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Canada: New agreement governing multi-jurisdictional pension plans

Retirement|Future of Work|Health and Benefits
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By Robin Damm , Annie Demers , Rohan Kumar , Charles Lemieux , Michelle Rival , Evan Shapiro and Paul Timmins | July 17, 2020

The agreement governing multi-jurisdictional pension plans has been expanded to include more jurisdictions and to clarify plan supervision.

Employer Action Code: Act

The Canadian Association of Pension Supervisory Authorities (CAPSA) has developed the 2020 Agreement  Respecting Multi-Jurisdictional Pension Plans (2020 agreement) governing the administration and regulation of pension plans that have members located in more than one jurisdiction in Canada (multi-jurisdictional pension plans, or MJPPs). Such an agreement is necessary in Canada — where each jurisdiction has its own pension regulations — in order to coordinate the rules applicable to MJPPs. The 2020 agreement is effective July 1, 2020, and replaces the previous agreement reached in 2016 as well as several federal-provincial bilateral agreements. CAPSA is preparing a Commentary Guide on implementing the 2020 agreement.

Key details

The 2020 agreement introduces the following main changes (see our Client Advisory: New 2020 Multi-Jurisdictional Pension Plans Agreement for further background and detail):

  • The signatories have been expanded to include the federal government and all jurisdictions except Manitoba, and Newfoundland and Labrador. CAPSA has indicated that it continues to work with those provinces toward having them also join the agreement.
  • The only applicable defined benefit (DB) plan ongoing funding rules are those of the “major authority” (i.e., the jurisdiction of the plurality of plan members), regardless of any differences with the funding rules of “minor authorities” (i.e., jurisdictions of other plan members). This will simplify plan funding and eliminate prior situations, such as a DB plan with indexed benefits registered in Ontario, where future indexation increases do not need to be funded, still needing to fund for those increases for members outside Ontario.
  • A DB plan annuity purchase must comply with the requirements of the jurisdiction where a plan member was last employed in order to discharge the plan administrator from its liabilities toward plan members in that jurisdiction. However, the requirements of the major authority apply to any contribution requirements triggered by the annuity purchase (including the type or form of contributions, the manner in which they must be made and deadlines for making them); minimum plan funding and solvency levels; and actuarial valuation reports (including the form and content of such reports, filing deadlines and actuarial standards to be applied in preparing the reports).
  • Regarding the allocation of DB plan assets between jurisdictions on plan wind up or other major plan events (Note - An allocation of assets between jurisdictions is generally required on plan wind up (full or partial), a split of a plan to transfer assets to another plan, employer withdrawal, and other situations where assets of the plan related to a jurisdiction are to be paid to a participating employer in accordance with the pension legislation of that jurisdiction):
    • The allocation rules do not apply on a full wind up of a plan in a deficit position, if the amount of the deficit is contributed to the plan within 30 days after the report is filed with the major authority and, if assets remain insufficient after the contribution, a further amount is contributed promptly to ensure full payment of all benefits.
    • Core liabilities are now determined without considering whether the applicable jurisdiction requires their funding on a solvency basis, and exclude plant closure and permanent layoff benefits for members who have not yet met the eligibility criteria as well as benefits that the applicable jurisdiction would allow to be excluded from ongoing funding requirements on both a going concern and solvency basis. In addition, the requirement to reduce the value of benefits for purposes of determining core liabilities for benefits that result from a plan amendment that came into effect less than five years before the event that triggered the allocation of assets has been removed.
  • The major authority rules govern restrictions on individual transfers from a pension plan where the plan is not fully funded on a solvency or going concern basis; however, the minor authority rules govern the determination of the amount payable to a member (i.e., for plans restricting that amount by the plan’s the solvency ratio, the determination is made in accordance with the rules of the member’s final province of employment).

Employer implications

The 2020 agreement should simplify and clarify the supervision of MJPPs, including funding rules and the conditions for obtaining a discharge of DB liabilities upon an annuity purchase involving plan members in multiple jurisdictions. The COVID-19 pandemic has led some regulators (Federal, Quebec and Saskatchewan) to impose significant restrictions on commuted value transfers, so the additional clarification in the application of transfer restrictions should also be helpful to administrators of MJPPs.

Contacts

Charles Lemieux


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