A look at pension reforms from coast to coast

Provincial, federal governments strengthened DB funding standards, improved benefit security

Among Canada’s 11 jurisdictions, there is almost always some pension reform in the works. After the economic crisis of October 2008, which hit an already badly stressed private pension system, governments across the country began to work in earnest. Many provided temporary solvency funding relief to sponsors of defined benefit (DB) plans. Permanent reforms also began to take shape in 2010.

The single most notable trend is the strengthening of DB funding rules to improve benefit security. Other measures adopted in 2010 include benefit improvements, governance, employer surplus withdrawal and regulatory supervision or process. Immediate vesting stands out as the benefit trend of the year.

Here is a coast-to-coast rundown of the major reform activity in 2010.

Western Canada

British Columbia and Alberta were quiet in 2010. No pension bills were tabled but B.C. and Alberta might still, at some point, take action based on recommendations in their joint expert panel report.


Manitoba brought its Bill 10 legislative amendments, with newly rewritten regulations, into effect as of May 31, 2010. This is a comprehensive reform that affects almost every aspect of a pension plan. On the funding front, Manitoba strengthened DB funding by disallowing contribution holidays if surplus was reduced to less than five per cent of solvency liabilities. Employer withdrawal of surplus on wind-up or during the life of the plan is permitted with two-thirds’ member consent.

The key new benefit requirements are immediate vesting, full commuted value pre-retirement death benefits for all service and 60 per cent spousal survivor pensions. Sponsors may use email for communication with members. Also, a pension committee that includes member representation will be required to govern most plans as of May 31, 2011.


Ontario acted on recommendations in its expert commission report. Bill 236 and Bill 120 were passed, although most measures await supporting regulations and have not yet been proclaimed in effect.

Bill 236 reformed employer surplus withdrawal rules for full and partial wind-up, and during the life of a plan, that now allow withdrawal based on documentary entitlement, without member consent. These new rules came into force but were amended by Bill 120. Other Bill 236 changes have been delayed including the elimination of partial wind-ups, extension of grow-in rights to all involuntary terminations (to take effect July 1, 2012) and the creation of legislative rules on plan mergers to override trust rules. There will be immediate vesting, plan administrators will have additional disclosure obligations and the superintendent will have the power to order a special valuation report.

Bill 120 completed the reform of surplus withdrawal rules and added rules for binding arbitration, but the arbitration rules are not yet in effect. DB funding will be strengthened with a 105-per-cent threshold for contribution holidays and restrictions on benefit improvements for poorly funded plans, but will also allow letter-of-credit solvency funding. Other announced measures, such as annual valuation requirements, will be made by regulation. Bill 120 will also create permanent solvency funding exemptions for certain plan types, such as target benefit plans that have joint governance, subject to details to be set out in regulations.


Quebec worked on funding reform in 2009, preparing the detailed rules on letter-of-credit funding, and strengthened DB funding that took effect on Jan. 1, 2010. In 2010, the ability to fund with a letter of credit was extended to employers that participate in multi-employer plans. A unique development was the 2009 creation of the option for members with reduced pensions on plan termination to transfer the pension to the Régie des rentes to manage the assets. In 2010, the rules for this new system were refined.

Prince Edward Island

Prince Edward Island tabled Bill 30 to create minimum standards laws and regulatory supervision. It would replace the pension legislation adopted in 1990 that has not been proclaimed in force. The bill is updated and matches the current Nova Scotia legislation. It lacks the progressive reforms that mark the recent legislative activity of the other jurisdictions. However, the government has committed to extensive consultations.

Atlantic Canada

Nova Scotia and New Brunswick began pension reform consultations.


The federal government increased the Income Tax Act surplus funding threshold — after which employer contributions must cease — from 10 per cent to 25 per cent, doing its part to help strengthen funding for all jurisdictions.

Strengthened federal funding standards regulations came into effect in 2010. These introduced the “average solvency ratio” valuation requirement and a funding threshold of 105 per cent before a contribution holiday is permitted. Related new directives by the superintendent set a lower threshold for requiring annual valuations.

Bill C-9 was also passed in 2010. This bill adds plan termination funding requirements but also allows letter-of-credit solvency funding and contribution reductions for certain Crown corporations.

The distressed pension plan workout scheme rules were introduced. This is a unique contribution that facilitates agreed non-standard employer payment schedules. Regulations to support these funding measures were released in draft form at the end of the year.

The only funding measure that took effect in 2010 is the restriction on plan improvements if the solvency of a plan is 85 per cent or lower.

Bill C-9 also contains some improved benefit standards including immediate vesting, application of the 50-per-cent cost sharing test to all service and a pre-retirement death benefit for all service payable to a spouse or beneficiary. These are not yet in effect.

Bill C-47 was also passed. It is not yet in effect and related regulations are not yet released. It will create a safe harbour from liability for administrators of defined contribution (DC) provisions where members make investment choices. This is a big policy initiative and a first in Canada. It will also establish rules for electronic communication to plan members and for handling benefits for missing persons.

It was a remarkably busy year for minimum standards pension reform in Canada. Jurisdictions that have addressed DB funding standards have all strengthened them in order to improve benefit security. This will strengthen existing DB plans but does not encourage employers to maintain them. With the continuing migration to DC pension plans, perhaps the federal safe harbour initiative will be followed by other jurisdictions in future reforms.

Leigh Ann Bastien is a partner at consulting firm Mercer in Toronto. She can be reached at leighann.bastien@mercer.com.

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