Manitoba overhauls Pension Benefits Act

Changes include pension committees, phased retirement and immediate full vesting
By Amanda Silliker
|Canadian HR Reporter|Last Updated: 05/03/2010

Manitoba is introducing pension reforms that will give more control to employees and offer employers more workforce management options for workers nearing retirement. This is the most significant reform the province has seen in 35 years, said Debbie Lyon, superintendent of pensions at the Manitoba Pension Commission.

“People are changing jobs more frequently, we have an aging workforce, plus there is an increased interest from members in managing their own pension,” said Lyon, in explaining the reasons for the reform.

One of the new regulations requires the implementation of pension committees. This applies to plans with 50 or more members, and workers and retirees would choose at least two representatives for the committee, according to the revised Manitoba Pension Benefits Act. This will give employees greater accountability in choosing their own plans. It is considered the most contentious issue of the reform because the creation of the committees will be seen as a “loss of control” by some plan sponsors, said Tim McGorman, a vice-president in the retirement strategies practice at Aon Consulting in Winnipeg.

“At times, the employer acts as an employer and, at times, as a fiduciary,” he said. “Sometimes these roles are in conflict and one of the main purposes of a pension committee is to reduce that conflict.”

Employers may find it challenging working with a pension committee for the first time, said Rick Robertson, associate professor at the Ivy School of Business at the University of Western Ontario in London, Ont.

“The trick is figuring out how to utilize those employees in a very effective manner,” he said. “Companies can choose to see it as a nuisance or as a valuable resource.”

Employers can use these committees as a “very positive development” to enhance communications, better govern pension plans and elicit employee feedback, said Mark Newton, a partner at Toronto- based law firm Heenan Blaikie.

Another big change will be providing immediate full vesting. Employees will no longer have to wait up to two years to receive an employer’s pension contributions. Instead, they will be entitled to employer contributions from the day they join a plan.

While this many not have significant cost ramifications for most employers, the loss of the two-year cushion could impact hiring practices, said Robertson.

“This may, at the margin, cause employers to be a little more reluctant to hire people,” he said. “They’ll be hiring someone and won’t know if they’re going to last with the company or even if they want to keep them, but they’ll still have to give the pension benefits.”

It also may be a bit of a concern for employers with high turnover rates, said Newton.

Phased retirement is another provision. Employees will be able to work reduced hours and continue pension contributions while collecting partial pension benefits. This will assist employers with the issue of a “transitioning workforce” as employees near retirement and will allow both parties to come to a mutually beneficial agreement, said Lyon.

This option may be increasingly attractive to employers and employees in the years to come.

“When we have the baby boomer wave retiring, there might be a lack of good quality workers,” said McGorman. “Letting them work less hours and subsidizing their income through commencing receipt of their pension benefit is a great way to keep them around.”

This option can work in favour of the employee, who doesn’t want to stop being involved in the organization, and the employer, which wants to retain the best workers, said Robertson.

“The big problem is when people leave, they take away their knowledge, wisdom and understanding,” he said. “And just ask somebody who is 70 years of age — they’re terrified of outliving their money, so this is a win-win.”

The overall cost to employers will depend on the type and size of their plan and which provisions they decide to introduce, said Lyon. Overall, there is not much cost to employers, other than administrative internal costs to update the policies and communicate the changes, said McGorman.

Some provisions are mandatory, such as the pension committee and full vesting, while others are optional, such as phased retirement. All mandatory changes will come into effect May 31, 2010, with the exception of the pension committee, which is effective May 31, 2011.

Amendments to the plan text, including any optional provisions that have been chosen, don’t need to be filed until December 2011.

Harmonization with other provinces

The changes to the Manitoba Pension Benefits Act will “harmonize, to a greater extent, Manitoba with other jurisdictions,” said Lyon.

“The biggest impact is on plan sponsors who have members in Manitoba and in other provinces,” said McGorman. “They will have to comply with a number of these provisions and make amendments to their plans.”

“The biggest impact from a Canada-wide perspective is that plan sponsors with plans that are registered in other provinces but that have members in Manitoba are going to have to comply with a number of these provisions,” he said. “They’re going to have to be aware and make amendments to their plans for Manitoba members.”

There is also potential for further harmonization down the road with many provinces and the federal government examining and adapting plans, said Lyon.

“I think this is an area where we’re going to see many further changes over time,” said Robertson. “This isn’t the end of pension reform.”

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