Canada: Canadian Federal Minister of Finance Releases Discussion Paper on Private Pensions

Copyright 2009, Blake, Cassels & Graydon LLP

Originally published in Blakes Bulletin on Pension & Employee Benefits, January 2009


On January 9, 2009, the Canadian Federal Minister of Finance released a Discussion Paper on federally regulated private pensions entitled "Strengthening the Legislative and Regulatory Framework for Private Pension Plans Subject to the Pension Benefits Standards Act, 1985". A full copy of the Discussion Paper can be viewed at .

The stated objective of the Discussion Paper is "to seek views on the most appropriate means of enhancing the legislative and regulatory framework for registered pension plans subject to the Pension Benefits Standards Act, 1985" (PBSA). The Discussion Paper covers both defined benefit and defined contribution plans. The Discussion Paper also raises issues pertaining to multi-employer pension plans and other elements of the pension framework. In addition, the Discussion Paper seeks to canvass the ideas of interested parties on the investment regulations applicable to federally regulated plans. This last component of the Discussion Paper will be of interest not only to the sponsors and administrators of federally regulated pension plans but also to the sponsors and administrators of provincially regulated plans in those common-law provinces that have adopted the federal investment regulations.

The government is encouraging interested parties to provide their views on the topics canvassed in the Discussion Paper. The deadline for submissions is March 16, 2009. In addition, a series of national consultation meetings will begin in March. Details of those consultation meetings will be released shortly. The government has indicated that it will also consult with the provinces and territories and, to this end, a federal-provincial working group of senior officials has been established to discuss pension issues and share pertinent information.

The government intends to issue a final report in early June 2009 and to have legislative and regulatory amendments drafted by the fall of 2009.

Overview of Topics for Discussion

The Government of Canada is interested in stakeholders' views on the following topics:

1. The rules for funding solvency deficiencies and the solvency calculation itself.

2. Whether to require that plan sponsors fully fund pension benefits when a plan is fully terminated, but provide that payments can be made over a period of five years, and treat the outstanding obligation as an unsecured debt of the company.

3. The conditions, if any, where a plan could be terminated in an underfunded position by virtue of an agreement between the sponsor and plan members.

4. Whether to eliminate the concept of partial termination from the PBSA, but require immediate vesting of pension benefits for all members.

5. Whether to:

  • require administrators to establish a Statement of Funding Policy (SFP) in a similar fashion as the Statement of Investment Policies & Procedures (SIP&P);
  • allow required disclosure items to be disseminated by electronic means, at the option of the receiving member or beneficiary; and
  • expand the categories of members required to receive plan information to include former members and retirees, where it is appropriate.

6. Whether:

  • plan sponsors should be required to develop a formal policy on contribution holidays for inclusion in an SFP; and
  • to the extent that employer contributions are permitted under the tax rules, plan sponsors should only be permitted to take a contribution holiday in the year in which a valuation report, filed with the Office of the Superintendent of Financial Institutions, shows a surplus in the plan on a solvency basis.

7. Whether to amend the regulations to prescribe a solvency ratio level of 0.85 for the purpose of implementing the void amendment provision in the PBSA.

8. The practicality and desirability of safe harbour protection, and what considerations should be made in the determination of the qualified default investment options.

9. Whether to allow the payment of variable retirement benefits directly from defined contribution accounts.

10. Whether it is appropriate to revise the standard of care for employers sponsoring defined contribution plans to 'good faith' rather than 'fiduciary'.

11. Whether it is appropriate to clarify that defined benefit surplus can be used to offset employer's defined contribution current service costs for hybrid plans.

12. Required administrative practices that may impede the proper and efficient administration of defined contribution plans.

13. Whether there is interest in alternative plan designs that may not currently be accommodated by the legislative framework.

14. Whether there are legislative impediments to the creation or operation of multi-employer pension plans, and if there are improvements that could usefully be made to the legislative framework for these arrangements.

15. The relevance of Simplified Pension Plans, and whether there are any impediments in the legislation to the adoption of such arrangements.

16. The appropriateness of reorganizing the PBSA to provide greater clarity on the differing legislative provisions applicable to defined benefit and defined contribution plans.

17. Ways to improve the regulatory framework governing pension investment.

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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