Effective July 1, 2012, the Province of New Brunswick introduced
the shared risk pension plan ("SRPP")
model, the first of its kind in Canada. The SRPP design contains
elements of a target benefit design, such as a DB-type formula,
fixed contributions (subject to certain adjustments in accordance
with the funding policy) and the possibility of benefit
adjustments. However, the New Brunswick model also incorporates
sophisticated risk management and governance requirements to help
ensure benefit security and pension sustainability.
New Brunswick's Pension Benefits Act, (the
"PBA") was first amended in 2012 in
order to permit the creation of SRPPs. The Government of New
Brunswick now intends to make further amendments to the PBA to
strengthen the SRPP model.
On December 11, 2012, the Government of New Brunswick introduced
Bill 20, An Act to Amend the Pension Benefits Act for
First Reading (second reading was on December 12, 2012). If it
becomes law, Bill 20 will be deemed to have come into force on July
1, 2012, to coincide with the date on which the first SRPP enabling
legislation came into force. Among other things, Bill 20 will
afford additional protections for those carrying out administrative
functions with respect to SRPPs, provide protection for parties
involved in the conversion of DB plans to SRPPs and clarify the
treatment of vested base benefits.
Some key elements of Bill 20 are discussed below:
Trust and Contract Law
Bill 20 clarifies that conversion to a SRPP may occur and vested
benefits may be affected despite the terms of any contract or
Reduction of Vested Base Benefits
One feature of SRPPs is the potential for reduction of base
benefits in the event that the plan is less than 100% funded for
two consecutive years. While SRPPs are designed in such a way that
there is a low probability of benefit reductions, such reductions
are nonetheless a possibility. Bill 20 will amend certain
definitions in the PBA to clarify that following a conversion of a
pension plan to an SRPP, vested base benefits and vested ancillary
benefits accrued prior to conversion could be subject to a
reduction in accordance with the plan's funding policy.
Enhanced Immunity for Administrative Functions
When the PBA was first amended to enable the creation of shared
risk pensions, immunity was extended under the legislation to the
Crown in right of the Province, the Minister, a person designated
to act on behalf of the Minister, the Superintendent or plan
administrator, assuming that such persons act with the care,
diligence and skill of a reasonably prudent person. Bill 20 will
extend this protection to any officers, directors, employees or
members of these persons who meet the standard of care. Moreover,
Bill 20 would extend immunity to all actions taken under the entire
PBA and the regulations in relation to SRPPs, whereas the existing
provision offers immunity under only Part 2 of the PBA, which
governs SRPPs and related regulations.
Bill 20 will also amend existing rules to extend immunity to
parties involved in the conversion of pension plans to shared risk
plans. In addition to the persons listed above, the proposed
changes would extend immunity with respect to actions related to
the conversion to a trustee, a board of trustees, an employer, a
trade union that represents members, and an employee organization
that is the bargaining agent of members and any of their officers,
directors, employees, members, agents or advisors.
At present, the SRPP model, including the changes proposed by
Bill 20, applies only to pension plans registered in the Province
of New Brunswick. It is to be hoped that this innovative new
pension model will be considered and adopted by other pension
Originally published on BenefitsCanada.com.
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