Canada: The 2016 Multi-Jurisdictional Pension Plans Agreement Comes Into Force On July 1, 2016

In mid-May representatives of the governments of British Columbia, Saskatchewan, Ontario, Quebec and Nova Scotia signed the 2016 Agreement Respecting Multi-Jurisdictional Pension Plans (the "2016 Agreement"). The agreement will come into force for these jurisdictions on July 1, 2016.

Depending on which province across Canada one looks at, this is more or less significant, but it is definitely a step in the right direction.

What is the purpose of the 2016 Agreement and who is affected?

The main purpose of the agreement is to set out the legal framework for the administration and regulation of multi-jurisdictional pension plans (MJPPs) with a view to easing regulatory burdens where:

  • the pension plan is registered in British Columbia, Saskatchewan, Ontario, Quebec or Nova Scotia, and
  • the plan has members subject to the pension legislation of two or more of these jurisdictions (i.e. generally speaking, the members are located in those provinces).

As a result, for Alberta, Manitoba, New Brunswick, and Newfoundland and Labrador, the Memorandum of Reciprocal Agreement originally signed by the provinces beginning in 1968 is still in effect (Prince Edward Island is not a signatory to any such agreement).

For Quebec and Ontario, this replaces the 2011 Agreement, which has been in effect since July 1, 2011.  The 2016 Agreement is actually very similar to the 2011 Agreement, with some key changes (see below).

Finally, for British Columbia, Saskatchewan and Nova Scotia this is a significant change, as the 2016 Agreement replaces the 1968 Reciprocal Agreement for those jurisdictions, and essentially brings them into the fold of the 2011 Agreement.  Negotiations to bring this about have been on-going since Ontario and Quebec signed in 2011.

Perhaps a bit of a surprise is that Alberta and New Brunswick did not sign on to the 2016 Agreement.  It is interesting to note that on May 11, 2016 Quebec Decree #383-2016 allowing Quebec to sign the 2016 Agreement refers to it as being between Quebec and Alberta, British Columbia, New-Brunswick, Nova Scotia, Ontario and Saskatchewan.

What are the fundamentals of multi-jurisdictional pension plan agreements?

Essentially, MJPP agreements exempt pension plans with members in various provinces from having to follow all of the legislative requirements in each of those jurisdictions.  Instead, the agreements set out which issues are governed by the laws of which jurisdiction. 

Taking the 2011 and 2016 Agreements as an example, they require each pension plan to establish where it has the largest number of plan members, and it is that jurisdiction which becomes the "major authority".  The plan must be registered in the jurisdiction of the major authority and comply with the legislative requirements of that province with respect to the registration and governance of the plan.  This includes delegation of supervisory authority over the plan to that province's pension regulator.  The 2011 and 2016 Agreements also require, generally speaking, that the individual rights of participants be determined by the laws applicable to the location (or final location at the time benefits are determined) of each participant.

Why are these changes being made now?  What are the key changes?  Why are so few changes being made?

Although the 1968 and 2011 Agreements were not perfect and have been subject to negotiations for some time, it was Quebec's Bill 57 that created the impetus for the current changes.

Bill 57 (amending the Quebec Supplemental Pension Plans Act) came into force on January 1, 2016.  One of its main features is the elimination of funding on a solvency basis, replacing it with going-concern funding with a stabilization provision.  Quebec is the first (but perhaps not the last) province to do so. 

The 2011 Agreement was conceived at a time when solvency funding was required for all defined-benefit pension plans in all jurisdictions in Canada.  When Quebec fundamentally altered its funding model, the reciprocal nature of the 2011 Agreement between Quebec and Ontario appeared to be out of sync.

As a result, as a first step, modifications have been made to the asset-allocation rules in the 2011 Agreement.  In the event of a transfer, split or wind-up (in full or in part) assets must continue to be allocated into jurisdictional portions, but amounts accrued prior to the amendment of the legislation to eliminate solvency funding must still be funded on a solvency basis.  This will apply to any jurisdiction that amends its legislation to permanently eliminate requirements to fund on a solvency basis, which suggests that other jurisdictions may be planning to follow Quebec's lead.

It also provides additional transitional rules for when the agreement first applies to a pension plan, as well as for matters that are pending before a pension supervisory authority, court or administrative body.

Many questions relating to the different funding models remain.  It would thus appear that the biggest impact of the 2016 Agreement is to broaden the scope of the 2011 Agreement between Quebec and Ontario to include British Columbia, Saskatchewan and Nova Scotia.

This is not the final word on this matter.  What should we expect to happen next?

First, the 2016 Agreement will be implemented by those pension plans affected.  A Commentary Guide for the 2016 Agreement will be published shortly by CAPSA to assist plan administrators.

Second, as this is being brought in only as an interim measure, a public consultation is expected on additional amendments by 2018.  A revised agreement will then come into force, and hopefully will include all provinces.

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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