Manitoba: Proposed changes to the Pension Benefits Act
On January 10, 2018, Manitoba’s Minister of Finance launched a public consultation to strengthen the existing provincial pension system. The Department of Finance published a consultation paper as part of the public review of the Pension Benefits Act (PBA).
This announcement follows the recent review by the Pension Commission of Manitoba of the province’s PBA, which is required by statute every 5 years.
The Commission’s review focused on:
- New plan designs;
- Funding rules;
- Locking-in provisions;
- Compulsory pension plan membership;
- Division of pensions on relationship breakdown; and
- Clarification of legislative gaps.
The Commission’s recommendations propose changes to defined benefits (DB) plans to create flexible requirements for plan funding, as funding issues have placed a significant burden on plan sponsors. One key objective for DB plans is to develop solvency-funding reforms that consider plan sustainability, affordability and benefit security of the plan sponsor, unions, members and retirees. The Commission’s proposed changes, similar to those adopted in other jurisdictions, include eliminating solvency funding, enhancing goingconcern requirements and introducing a solvency reserve account.
The Commission’s Recommendations:
New Plan Designs
The Commission recommends that a new and more flexible target benefit/shared risk plan design be permitted, which would be flexible enough to apply to a broad range of pension plans (i.e. for single employers, multi-employers, private sector and public sector). The plan would be jointly trusteed, exempt from solvency funding and would apply only to future benefit accruals (although the consultation document asks whether conversion should be permitted for future service only or not). Going-concern commuted values would be paid based on the funded status of the plan.
The Commission recommends that solvency funding be required only if the plan’s solvency ratio is below a threshold level of 85%. The solvency funding would only be required until the solvency ratio has increased to at least the threshold level.
The current solvency rules would be replaced with a regime that requires enhanced going-concern funding, which could include funding of an excess amount (provision for adverse deviation), shortening the current period for funding unfunded liabilities, restricting investment return assumptions to a maximum level set by the Superintendent, and basing benefit improvements on the solvency position of the plan.
Solvency Reserve Accounts (SRAs) would be permitted as a separate account within a plan fund, to hold solvency deficiency payments that can be used to fund shortfalls or be withdrawn by the employer if the surplus exceeds a prescribed amount.
The Commission recommends the introduction of unlocking due to financial hardship for Locked-In Retirement Accounts (LIRAs) and Life Income Funds (LIFs). The following financial hardship qualification criteria are proposed:
- Eviction for rental arrears;
- Medical/dental expenses not covered by other insurance/government programs; and
- If an individual’s income is less than 2/3 of the yearly maximum pensionable earnings (YMPE) under the Canada Pension Plan (i.e. less than $37,267 for 2018), that individual may unlock up to ½ of the YMPE (i.e. up to $27,950 in 2018).
Also proposed is the expansion of the current provisions allowing LIF owners to make a one-time transfer of 50% of their LIF to an unlocked prescribed RRIF. The expanded provision would permit funds from a LIRA to be unlocked under the same conditions. The Commission further recommends that at the age of 65, 100% unlocking of LIRAs and LIFs be permitted.
Compulsory pension plan membership
Continuing compulsory pension plan membership as a condition of employment has been recommended (where there is a pension plan in effect).
Division of pensions on relationship breakdown
The Commission recommends that the portion of the pension that is to be divided upon a relationship breakdown, be determined under The Family Property Act rather than the PBA. This is subject to the spouse or common-law partner not receiving more than 50% of the pension earned during the period of the relationship.
Clarification of legislative gaps
The Commission proposes reform to the following provisions in the PBA:
- Amend the provision setting out entitlement to ancillary benefits to clarify when the benefit is vested and that it must be included in the calculation of commuted values;
- Amend the pension committee requirements to permit a vacant position where there is no inactive member in the plan or no inactive member willing to be on a pension committee;
- Amend the Multi-unit pension plan (MUPP) provisions to be consistent with the multiemployer and specified multi-employer provisions in other jurisdictions and the Income Tax Act; and
- Amend the provision setting out when an individual ceases to be an active member of a DB plan, to provide that a member may choose to suspend membership and contributions at the normal retirement age (normally age 65), while remaining employed. Upon subsequent commencement of a pension, the pension accrued to the age of 65 would be actuarially increased from age 65 to the member’s actual retirement date.
For those who would like to provide submissions on the discussion questions in the consultation paper and recommendations in the Commission’s report, the closing date for submissions is February 21, 2018.