Proposed changes to the province’s pension menu could mean indigestion for plan sponsors
Manitoba’s “made to order” recipe for pension reform could mean more indigestion for national plan sponsors who must comply with different pension standards rules in each jurisdiction.
A consultation paper released by the Manitoba Pension Commission discusses proposed amendments to the Pension Benefits Act of Manitoba. Since this is the first major review of the act since 1983, the consultation paper covers a wide variety of pension issues.
The proposals retain many of the distinctive features of the current act, augmented by new or modified provisions selected from the smorgasbord of solutions adopted by other Canadian jurisdictions over the last two decades.
A number of current provisions of the act will continue to retain their unique Manitoba flavour. But there are a number of interesting recommendations on the table that are already on the menu in one or more Canadian jurisdictions, including:
•immediate vesting;
•pension committees as administrators; and
•applications for surplus withdrawals that can be made by employers on full wind up based on two-thirds consent from plan members.
Distinctive Manitoba provisions
•Eligibility and membership. Manitoba has one of the highest participation rates in employment pension plans in Canada since its legislation requires plan participation as a condition of employment. This feature of the act will be retained.
Manitoba’s policy on part-time members is not consistent with the federal Pension Benefits Standards Act (PBSA) or British Columbia, Ontario and Quebec — all of which permit a separate plan providing similar or comparable benefits for part-time employees. It looks like it will stay that way, as the consultation paper does not recommend allowing separate plans for full-time and non full-time employees or the suspension of a member’s membership in the plan for a period of time because suspension would be contrary to the principles behind mandatory membership.
•Locking–in. This reflects the purpose of the pension plan — to provide continuous and basic payments upon retirement over the lifetime of the member and his spouse or partner. Furthermore the act protects pension assets from seizure by creditors and excludes pension assets from consideration by social assistance agencies and employment insurance because of their locked-in status.
The Manitoba Pension Commission strongly recommends the preservation of special status of pensions and pension benefits to ensure plan members and spouses or partners have retirement income at a time when other sources of income are limited. Therefore it is proposed:
•Pensions and pension benefits to which the member is entitled under the terms of the plan should be immediately locked-in to provide a lifetime pension at retirement, except in cases of shortened life expectancy, phased retirement and where plan members become non-residents.
•Premature access, because of financial hardship, for example, is not recommended.
•The present thresholds under the act for funds commuted under the minimum commutation rules set out in the legislation are considered to be appropriate and no change is recommended.
Both the current act and proposed changes to the legislation take a more traditional approach than a number of other provinces. For example, Ontario has permitted withdrawal of locked-in funds in hardship cases and Saskatchewan allows transfers to a registered retirement income fund on termination.
•Division of pensions on marriage breakdown. Manitoba proposes to retain its unique approach which requires pensions be dealt with separate from other family assets. The administrator must divide the pension or pension benefit accumulated by one or both spouses or common-law partners during the marriage or common-law relationship on a 50-50 basis, regardless of the provisions of a court order or written agreement regarding the division of family property. Married spouses and common-law partners may then opt-out of the 50-50 division by completing the prescribed agreement with their lawyers.
The spouse or partner is currently entitled to an immediate lump sum settlement based on a value determined as if the member had ended employment on the date of separation or termination of the common-law relationship. The lump sum is transferable to the spouse or partner’s locked-in retirement account, life income fund, locked-in retirement income fund or pension plan in which he is a member, where permitted. If retired, the member and his spouse or partner share the accrued pension earned during the period of the relationship by the plan dividing the monthly pension payments and paying the member and the spouse or partner separately.
But the consultation paper suggests spouses become limited members instead of receiving a lump-sum transfer at the time the affairs of the parties are settled. While the result could be the amount the ex-spouse ultimately receives is more closely mapped to the amount received by the member, this may not be the preferred approach in all cases. Some ex-spouses may want the right to choose between the transfer of a lump sum to a locked-in registered retirement savings plan at the time of the split or limited membership in the pension plan.
Harmonization initiatives
•Vesting. Vesting refers to pension plans providing an unconditional entitlement to benefits. It is proposed that immediate and full vesting of basic pension benefits should be applied retroactive to July 1, 1976.
Effective Jan. 1, 2001, vesting became immediate in Quebec for all benefits, including those accrued prior to Jan. 1, 2001. Manitoba is the first province to recommend following Quebec’s lead in this regard. While immediate vesting could increase costs for employers it will make plan administration simpler and less costly. It should also eliminate partial wind ups when there are layoffs or shutdowns of part of an employer’s business.
•Pension committee. Every pension plan must have a pension administrator who acts in the best interests of all members. But since the administrator is also frequently the employer, this may result in confusion and potential conflicts of interest. A new structure is therefore proposed to increase member participation in the administration of pension plans, and distinguish more clearly the roles of the employer and plan administrator.
•With the exception of certain pension plans, the administrator should be a pension committee. However, the plan sponsor (employer) should retain the right under the terms of the pension plan to determine the plan provisions.
•The pension committee should have all the responsibilities relating to the administrative and financial duties of a pension plan.
•Annual meetings should be held within a prescribed period of time.
•Provided an alternate procedure for designating committee members has been agreed to by the members and beneficiaries, the pension committee would not need to call a meeting if it advises every member and plan beneficiary in a prescribed manner that no meeting will be held unless the members and beneficiaries request a meeting.
•A pension committee should not be needed to administer certain plans, including plans with a small membership, multi-unit pension plans, simplified pension plans and plans with an administrator appointed by the regulator.
If these provisions are adopted, Manitoba will be the first common-law jurisdiction to follow Quebec’s lead in this area. One difference appears to be the pension committee will not be required to conduct an annual meeting in specified circumstances.
•Surplus. Currently the act does not allow funds, including surplus funds, to be paid out of a pension plan to an employer without the consent of the pension commission.
If the pension commission is not satisfied as to employer entitlement or that the necessary disclosure has been made to all affected members, it will not consent to the payment unless the Court of Queen’s Bench determines the employer is entitled to receive the surplus under the terms of the documents governing the pension plan.
It is recommended the ability to receive a surplus on a going-concern basis, including on partial and full plan termination, should remain as generally provided in the legislation including the ability by the employer to take a contribution holiday.
But it is suggested the legislation also permit an employer to receive a payment of surplus funds from a pension plan, subject to the consent of the pension commission, with the written agreement of the collective bargaining agent of the active and non-active members of the plan or, if there is no collective bargaining agent, at least two-thirds of the active and non-active members of the plan; plus at least two-thirds of the other plan beneficiaries who are entitled to payments under the pension plan.
While it is not stated in the consultation paper, if immediate vesting is adopted, partial wind ups will likely become history.
It is interesting employers would be given the ability to apply based on plan entitlement, or to try and make a deal on full wind up. This approach was one of the many proposals that was challenged by employee representatives and resulted in the withdrawal of Bill 198 in Ontario.
Consultation process
In addition to the recommendations discussed above, the consultation paper proposed amendments relating to many other areas including the 50 per cent rule, joint and survivor pensions, pre-retirement death benefits, phased retirement, flexible pension plans, multi-unit and employer pension plans and tests for solvency. Interested readers can find the complete paper at www.gov.mb.ca/labour/pen/pensionlegislation/finaldiscuss.pdf.
It is not surprising Manitoba is contemplating pension reform, given the changes to legislation and public perception that have occurred over the past 20 years. But the smorgasbord of changes proposed will do little to promote consistent pension standards across the country. Since plan sponsors have a huge appetite for uniform pension rule, it would certainly be preferable if amending legislation is based on the Canadian Association of Pension Supervisory Authorities’ model law which will likely be released in 2003.
Sheryl Smolkin is a lawyer and director of Watson Wyatt Worldwide’s Canadian Research and Information Centre in Toronto. She can be contacted at [email protected].
A consultation paper released by the Manitoba Pension Commission discusses proposed amendments to the Pension Benefits Act of Manitoba. Since this is the first major review of the act since 1983, the consultation paper covers a wide variety of pension issues.
The proposals retain many of the distinctive features of the current act, augmented by new or modified provisions selected from the smorgasbord of solutions adopted by other Canadian jurisdictions over the last two decades.
A number of current provisions of the act will continue to retain their unique Manitoba flavour. But there are a number of interesting recommendations on the table that are already on the menu in one or more Canadian jurisdictions, including:
•immediate vesting;
•pension committees as administrators; and
•applications for surplus withdrawals that can be made by employers on full wind up based on two-thirds consent from plan members.
Distinctive Manitoba provisions
•Eligibility and membership. Manitoba has one of the highest participation rates in employment pension plans in Canada since its legislation requires plan participation as a condition of employment. This feature of the act will be retained.
Manitoba’s policy on part-time members is not consistent with the federal Pension Benefits Standards Act (PBSA) or British Columbia, Ontario and Quebec — all of which permit a separate plan providing similar or comparable benefits for part-time employees. It looks like it will stay that way, as the consultation paper does not recommend allowing separate plans for full-time and non full-time employees or the suspension of a member’s membership in the plan for a period of time because suspension would be contrary to the principles behind mandatory membership.
•Locking–in. This reflects the purpose of the pension plan — to provide continuous and basic payments upon retirement over the lifetime of the member and his spouse or partner. Furthermore the act protects pension assets from seizure by creditors and excludes pension assets from consideration by social assistance agencies and employment insurance because of their locked-in status.
The Manitoba Pension Commission strongly recommends the preservation of special status of pensions and pension benefits to ensure plan members and spouses or partners have retirement income at a time when other sources of income are limited. Therefore it is proposed:
•Pensions and pension benefits to which the member is entitled under the terms of the plan should be immediately locked-in to provide a lifetime pension at retirement, except in cases of shortened life expectancy, phased retirement and where plan members become non-residents.
•Premature access, because of financial hardship, for example, is not recommended.
•The present thresholds under the act for funds commuted under the minimum commutation rules set out in the legislation are considered to be appropriate and no change is recommended.
Both the current act and proposed changes to the legislation take a more traditional approach than a number of other provinces. For example, Ontario has permitted withdrawal of locked-in funds in hardship cases and Saskatchewan allows transfers to a registered retirement income fund on termination.
•Division of pensions on marriage breakdown. Manitoba proposes to retain its unique approach which requires pensions be dealt with separate from other family assets. The administrator must divide the pension or pension benefit accumulated by one or both spouses or common-law partners during the marriage or common-law relationship on a 50-50 basis, regardless of the provisions of a court order or written agreement regarding the division of family property. Married spouses and common-law partners may then opt-out of the 50-50 division by completing the prescribed agreement with their lawyers.
The spouse or partner is currently entitled to an immediate lump sum settlement based on a value determined as if the member had ended employment on the date of separation or termination of the common-law relationship. The lump sum is transferable to the spouse or partner’s locked-in retirement account, life income fund, locked-in retirement income fund or pension plan in which he is a member, where permitted. If retired, the member and his spouse or partner share the accrued pension earned during the period of the relationship by the plan dividing the monthly pension payments and paying the member and the spouse or partner separately.
But the consultation paper suggests spouses become limited members instead of receiving a lump-sum transfer at the time the affairs of the parties are settled. While the result could be the amount the ex-spouse ultimately receives is more closely mapped to the amount received by the member, this may not be the preferred approach in all cases. Some ex-spouses may want the right to choose between the transfer of a lump sum to a locked-in registered retirement savings plan at the time of the split or limited membership in the pension plan.
Harmonization initiatives
•Vesting. Vesting refers to pension plans providing an unconditional entitlement to benefits. It is proposed that immediate and full vesting of basic pension benefits should be applied retroactive to July 1, 1976.
Effective Jan. 1, 2001, vesting became immediate in Quebec for all benefits, including those accrued prior to Jan. 1, 2001. Manitoba is the first province to recommend following Quebec’s lead in this regard. While immediate vesting could increase costs for employers it will make plan administration simpler and less costly. It should also eliminate partial wind ups when there are layoffs or shutdowns of part of an employer’s business.
•Pension committee. Every pension plan must have a pension administrator who acts in the best interests of all members. But since the administrator is also frequently the employer, this may result in confusion and potential conflicts of interest. A new structure is therefore proposed to increase member participation in the administration of pension plans, and distinguish more clearly the roles of the employer and plan administrator.
•With the exception of certain pension plans, the administrator should be a pension committee. However, the plan sponsor (employer) should retain the right under the terms of the pension plan to determine the plan provisions.
•The pension committee should have all the responsibilities relating to the administrative and financial duties of a pension plan.
•Annual meetings should be held within a prescribed period of time.
•Provided an alternate procedure for designating committee members has been agreed to by the members and beneficiaries, the pension committee would not need to call a meeting if it advises every member and plan beneficiary in a prescribed manner that no meeting will be held unless the members and beneficiaries request a meeting.
•A pension committee should not be needed to administer certain plans, including plans with a small membership, multi-unit pension plans, simplified pension plans and plans with an administrator appointed by the regulator.
If these provisions are adopted, Manitoba will be the first common-law jurisdiction to follow Quebec’s lead in this area. One difference appears to be the pension committee will not be required to conduct an annual meeting in specified circumstances.
•Surplus. Currently the act does not allow funds, including surplus funds, to be paid out of a pension plan to an employer without the consent of the pension commission.
If the pension commission is not satisfied as to employer entitlement or that the necessary disclosure has been made to all affected members, it will not consent to the payment unless the Court of Queen’s Bench determines the employer is entitled to receive the surplus under the terms of the documents governing the pension plan.
It is recommended the ability to receive a surplus on a going-concern basis, including on partial and full plan termination, should remain as generally provided in the legislation including the ability by the employer to take a contribution holiday.
But it is suggested the legislation also permit an employer to receive a payment of surplus funds from a pension plan, subject to the consent of the pension commission, with the written agreement of the collective bargaining agent of the active and non-active members of the plan or, if there is no collective bargaining agent, at least two-thirds of the active and non-active members of the plan; plus at least two-thirds of the other plan beneficiaries who are entitled to payments under the pension plan.
While it is not stated in the consultation paper, if immediate vesting is adopted, partial wind ups will likely become history.
It is interesting employers would be given the ability to apply based on plan entitlement, or to try and make a deal on full wind up. This approach was one of the many proposals that was challenged by employee representatives and resulted in the withdrawal of Bill 198 in Ontario.
Consultation process
In addition to the recommendations discussed above, the consultation paper proposed amendments relating to many other areas including the 50 per cent rule, joint and survivor pensions, pre-retirement death benefits, phased retirement, flexible pension plans, multi-unit and employer pension plans and tests for solvency. Interested readers can find the complete paper at www.gov.mb.ca/labour/pen/pensionlegislation/finaldiscuss.pdf.
It is not surprising Manitoba is contemplating pension reform, given the changes to legislation and public perception that have occurred over the past 20 years. But the smorgasbord of changes proposed will do little to promote consistent pension standards across the country. Since plan sponsors have a huge appetite for uniform pension rule, it would certainly be preferable if amending legislation is based on the Canadian Association of Pension Supervisory Authorities’ model law which will likely be released in 2003.
Sheryl Smolkin is a lawyer and director of Watson Wyatt Worldwide’s Canadian Research and Information Centre in Toronto. She can be contacted at [email protected].
