Pension reformis on the minds of many legislators in Canada these days and British Columbiais no exception. Bill 38, which representsa major overhaul of BC’s current PensionBenefits Standards Act (“PBSA”), received final approval on May 31, 2012,but is not yet in force. Bill 38 will only comeinto force once the new Regulations are completed (a big task), so we do not expectit to become law before mid-2013. However, prudent sponsors and plan administrators should start preparingnow for the arrival of the new law.
Bill 38represents the BC government’s long-awaited response to the 2008 report ofthe Joint Expert Panel on Pension Standards (“JEPPS”). JEPPS was an independent expert reviewprocess undertaken by the BC and Alberta governments based on a desire toharmonize their pension legislation in recognition that many employers haveoperations in both provinces. The new legislation is intended to promoteincreased pension coverage by being more “principles-based” than itspredecessor and will rely heavily on Regulations to achieve that goal.
The keychanges to the PBSA and their impacton plan sponsors, administrators and employees, are summarized below.
New Plan Designs
Bill 38 permitsnew plan designs including target benefit plans, which limit an employer’sfunding obligation to what it is contractually required to contribute, andjointly sponsored pension plans which, in addition to regular contributions,require employees to contribute to unfunded liabilities and solvencydeficiencies that arise in a defined benefit environment. Under both of these designs, employers wouldnot be required to fund deficiencies following plan terminations; instead,benefits could be reduced.
Superintendent’s Discretion and Regulatory Powers
Bill 38 “arms”the Superintendent of Pensions (“Superintendent”) with, among other things, increasedinspection and intervention powers; power to reduce or stop payments that couldprejudice plan members; and power to take preventative action where the planadministrator attempts something “contrary to safe and sound pensionpractices.” It also empowers theSuperintendent to levy administrative penalties of up to $250,000.
Bill 38permits defined benefit plan administrators to establish a “solvency reserveaccount” into which solvency deficiency payments may be directed. If the plan develops a “solvency excess” insubsequent years, the employer may be entitled to withdraw part of the “excess”regardless of the language in the plan text. In addition, pension funds must be invested without “undue risk of loss”and with a reasonable expectation of return commensurate with the level of risk;and all financial decisions, including investments, must be made “in the bestfinancial interests” of plan beneficiaries.
Governance and Administration
Bill 38requires plan administrators to complete a written “Plan Administration Assessment”addressing such things as legislative compliance, governance practices,funding, investments and performance of plan trustees, administrative staff andagents. The Assessment must be available for inspection by theSuperintendent. In addition, Bill 38mandates a written Governance Policy, Statement of Investment Policies andProcedures and, in the case of defined benefit or target benefit plans, aFunding Policy detailing the intended method for reaching funding objectives.
Minimum Benefits, Plan Documents and AdministrationRequirements
Bill 38requires plan documents to address a number of new requirements including: (1)members be immediately vested for all service; (2) locked-in pension benefitsbe unlocked in cases of shortened life expectancy and financial hardship; and(3) pre-retirement death benefits for all service be equal to 100% of commutedvalue. It also mandates that the plan documentspecify (1) who pays investment expenses; and (2) that assets must be investedin accordance with the PBSA and Regulations.
We will be hosting a webinar on Tuesday October 2nd at 8:00AM where we will undertake a more detailed review of the key changes and revised administrative requirements of Bill 38. If you are interested in attending this webinar, please contact Kristina Miller directly at email@example.com or 604 891 2235, to register.