontario and Quebec have eliminated or reduced solvency requirements. Under the 2016 MJPP Agreement, if a benefit was not required to be funded under the legislation of the jurisdiction of pension plan registration (i.e., the major authority), but was required to be funded under the legislation of the jurisdiction of a pension plan member (i.e., the minor authority), additional funding was required for that benefit.
Under the 2020 MJPP Agreement, that additional funding requirement has been eliminated and a defined benefit pension plan is only required to be funded based on the major authority’s funding rules.
Asset allocation requirements
The 2020 MJPP Agreement alters the requirements governing the allocation of the assets of a multi-jurisdictional pension plan upon wind up as an underfunded pension plan or certain other major plan events.
The asset allocation requirements have been amended to accommodate recent changes in the legislation of participating jurisdictions to eliminate traditional solvency funding requirements for some pension plans.
Section 15 of the 2016 MJPP Agreement, which provided a methodology for reducing amounts related to benefits arising from a legislative or plan provision that came into effect less than five years before the date of allocation, has been revoked in the 2020 MJPP Agreement.
Annuity purchase rules
Given that an increasing number of plan sponsors are employing de-risking strategies such as buy-out annuities, some jurisdictions have granted statutory discharges to pension plan administrators that have purchased buy-out annuities, subject to conditions. The 2020 MJPP Agreement acknowledges this trend and provides that the rules for providing statutory discharges upon annuity purchase from the minor authority will generally apply in respect of a member. However, the 2020 MJPP Agreement also provides that the major authority’s rules will apply in respect of three areas:
- Requirements for contributions to the pension fund;
- Minimum plan funding and solvency levels; and
- Requirements pertaining to actuarial valuation reports, including the form and content of such reports, filing deadlines and actuarial standards to be applied in preparing such reports.
This development will simplify and clarify the process for obtaining statutory discharges.
Loss of “major authority” status
The MJPP Agreement distinguishes between the “major authority” or jurisdiction of registration and “minor authorities” where other plan members are located. A regulator loses its status as the major authority for a plan if, according to the plan’s most recent periodic information returns, the number of active members employed in the major authority’s jurisdiction fell below a prescribed threshold over a one or three year period, depending on the size of the plurality.
The 2020 MJPP provides that an upcoming change of major authority can be cancelled and a major authority can retain its status if the existing majority authority regains a plurality of active members before the effective date of the upcoming change to the major authority.
Administrative monetary penalties
The 2020 MJPP Agreement clarifies that the imposition of administrative monetary penalties is a matter within the jurisdiction of the applicable major authority.
The 2020 MJPP Agreement will extend the reach of the agreement to three new jurisdictions, including the federal government. Furthermore, it clarifies a number of issues and also better accommodates ongoing defined benefit funding reform initiatives. As such, it will simplify and clarify a number of issues faced by employers who sponsor multi-jurisdictional pension plans.