Canada: Agreement Respecting Multi-Jurisdictional Pension Plans In Effect For Certain Ontario And Québec Plans

The Canadian Association of Pension Supervisory Authorities (CAPSA) developed the Agreement Respecting Multi-Jurisdictional Pension Plans (the Agreement) in order to provide "a clear framework for the administration and regulation of pension plans that have members in more than one jurisdiction." Ontario and Québec are the first two jurisdictions to adopt the Agreement. The Agreement came into force in respect of Ontario and Québec on July 1, 2011.

Prior Landscape for Regulation of MJPPs

Administrators of multi-jurisdictional pension plans (MJPPs) are confronted with the additional burden of having to navigate amongst the various legislative and regulatory regimes of the jurisdictions where their members are employed. Complying with the different rules of the relevant jurisdictions adds complexity and cost to administering MJPPs. Moreover, it is often not clear how the various legislative and regulatory regimes apply.

Beginning in 1968, the federal government and most of the provinces entered into bilateral and multilateral reciprocal agreements designed to simplify the administration of MJPPs by delegating powers and duties of other jurisdictions to the jurisdiction in which the plurality of the MJPP members were employed (the "Major Authority," with the other jurisdictions known as the "Minor Authorities"). While the Memorandum of Reciprocal Agreement (the Memorandum) eliminated the need to register the plan in each jurisdiction in which the MJPP had members, it did not sufficiently simplify the administration of many MJPPs and failed to specifically address many issues (in particular which legislation governs a particular matter such as plan funding).

The practice that developed for dealing with such unaddressed matters was to apply the legislation of the Major Authority in respect of "administrative matters" affecting the MJPP as a whole, and the legislation of the Minor Authority in respect of members' entitlements. However, in its decision in Leco, the Ontario Divisional Court questioned the application of this practice to certain issues such as surplus entitlement and allocation. The Court's approach made pension regulators much more cautious in their regulation of MJPPs and, in turn, made it more difficult for employers (and other administrators) to administer MJPPs. As a result, the decision in Leco called into question the efficacy of the Memorandum.

Recognizing the shortfalls of the Memorandum, CAPSA determined that a new regime was necessary and began to develop the Agreement. Following a consultation process, the final version of the Agreement was published on May 20, 2011.

Overview of the Agreement

The Agreement sets out the following general framework for the regulation and administration of MJPPs:

  • The rules of the jurisdiction of the Major Authority (i.e., the jurisdiction with the plurality of active plan members) will apply to a series of matters that affect the MJPP as a whole (e.g., plan administrator duties, investment and plan registration). These matters are specifically listed in Schedule B to the Agreement.
  • The rules of the jurisdiction of each Minor Authority will apply to the applicable members in relation to matters that are not contained in Schedule B (e.g., vesting, locking-in and surplus distribution).
  • The "final location" method will be used to determine benefit entitlements (i.e., a member's pension benefits are governed by the laws of the jurisdiction where he terminates employment or retires under the plan). This will effectively put an end to Ontario's practice of requiring a plan administrator to apply the impractical "checkerboarding" approach (whereby the legislation of each jurisdiction in which a member was employed applies to that portion of the pension which accrued to the member during his employment in that jurisdiction).
  • Any changes to the Major Authority due to changes in the jurisdiction of the plurality of the active members will be subject to specific rules, including notification requirements for regulatory authorities and plan administrators. This is not a feature that changes suddenly but rather after a specified period following the filing of an annual information return revealing that certain specified thresholds are met requiring the change to the Major Authority. Notably, the Agreement provides for a five year transition period for a MJPP to bring its existing investments into compliance with the investment rules of a new Major Authority.

Issues to Note

Transition from the Memorandum to the Agreement

Effective July 1, 2011, the Agreement came into effect for MJPPs where the Major Authority is Ontario or Québec and the pension plans have Ontario and Québec members regardless of whether all jurisdictions in which the MJPP has members have adopted the Agreement. In such circumstances, the MJPP is subject to the Agreement in respect of Ontario and Québec, but remains subject to the Memorandum in respect of other jurisdictions which are not yet parties to the Agreement.

There is currently no information available as to when other jurisdictions are expected to sign the Agreement. However, the federal, Alberta and New Brunswick pension legislation have already been amended to enable those governments to enter into the Agreement and amendments to this effect will come into force in Manitoba on January 1, 2012. It is therefore reasonable to expect that these jurisdictions will sign the Agreement over the coming months.


While funding of ongoing MJPPs is generally subject to the pension legislation of the Major Authority, there are certain exceptions. Specifically, in instances where the pension legislation of a Minor Authority's jurisdiction requires that a specific benefit be funded but the legislation of the Major Authority does not, that benefit would be required to be funded in respect of members subject to that Minor Authority's legislation. For example, the Québec Supplemental Pension Plans Act (the SPPA) requires the funding of indexation benefits while the Ontario Pension Benefits Act (the PBA) does not. If a plan registered in Ontario provides for indexation benefits, such benefits will have to be funded in respect of Québec members even though most aspects of plan funding are to be governed by the PBA.

There is a similar exception where the Minor Authority's jurisdiction requires that an additional liability be established and funded to provide additional protection to plan members employed in that jurisdiction. Since January 1, 2010, for example, the SPPA requires the establishment of a reserve on a solvency basis. Based on the Agreement, administrators of MJPPs registered in Ontario will be required to establish such a reserve in respect of their Québec members. The whole MJPP (not just the Québec portion) would be subject to this requirement if the plan is registered in Québec.

There are also special provisions that apply when there is a change in the Major Authority from a jurisdiction that does allow the use of an alternative funding arrangement, such as a letter of credit, to one that does not. Where the Major Authority changes to a jurisdiction which does not allow for letters of credit, a cash payment into the MJPP equivalent to the lesser of the secured amount or the amount required to achieve full solvency funding is required to be contributed 30 days prior to such change. Notably, the administrator can extend the timeframe by providing notice 35 days prior to the change to both the new Major Authority and the prior Major Authority that it intends to file a new valuation.

Nevertheless, difficulties could arise where the capital, which would have otherwise been used to fund special payments to the MJPP, is invested in projects or assets from which it is difficult to withdraw. (This would be particularly onerous where the Major Authority changes from Alberta to another jurisdiction as under the Alberta legislation an employer may use a letter of credit to secure all of the required solvency deficiency payments). As well, the renewal date of the letter of credit at issue may possibly not coincide with the relevant period for transitioning to a new Major Authority.

Plan Amendments

Another feature of the Agreement to note is that the funding requirements related to plan amendments are to be governed by the legislation of the Major Authority. Administrators of MJPPs registered in Québec must be mindful that any plan amendment, including those in respect of Ontario members, are therefore subject to the "90% rule" whereby amendments that reduce the solvency ratio of a plan below 90% require a special lump-sum payment equal to the lesser of the cost of the amendment and the amount required to bring the solvency ratio up to 90%. The Régie des rentes du Québec also seems to be of the view that if surplus assets are to be used to fund an improvement, administrators of a Québec-registered MJPP will have to consider the application of the new "equity principle" under the SPPA. Under this principle, an amendment funded with surplus assets would have to be equitable for two groups: (i) the active members; and (ii) the non-active members (including retirees) and other plan beneficiaries. Conversely, neither of these two rules would be applicable in respect of Québec members where a MJPP is registered in Ontario.

Allocation of Assets Among Jurisdictions

The Agreement sets out a methodology for the allocation of assets among jurisdictions upon the occurrence of the following situations: (i) pension plan splits; (ii) withdrawal of an employer from a plan that has more than one participating employer; (iii) partial and full plan wind-ups; and (iv) employer withdrawal of plan assets as permitted by pension legislation. While it cannot be expected to resolve every possible issue that will arise in connection with these events, the methodology goes some way in clarifying the applicable framework.

Recourse from Regulatory Decisions

Administrators seeking recourse from decisions related to matters described in Schedule B will have to follow the requirements of the Major Authority's legislation. For recourse from decisions related to matters not described in Schedule B, administrators will be governed by the requirements of the Minor Authority's legislation, as if the initial decision had been made by the applicable Minor Authority.

Next Steps

The Agreement will provide greater certainty for administrators of MJPPs. Administrators of MJPPs for which the Agreement is now in effect (or soon will be) should review their practices with respect to members outside the jurisdiction of the Major Authority to ensure they comply with the Agreement.

Key points discussed above for administrators to note in terms of their administrative practices going forward are:

  • The rules of the jurisdiction of the Major Authority are applied to all members with respect to matters listed in Schedule B to the Agreement (e.g., plan administrator duties, investment and plan registration) and the rules of the jurisdiction of the relevant Minor Authority are applied to applicable members with respect to matters not listed in Schedule B (e.g., vesting, locking-in and surplus distribution).
  • The "final location" method will be used to determine benefit entitlements, ending Ontario's practice of "checkerboarding."
  • While funding of ongoing MJPPs is generally subject to the pension legislation of the Major Authority, there are exceptions where: (a) the pension legislation of a Minor Authority's jurisdiction requires that a specific benefit be funded but the legislation of the Major Authority does not; and (b) the Minor Authority's jurisdiction requires that an additional liability be established and funded to provide additional protection to plan members employed in that jurisdiction.

Stephanie Kauffman advises on legal and regulatory issues affecting all aspects of provincially and federally regulated pension plans and other employee benefit plans. Julien Ranger-Musiol advises employers, pension fund administrators and service providers on issues such as plan mergers, use of surplus assets, contribution holidays, administration expenses and plan administration and compliance.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

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