Canada: Pension Reforms Across Canada – What Do They Mean To Your Organization?

Last Updated: December 19 2011
Article by Sonia T. Mak

Most Read Contributor in Canada, September 2016

Changes in pension law in the last few years are the first of their kind in over 20 years. Almost all jurisdictions across Canada have undertaken an extensive review of their pension systems, resulting in significant changes to the pension legislation for some jurisdictions.

The pension reform legislative changes are important to your organization if it has, or participates in, a pension plan, regardless of the type of pension plan (whether defined contribution or defined benefit, hybrid, single-employer or multi-employer).

This article consists of two parts. The first part is a synopsis of legislative changes and the second part is an outline of steps to be taken to ensure the continued legal compliance of a pension plan and its administration.


  • Federal Jurisdiction: Changes to the federal pension legislation are relevant to your organization if the relevant pension plan provides for benefits to employees employed in a federal undertaking. Most of the legislative changes have come into force. Key changes include immediate vesting, enhanced disclosure to members, new solvency funding rules (such as the permitted use of letters of credit to fund solvency deficiency in lieu of cash payment) and the removal of the quantitative limits on the investment of pension funds in Canadian real property and Canadian resource properties.
  • Ontario: Changes to the Ontario pension legislation are relevant to pension plans which are registered in Ontario or which have members located in Ontario. Only some of the enacted legislative changes have come into force. They include the application of changes to the federal investment rules to the investment of pension funds of Ontario pension plans (before this change, the applicable federal investment rules were frozen as at December 31, 1999) and permitted withdrawal of surplus by an employer by demonstrating surplus entitlement or obtaining required member consent (buy not both) subject to regulatory consent.

    New rules for the valuation and division of pension on marriage breakdown will come into effect on January 1, 2012.

    The effective dates of other key changes like immediate vesting and the extension of "grow-in" benefits to members whose employment is terminated by the employer on or after July 1, 2012 other than for cause, are still unknown.
  • Other Jurisdictions: Other provinces like Manitoba, Prince Edward Island and Québec have also introduced significant legislative changes. These changes are relevant to pension plans which are registered in those provinces or which have members located in those provinces.

    All of the pension reform legislative changes in Manitoba have come into force and plan amendments for compliance are required to be filed by the end of 2011, if required.

    Prince Edward Island has introduced a comprehensive pension legislation which is modeled on the Nova Scotia pension legislation. This comprehensive legislation has not yet come into force.

    In Québec, use of letters of credit to fund a portion of solvency deficiency is now permitted. A plan sponsor is now required to fund for a plan amendment that reduced the plan's solvency ratio to below 90%.

    Alberta and British Columbia have undertaken an extensive review of their pension systems and it is expected that legislative changes will be made in the near future. New Brunswick has also set up a task force to examine its pension system but no legislative changes have yet been introduced.


  • Review and Amend Plan Documents. The provisions of a pension plan are required to comply with the applicable pension legislation. Pension plan text and related documents (such as plan summary) need to be reviewed to determine whether amendments are required to reflect the legislative changes. This can be a complicated task since the effective dates of the legislative changes are not the same. Amendments can be complex if the pension plan has members in multiple jurisdictions.
  • Change Procedures. Administrative rules, practices and procedures also need to be reviewed. Sometimes amendments to plan language may not be required to reflect legislative changes because of the broadness of the language. However details set out in the administrative rules may no longer meet the legal requirements. For example, a pension plan typically provides for credit splitting on marriage breakdown in compliance with the pension legislation. Another example is plan language which requires the administrator to provide such notices and statements to plan members as required by the pension legislation. Such plan provisions need not be amended but the legislative changes will affect how those provisions are actually administered.
  • Review Investments. The removal of quantitative limits on pension fund investments results in more investment flexibility. In addition to the removal of quantitative limits on investment in real property and Canadian resources properties, the federal government has announced its plans to also change some other quantitative limits. A pension fund is required to be invested in accordance with both the pension legislation and its statement of investment policies and procedures (SIPP). If the SIPP contains the quantitative limit which has been removed by legislative change, the SIPP needs to be amended to remove the limit to permit the investment flexibility.
  • Review Funding. There are significant changes to the funding rules in some jurisdictions. Some of them are already in force. It is desirable for a plan sponsor to review the funding status of its pension plan in light of the new funding rules. In particular, a plan sponsor may wish to consider whether the new funding rules (when in force) can be of assistance in overcoming issues faced by a pension plan under the old rules. For example, the permitted use of letters of credit to fund the solvency deficiency of a pension plan, coupled with simpler surplus withdrawal rules, will ease the "cash trapping" problem under the old rules where a plan sponsor is required to fund the solvency deficiency in cash.

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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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