Client Advisory New 2020 Multi-Jurisdictional Pension Plans Agreement, more jurisdictions join
←
→
Page content transcription
If your browser does not render page correctly, please read the page content below
Client Advisory New 2020 Multi-Jurisdictional Pension Plans Agreement, more jurisdictions join July 2, 2020 Summary The federal government and all but two provinces with pension standards legislation (Manitoba and Newfoundland & Labrador) have now signed the Agreement Respecting Multi-Jurisdictional Pension Plans, which is effective on July 1, 2020. The agreement is generally the same as the 2016 agreement signed by five provinces (British Columbia, Saskatchewan, Ontario, Quebec and Nova Scotia) though updated to simplify ongoing funding rules, address annuity discharge requirements, and adjust the allocation of assets between jurisdictions on plan wind up or other major plan events. Importantly, the expanded agreement will improve the coordination and harmonization of pension regulation across Canada. This Advisory will be of interest to sponsors and administrators of pension plans with members in more than one Canadian jurisdiction. The Canadian Association of Pension Supervisory Authorities (CAPSA) has announced that, as of July 1, 2020, Canada (the federal government) and seven provinces (British Columbia, Alberta, Saskatchewan, Ontario, Quebec, New Brunswick and Nova Scotia) are signatories to the 2020 Agreement Respecting Multi-Jurisdictional Pension Plans (2020 MJPPA). The 2020 MJPPA will apply to the vast majority of multi-jurisdictional pension plans in Canada. Background Before 2011, all provinces with pension legislation addressed multi-jurisdictional pension plan issues through the 1968 Memorandum of Reciprocal Agreement (1968 Memorandum). The federal government signed similar bilateral agreements with most provinces. Under the 1968 Memorandum, and the bilateral agreements pension plans would be registered in the jurisdiction that regulated the plurality of members. That jurisdiction’s pension regulator is the "major authority", while the regulators of the other jurisdictions are "minor authorities". Although not addressed explicitly, a convention developed whereby the major authority’s rules governed plan funding and the rules of the relevant minor authority determined entitlement to benefits. The original 2011 MJPPA made this division of responsibilities explicit, and also set out the process for changing the jurisdiction of registration when there are significant changes in the location of active plan members. Copyright © 2020 Willis Towers Watson. All rights reserved. willistowerswatson.com
The 2016 MJPPA was the second iteration of the 2011 MJPPA. While generally the same as the 2011 MJPPA, there were two key substantive changes, one dealing with the allocation of plan assets on significant events, and the other addressing the process to change the jurisdiction of registration. For further details, see our Client Advisory dated June 29, 2016. Key features of the MJPPA The 2020 MJPPA continues the approach taken in the 2016 and 2011 agreements in delineating the areas that are governed by the legislation of the major authority (listed in Schedule B to the 2020 MJPPA), which include plan registrations and amendments, plan administrators and their duties, records retention, funding of ongoing pension plans, pension fund investments and assets, filings with pension authorities and certain member disclosures, and determining classes of employees. The legislation under the relevant minor authority continues to govern matters of benefit entitlement (such as vesting, locking-in, portability, spousal protection, pension payment options and “grow in" rights, where applicable) and the information required when a member terminates active membership. The 2020 MJPPA, like its predecessors, is also clear that the legislation of a terminating member’s final location of employment will be used to determine all of his or her entitlements, regardless of the jurisdiction(s) where the member had been employed at various times before termination. However, Ontario’s Pension Benefits Guarantee Fund (PBGF) only applies to benefits accrued in Ontario. Therefore, plans that are subject to the PBGF must keep an accurate record of members’ service in Ontario for the purposes of applying the PBGF if the plan terminates. Other provisions set out the method for allocating assets among members of different jurisdictions on significant events such as a portion of a plan being transferred to another plan, a plan split, or a full or partial plan wind up. Once assets have been allocated among jurisdictions, those assets must be distributed in accordance with the pension standards legislation of the province of employment. Rules governing the distribution of surplus assets on plan wind up will also continue to be governed by the member's jurisdiction of employment. Changes in the 2020 MJPPA While the 2020 MJPPA is similar to the 2016 MJPPA in many respects, there are several substantive changes. Ongoing funding rules Under the 2011 and 2016 MJPPAs, although the ongoing funding of a multi-jurisdictional pension plan was governed by the rules of the major authority, exceptions addressed situations where there were distinctions between the rules of the major and minor authorities. More specifically, where the rules of a minor authority required that a benefit be funded or that an additional liability be established and funded, such benefit had to be funded and the additional liability had to be established and funded, even if the major authority rules did not provide similar requirements. The agreement set out the extent and manner of funding, including whether the benefit would be funded on a solvency basis or going concern basis or both, how the benefit or liability would be accounted Copyright © 2020 Willis Towers Watson. All rights reserved. 2 willistowerswatson.com
for in an actuarial valuation report, the deadline for making contributions in relation to the benefit liability, etc. These exceptions have been removed from the 2020 MJPPA, so that only major authority funding rules will apply regardless of any differences in the funding rules of minor authorities. This will simplify plan funding and eliminate situations such as an indexed plan registered in Ontario, where future indexation increases do not need to be funded, still needing to fund for those increases for members outside Ontario. Annuity discharge requirements In the last few years, several jurisdictions have amended their legislation to provide for a statutory discharge of plan obligations on the purchase of annuities if a specified process is followed and prescribed conditions are met. In recognition of these amendments, the 2020 MJPPA now addresses the treatment of annuity discharge requirements by specifying that an annuity purchase must comply with the requirements of the jurisdiction where a member was 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). The inclusion of explicit rules governing an annuity discharge provides clear guidance for plan administrators as to what is required to obtain a discharge of liabilities when they purchase a buy-out annuity for plan members in several jurisdictions. Allocation of assets between jurisdictions on plan wind up or other major plan events Under the 2020 MJPPA, as was the case under previous iterations, an allocation of assets between jurisdictions is generally required in the following situations: 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. However, the 2020 MJPPA specifies that allocation of asset 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. For purposes of the asset allocation, the liabilities are ranked and are attributed assets in that order of priorities (i.e., once assets have been allocated to fully fund the liabilities of first priority, the liabilities of second priority can be allocated assets, and so on until the liabilities are fully funded or the assets have been exhausted). Copyright © 2020 Willis Towers Watson. All rights reserved. 3 willistowerswatson.com
The 2020 MJPPA removes the requirement, for core liabilities, that the pension legislation of the applicable jurisdiction would require them to be funded on a solvency basis. As a result, core liabilities are determined without considering whether the applicable jurisdiction requires their funding on a solvency basis. This change avoids the lower ranking of liabilities that would otherwise apply to benefits earned in a jurisdiction that does not require any solvency funding. Further, the 2020 MJPPA specifies that the following benefits are not included in core liabilities for asset allocation purposes: plant closure and permanent layoff benefits for members who have not yet met the eligibility requirements for these benefits, and benefits that the applicable jurisdiction would allow to be excluded from ongoing funding requirements on both a going concern and solvency basis. As well, 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 is removed in the 2020 MJPPA. Other changes The 2020 MJPPA specifies that 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 (more commonly known as the transfer deficiency rules). The deadline for transferring or paying the outstanding portion of the amount is also governed by major authority rules. 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 province of employment). The recent 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 will be helpful to administrators of multi-jurisdictional plans. Future of the MJPPA The 2020 MJPPA was developed as a practical solution to coordinate and harmonize pension regulation across Canada. When adopted, the 2016 MJPPA was described as an interim measure pending further amendments to address changing funding requirements across jurisdictions. As outlined above, this is one of the 2020 MJPPA’s key features. According to CAPSA, the new agreement will continue to protect member entitlements and ease the regulatory burden for pension plans in Canada. CAPSA has indicated that it continues to work with Manitoba and Newfoundland & Labrador toward having them also join the agreement, thus covering all jurisdictions with pension standards legislation in Canada. CAPSA is also working on a Commentary Guide for the 2020 MJPPA and administrative procedures to facilitate its implementation. The Commentary Guide will contain the text of each provision of the agreement, along with corresponding explanatory notes and examples where necessary. Copyright © 2020 Willis Towers Watson. All rights reserved. 4 willistowerswatson.com
Implications The adoption of the 2020 MJPPA by the federal government and all but two provinces with pension standards legislation, and the changes made relative to the 2016 agreement, will simplify the funding of multi-jurisdictional plans across the country and extend the benefits of harmonized administration in matters such as annual statements, member notification, etc. across a broader spectrum of plans. In particular, the addition of the federal government is a significant step since it did not have bilateral agreements with Quebec or Newfoundland & Labrador. Plans that currently have dual registration with the federal government and Quebec will now only need to register with one jurisdiction, the major authority (and the administration rules and funding rules of that jurisdiction will apply to the entire plan pursuant to the 2020 MJPPA). For more information This Advisory is not intended to constitute or serve as a substitute for legal, accounting, actuarial or other professional advice. For information on how this issue may affect your organization, please contact your Willis Towers Watson consultant, or: Robin Damm, +1 403 261 4505 robin.damm@willistowerswatson.com Annie Demers, +1 514 982 2170 annie.demers@willistowerswatson.com Rohan Kumar, +1 416 960 2621 rohan.kumar@willistowerswatson.com Charles Lemieux, +1 514 982 2208 charles.lemieux@willistowerswatson.com Michelle Rival, +1 416 960 4467 michelle.rival@willistowerswatson.com Evan Shapiro, + 416 960 2846 evan.shapiro@willistowerswatson.com Paul Timmins, +1 416 960 7400 paul.timmins@willistowerswatson.com About Willis Towers Watson Willis Towers Watson (NASDAQ: WLTW) is a leading global advisory, broking and solutions company that helps clients around the world turn risk into a path for growth. With roots dating to 1828, Willis Towers Watson has 45,000 employees serving more than 140 countries and markets. We design and deliver solutions that manage risk, optimize benefits, cultivate talent, and expand the power of capital to protect and strengthen institutions and individuals. Our unique perspective allows us to see the critical intersections between talent, assets and ideas – the dynamic formula that drives business performance. Together, we unlock potential. Learn more at willistowerswatson.com. Copyright © 2020 Willis Towers Watson. All rights reserved. 5 willistowerswatson.com
You can also read
