Pension regulators are committed to pension system reform — have been for years. But will politicians ever make it a reality?
From his Calgary office, Ron Sawatzky, director of pension and benefits for Enbridge Inc., said he has been troubled a great deal lately by Ontario pension law.
Although the 4,000-employee energy-sector firm is based in Alberta, it has operations in Ontario and is therefore subject to that province’s unique pension rules and regulations.
Most recently, and most notably, that has meant figuring out the implications from the recent Supreme Court of Canada decision on the longstanding Monsanto case. The court ruled a group of laid-off Monsanto employees were entitled to some portion of the actuarial surplus that existed in the pension plan at the time of a partial windup years earlier. It could amount to a multi-million dollar payout for Monsanto, and many other sponsors could find themselves in a similar situation, including Enbridge.
“Our biggest pension challenges right now are in Ontario, with all of the uncertainty about surplus distribution after the Monsanto decision,” said Sawatzky.
“As soon as the ruling came out, and we had a debrief, some of our people were saying it doesn’t seem right for pension legislation to discourage us from running a surplus. It seems like we could be a sitting target for litigious lawyers.”
By virtue of very good investment management and thorough due diligence, Enbridge is one of the rare organizations that can boast a comfortable pension surplus, said Sawatzky. “Now do you say that is a positive, or do you say it is a negative?”
For years, pension industry professionals, sponsors and consultants have been calling for fundamental reform to the pension system, and in a way, the Monsanto case illustrates much of what is wrong.
In some cases, problems are identified in isolation and are unique to each jurisdiction. Bad enough, but it gets worse when sponsors with members in more than one province have to be well-versed in, and subject to, the quirks, flaws and outright failings of each jurisdiction, as Enbridge has learned first hand.
If Enbridge only had employees in Alberta it needn’t have any concerns about surplus, because the province has passed legislation that expressly states employers do not have to distribute surplus at the time of a partial windup. A similar law has been passed in British Columbia. In Quebec, the government has altogether done away with the concept of partial windup.
It is possible for pension system wrongs to be righted on a case-by-case basis, as demonstrated by Alberta, British Columbia and Quebec’s responses to surplus distribution and partial windups. But for more than four years now, the country’s 10 pension regulators have been committed to something better and grander. (There are nine provincial regulators and Ottawa oversees federally regulated plans. Only Prince Edward Island has no regulator.)
Joined together as the Canadian Association of Pension Supervisory Authorities (CAPSA), the regulators have been working to “facilitate an efficient and effective pension regulatory system in Canada.” Chief among its objectives is a harmonization of pension laws across Canada. Last January it released its Proposed Regulatory Principles for a Model Pension Law, a carefully prepared synthesis of best pension practices in the country. Under the CAPSA plan, for example, surplus distribution would no longer be a problem. (For more on the proposals click on the related articles link below.)
After releasing the proposals, CAPSA held a series of meetings with stakeholders across the country in late winter and into the spring. More than 60 written submissions were also received from unions, law firms, consulting houses and employers, before the consultation period wrapped up at the end of June. Ultimately, CAPSA will take its recommendations to governments in the hopes of appropriate changes to legislation.
“The point we are at now is the analysis of the feedback and doing some decision-making on what we are going to do on any items that are contentious,” said Nancy MacNeill Smith, chair of CAPSA. She would not say which principles were causing the most difficulty. It’s likely CAPSA will produce some sort of update by the end of the year, though she did not say when the association will be ready to take final proposals to the provinces and Ottawa for review.
“Clearly the biggest issue for Canadian pension plan sponsors is getting the multitude of pension jurisdictions to accept CAPSA model law and incorporate the proposals into standard legislation,” said Sawatzky. “Unfortunately, in my view, the well-intentioned proposed principles will not make a difference unless uniformly embraced and I don’t think that is going to happen.”
All of the CAPSA proposals are well-founded and make good sense, but it will be very difficult to get all jurisdictions to agree to accept the proposals, he said. Without a coast-to-coast endorsement, “we’re going nowhere at a really fast rate,” he said.
Just how and when, and even if, the CAPSA proposals will translate into real practical improvements is a matter of debate among pension experts and professionals.
Any hope of the provinces and Ottawa coming together and adopting new legislation to produce pension harmony is not very realistic, said Sheryl Smolkin, director of Watson Wyatt’s Canadian research and information centre.
“From the point of view of both employees and employers pensions are complicated enough without having non-productive differences and replications of systems to govern pensions,” she said.
The ideal situation would be the elimination of the different jurisdictions and regulators and placing all pension plans under the watch of one central regulator, but that is unlikely to happen, she said. The next best thing would be the adoption of the CAPSA proposals in each jurisdiction.
But it’s unlikely anything will come of the CAPSA proposal in the short term because it will take a great deal of co-operation and long-term commitment from each of the governments, and that is unlikely to happen. “It is a classic Canadian problem because it is a constitutional issue,” said Smolkin. “And there is no recent precedent for governments putting aside their individual political agendas to arrive at agreement that satisfies all parties.”
However, MacNeill Smith said progress can be made without all parties getting together and accepting the proposals. “It doesn’t all have to happen at one time,” she said. It might be that one jurisdiction agrees to accept CAPSA’s final proposals and then other jurisdictions would follow suit over time.
The pension regulators know the system has problems and are committed to correcting them, she said. “We can’t just throw up our hands and say, ‘This is not going to work,’ and give up.” They have been working on this for four years, and they are not going to give up just because it’s going to take a while, she said. “I am very hopeful it will be done. But a timeframe? I don’t know.”
Stephen Bigsby, executive director of the Association of Canadian Pension Management, said his organization is pleased with the CAPSA model law. “I think it is a tremendous initiative, and it is a very ambitious proposal.” CAPSA has identified the most complex issues and challenges and correcting them will take time, he said, adding that success could come in increments.
“In a perfect world we would like them all to amend their legislations at the same time.” It may be enough for the model law to be accepted as a “beacon” of best practices for the various political decision-makers whenever pension legislation is reviewed, he said.
“At least we would have something to move toward,” he said. “In debate at the political level, it is very useful to have a model there. That way if politicians say something is sacrosanct and they refuse to make changes, the model makes it hard for them to argue changes shouldn’t be made.
“It depends on how you define success,” he said. There are a lot of problems in the pension system, things like partial windups and surplus distribution. “If we can crack some of those nuts as a result of this (model law) being brandished as a beacon, than we might build some momentum for change and that is how we can define success,” he said. “Is (the model law) a panacea? No. Is it going to happen in 12 or even 24 months? I doubt it. But it will be a very useful tool.”
Although the 4,000-employee energy-sector firm is based in Alberta, it has operations in Ontario and is therefore subject to that province’s unique pension rules and regulations.
Most recently, and most notably, that has meant figuring out the implications from the recent Supreme Court of Canada decision on the longstanding Monsanto case. The court ruled a group of laid-off Monsanto employees were entitled to some portion of the actuarial surplus that existed in the pension plan at the time of a partial windup years earlier. It could amount to a multi-million dollar payout for Monsanto, and many other sponsors could find themselves in a similar situation, including Enbridge.
“Our biggest pension challenges right now are in Ontario, with all of the uncertainty about surplus distribution after the Monsanto decision,” said Sawatzky.
“As soon as the ruling came out, and we had a debrief, some of our people were saying it doesn’t seem right for pension legislation to discourage us from running a surplus. It seems like we could be a sitting target for litigious lawyers.”
By virtue of very good investment management and thorough due diligence, Enbridge is one of the rare organizations that can boast a comfortable pension surplus, said Sawatzky. “Now do you say that is a positive, or do you say it is a negative?”
For years, pension industry professionals, sponsors and consultants have been calling for fundamental reform to the pension system, and in a way, the Monsanto case illustrates much of what is wrong.
In some cases, problems are identified in isolation and are unique to each jurisdiction. Bad enough, but it gets worse when sponsors with members in more than one province have to be well-versed in, and subject to, the quirks, flaws and outright failings of each jurisdiction, as Enbridge has learned first hand.
If Enbridge only had employees in Alberta it needn’t have any concerns about surplus, because the province has passed legislation that expressly states employers do not have to distribute surplus at the time of a partial windup. A similar law has been passed in British Columbia. In Quebec, the government has altogether done away with the concept of partial windup.
It is possible for pension system wrongs to be righted on a case-by-case basis, as demonstrated by Alberta, British Columbia and Quebec’s responses to surplus distribution and partial windups. But for more than four years now, the country’s 10 pension regulators have been committed to something better and grander. (There are nine provincial regulators and Ottawa oversees federally regulated plans. Only Prince Edward Island has no regulator.)
Joined together as the Canadian Association of Pension Supervisory Authorities (CAPSA), the regulators have been working to “facilitate an efficient and effective pension regulatory system in Canada.” Chief among its objectives is a harmonization of pension laws across Canada. Last January it released its Proposed Regulatory Principles for a Model Pension Law, a carefully prepared synthesis of best pension practices in the country. Under the CAPSA plan, for example, surplus distribution would no longer be a problem. (For more on the proposals click on the related articles link below.)
After releasing the proposals, CAPSA held a series of meetings with stakeholders across the country in late winter and into the spring. More than 60 written submissions were also received from unions, law firms, consulting houses and employers, before the consultation period wrapped up at the end of June. Ultimately, CAPSA will take its recommendations to governments in the hopes of appropriate changes to legislation.
“The point we are at now is the analysis of the feedback and doing some decision-making on what we are going to do on any items that are contentious,” said Nancy MacNeill Smith, chair of CAPSA. She would not say which principles were causing the most difficulty. It’s likely CAPSA will produce some sort of update by the end of the year, though she did not say when the association will be ready to take final proposals to the provinces and Ottawa for review.
“Clearly the biggest issue for Canadian pension plan sponsors is getting the multitude of pension jurisdictions to accept CAPSA model law and incorporate the proposals into standard legislation,” said Sawatzky. “Unfortunately, in my view, the well-intentioned proposed principles will not make a difference unless uniformly embraced and I don’t think that is going to happen.”
All of the CAPSA proposals are well-founded and make good sense, but it will be very difficult to get all jurisdictions to agree to accept the proposals, he said. Without a coast-to-coast endorsement, “we’re going nowhere at a really fast rate,” he said.
Just how and when, and even if, the CAPSA proposals will translate into real practical improvements is a matter of debate among pension experts and professionals.
Any hope of the provinces and Ottawa coming together and adopting new legislation to produce pension harmony is not very realistic, said Sheryl Smolkin, director of Watson Wyatt’s Canadian research and information centre.
“From the point of view of both employees and employers pensions are complicated enough without having non-productive differences and replications of systems to govern pensions,” she said.
The ideal situation would be the elimination of the different jurisdictions and regulators and placing all pension plans under the watch of one central regulator, but that is unlikely to happen, she said. The next best thing would be the adoption of the CAPSA proposals in each jurisdiction.
But it’s unlikely anything will come of the CAPSA proposal in the short term because it will take a great deal of co-operation and long-term commitment from each of the governments, and that is unlikely to happen. “It is a classic Canadian problem because it is a constitutional issue,” said Smolkin. “And there is no recent precedent for governments putting aside their individual political agendas to arrive at agreement that satisfies all parties.”
However, MacNeill Smith said progress can be made without all parties getting together and accepting the proposals. “It doesn’t all have to happen at one time,” she said. It might be that one jurisdiction agrees to accept CAPSA’s final proposals and then other jurisdictions would follow suit over time.
The pension regulators know the system has problems and are committed to correcting them, she said. “We can’t just throw up our hands and say, ‘This is not going to work,’ and give up.” They have been working on this for four years, and they are not going to give up just because it’s going to take a while, she said. “I am very hopeful it will be done. But a timeframe? I don’t know.”
Stephen Bigsby, executive director of the Association of Canadian Pension Management, said his organization is pleased with the CAPSA model law. “I think it is a tremendous initiative, and it is a very ambitious proposal.” CAPSA has identified the most complex issues and challenges and correcting them will take time, he said, adding that success could come in increments.
“In a perfect world we would like them all to amend their legislations at the same time.” It may be enough for the model law to be accepted as a “beacon” of best practices for the various political decision-makers whenever pension legislation is reviewed, he said.
“At least we would have something to move toward,” he said. “In debate at the political level, it is very useful to have a model there. That way if politicians say something is sacrosanct and they refuse to make changes, the model makes it hard for them to argue changes shouldn’t be made.
“It depends on how you define success,” he said. There are a lot of problems in the pension system, things like partial windups and surplus distribution. “If we can crack some of those nuts as a result of this (model law) being brandished as a beacon, than we might build some momentum for change and that is how we can define success,” he said. “Is (the model law) a panacea? No. Is it going to happen in 12 or even 24 months? I doubt it. But it will be a very useful tool.”
