New Brunswick fine tunes shared risk pension plans
On December 11, 2012, the New Brunswick government announced further proposed amendments to the Pension Benefits Act (“PBA”) via the introduction of Bill 20.
The proposed amendments are designed to clarify the recently introduced shared risk pension plan (“SRPP”). The SRPP model was originally introduced on July 1, 2012, and is similar to a target benefit plan (defined benefit formula, fixed contributions, potential benefit adjustments) but is designed on a more robust risk management and governance model. Some highlights of the proposed amendments are:
Contract and Trust Law
The proposed amendments clarify that a pension plan may be converted to an SRPP and vested benefits may be affected despite any existing contracts or trusts.
Possibility of Reduction of Vested Base Benefits
The Bill proposes to amend the definition of “base benefits” to “vested base benefits”. This is to clarify that following a conversion of a pension plan to an SRPP, vested base benefits accrued prior to conversion can be reduced in accordance with the SRPP funding policy. The SRPP model is designed to carefully manage the probability of benefit reductions, however such reductions are possible if the SRPP’s financial situation is below the required 100% funded target for two consecutive years.
Enhanced and Expanded Immunity for Administrative Functions
The PBA currently offers immunity to various governmental authorities and plan administrators, and to their officers, directors, and employees who exercise the “care, diligence and skill” of a reasonably prudent person. This immunity provides protection in relation to issues that may arise out of conversion to the SRPP model. The Bill proposes to extend this immunity to a number of new groups and individuals, such as trustees, employers and trade unions, who must also exercise the care, diligence and skill of a reasonably prudent person.
Importantly, the current PBA only provides immunity for actions undertaken pursuant to conversions to SRPPs. The Bill proposes to significantly expand this immunity to any and all actions undertaken pursuant to the PBA, not just SRPP conversions, that are exercised with due care and diligence.
In December of 2012, the City of St. John and its four unions, representing inside workers and outside workers, police and firefighters, all signed a memorandum of understanding to convert to the SRPP model. This is a good indication that the SRPP model is gaining traction and may result in a paradigm shift in pension plans in the future.