The Voice of Multi-Employer Plan Interests in Canada

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MEBCO's primary activity is to monitor and assess the impact of legislative reforms that affect Canadian multi-employer pension and benefits plans. In many cases, we advocate our position through written submissions to government, and regulatory and administrative agencies.

To view a submission, just click on a title of interest from the list below. In the interest of avoiding repetition, we have deleted standard introductory remarks that provide background information on MEBCO from many of these documents.

Documents that are presented as Adobe Acrobat PDF files require Adobe Acrobat reader to properly view. If you would like an original copy of any of these submissions, you can obtain one by contacting MEBCO.

Thank you for the opportunity to provide comments on the Consultation Paper Pension Benefits Act Review (CP). We would like to point out that the CP’s commentary that target benefit plans are new is not accurate. In fact, they’ve existed for many decades in most Canadian jurisdictions, including Manitoba. These plans have typically been multi-employer pension plans (Multi-Unit Pension Plans - MUPPs – under the Manitoba PBA) which have all of the features of “new plans” as defined in the CP.

We provide our responses to the CP’s specific questions.

Part 3 – New Plan Designs

  1. Should Manitoba develop a regulatory framework for a new target benefit or shared risk pension plan design? Yes, target benefit plans should be subject to a regulatory framework appropriate for this type of plan. The risk assumption, contribution structure and governance are different for a target benefit plan and other defined benefit pension plans. The regulatory framework should reflect these differences. The regulatory framework should also recognize that MUPPs have successfully operated as target benefit plans for several decades and any new framework should recognize existing features of MUPPs rather than impose any new requirements.
  2. If so, should a target benefit or a shared risk pension plan framework be developed? Yes. Please note that the shared risk pension plan framework is a misnomer. Under New Brunswick shared risk rules, it appears that the “sharing” is between active and retired participants, with the employer sharing little or none of the risks.. Further, this structure imposes rigid financial modeling into the funding requirements. We do not believe that such approaches are reasonable or appropriate as mandatory funding requirements for MUPPs.
  3. Should the new plan design be available to both single employer and multi-employer plans, and both private sector and public sector plans? MEBCO takes no position on single employer or public sector plan issues. For MUPPs, there is no need for a new plan design – the current model is successful.
  4. Should conversion to the new plan design be permitted for future benefit accruals only? MEBCO takes no position on single employer or public sector plan issues. For MUPPs, there is no need for a conversion – the current model is already a successful target benefit plan.
  5. If conversion of existing benefits is permitted, should union or member consent be required? MEBCO takes no position on single employer or public sector plan issues. For MUPPs, there is no need for a new plan design – the current model is successful.

Although not asked in the CP, MEBCO believes that target benefit Multi-Employer Pension Plans (“MEPPs”) should be restricted to the unionized environment. Voluntary employer participation can lead to the demise of a pension plan if employers can elect to leave without any other repercussions. The organizational structure provided through a union ensures plan members have a democratic voice in the management of their pension plan. Further, unionized employers tend to have better longevity than non-unionized organizations (where MEPPs are prevalent), which is critical to the long-term sustainability of the target benefit MEPP.

Also not asked, but of great importance, is the computation of transfer values for target benefit MEPPs. MEBCO is opposed to providing transfer values from MEPPs at all, as that permits a terminating participant to convert the defined benefit type pension negotiated by the union into a defined contribution account. If transfer values continue to be available, MEBCO strongly recommends that MEPPs be permitted to determine the amount as the funded percentage determined on a going concern basis (but not in excess of 100%). This will recognize the risk of a post-transfer benefit reduction and, given the emerging pattern in other provinces, it will promote uniformity among jurisdictions and within multi-jurisdictional plans.

Part 4 – Solvency deficiency funding rules

With respect to the CP’s questions #7 - #11, MEBCO provides the following comments. MEBCO’s core position is that solvency funding should not apply to MEPPs, there should be reasonable going concern funding requirements, and there should not be legislated provisions for adverse deviation (PfADs). This is because MEPPs have fixed contributions negotiated outside the MEPP by the bargaining parties. Benefit security can perhaps be enhanced by higher employer contributions, but MEPPs do not have that option. Higher funding requirements for MEPPs (through the legislated imposition of solvency funding or PfADs) simply result in lower benefits, and that cannot improve benefit security. Rather, it results in today’s pensioners receiving smaller pensions than the MEPP can reasonably afford to provide. Further, if the PfADs turn out to be unneeded, there is forced generational inequity – the amounts withheld from today’s pensioners will be distributed in the form of larger pensions for future pensioners.

This approach is consistent with the CP’s stated fundamental policy objective, which is “...to create a stable retirement income system to enhance the well-being of older citizens.”

Part 5 - Locking-in provisions and access to locked-in pension funds

MEBCO believes that target benefit MEPPs should not be required to administer hardship or other withdrawals, given that they are regulated as defined benefit plans. Rather, any statutorily authorized hardship or other withdrawals should only be available from defined contribution accounts, such as RRSPs to which a commuted value has been transferred.

Part 6 – Compulsory pension plan membership

MEBCO is strongly opposed to permitting opting out of a collectively bargained target benefit MEPP. In addition to labour relations issues, such an option would result in the deterioration of the MEPP’s financial position. Collective agreements call for each employer’s contributions to be determined as the same amount for each unit of work, whether that work is done by a younger (lower pension cost) worker or an older (higher pension cost) worker. If, as is likely, those opting out are lower-cost, then the average per capita cost for the remaining employees goes up but the average per capita contribution stays the same. Also, if part of the negotiated contribution is required to meet a MEPP’s fixed cost (e.g., administrative expenses or unfunded actuarial liabilities), the MEPP’s lost contribution income may lead to substantial required reductions in benefits.

Part 7 – Division of pensions on relationship breakdown

MEBCO takes no position on these issues.

Part 8 – Clarification/legislative gaps

MEBCO provides its comments on the following questions.

  1. For plans not already designated as a multi-unit pension plan (MUPP), is it reasonable in a Manitoba context to replace MUPPs with multi-employer pension plans and specified multi-employer pension plans, consistent with the provisions in other jurisdictions and the Income Tax Act (Canada)?

    Yes, MEBCO agrees that this is a more appropriate approach to regulating plans with more than one employer. But MEBCO believes that the current requirement in the Manitoba PBA for MUPPs to receive regulatory approval of reductions in accrued benefits should be eliminated. Experience elsewhere suggests that this is problematic and unneeded. It delays required balancing of benefits and contributions. It requires intervention of someone who is not close to the situation and who may be more interested in uniformity among plans than in recognition of real differences between plans. And the patchwork of differing rules is a nightmare for multi-jurisdictional MEPPs.
  2. Should the provisions setting out when an individual ceases to be an active member of a DB Plan be amended to provide that a member can choose to suspend membership and contributions at normal retirement age (normally age 65) while remaining employed, and upon subsequent commencement of a pension, receive the actuarially increased value of the pension accrued to age 65? As discussed above, MEBCO does not believe that allowing individual workers to opt out of the MEPP contributions that are part of their collective agreement is appropriate.
  3. Should the provision setting out entitlement to ancillary benefits be amended to clarify when an ancillary benefit is vested and must be included in the calculation of commuted values? MEBCO believes that, in a fixed contribution environment, it would be inappropriate to mandate inclusion in vested obligations of benefits where all the conditions for vesting have not yet been met, as the cost of such a provision would come at the expense of the adequacy of pensions for career workers.
  4. Should the pension committee requirements be amended to clarify that if there is no inactive member in the plan, or no inactive member willing to be on a pension committee, the inactive member position can remain vacant? MEBCO agrees with this position, so long as it does not result in the participants’ representatives having less than half of the Trustees. However, MEBCO believes that having a designated representative for inactives is inappropriate with respect to a MEPP’s Board of Trustees. It is essential for all Trustees to represent all plan participants in order for there to be even-handedness in plan decisions.

We will be pleased to meet with you to discuss these issues further.

Sincerely yours,
Robert Blakely
President

Comments by the Multi-Employer Benefit Plan Council of Canada (MEBCO)

The Multi-Employer Benefit Plan Council of Canada (MEBCO) was established in 1992 to represent the interests of Canadian multi-employer pension and benefit plans (MEPs). MEBCO consults with provincial and federal governments regarding proposed or existing legislation and policies affecting these plans. MEBCO is a federal no-share capital corporation, operating on a not-for-profit basis.

MEBCO is representative of all persons and disciplines involved in MEPs, including trustees (union, independent, professional and employer), professional third party administrators, non- profit or “in-house” plan administrators, and professionals including actuaries, benefit

consultants, lawyers, investment managers, investment counsel and chartered public accountants. MEBCO is administered by a Board of Directors consisting of representatives from each of the above groups. The Board of Directors serve MEBCO on a volunteer basis, and are responsible for identifying issues that impact MEPs, developing a strategy to address those issues, and then carrying out the strategy. MEBCO’s member-plans provide comprehensive health coverage to over 1,000,000 Canadians.

As the representative organization for traditional target benefit multi-employer pension plans (MEPPs), the Multi-Employer Benefit Plan Council of Canada’s (MEBCO) comments are limited to subsection 3570, Target Pension Plans. MEBCO is pleased that the exposure draft (ED) recognizes the special nature of MEPPs.

MEBCO is opposed to the payment of transfer values to MEPP participants (other than for small amounts), because that permits participants to convert a defined benefit type pension entitlement into something that was not bargained on their behalf – a defined contribution benefit. However, MEBCO recognizes that such a change would not be possible without legislation, and that is beyond the jurisdiction of actuarial standards.

In general, MEBCO believes that the scope of subsection 3570 is appropriate. However, MEBCO notes that the New Brunswick Pension Benefits Act (NB PBA) currently forbids the reduction of accrued benefits for all ongoing plans of solvent employers that are not “shared risk plans.” Notwithstanding that legislation, MEBCO is aware of a national MEPP that was permitted, by ministerial action, to reduce its New Brunswick participants’ accrued benefits identically to those elsewhere in Canada when benefits needed to be reduced. MEBCO would like the ED to be clear that traditional MEPPs where some or all of the participants are subject to the NB PBA may apply subsection 3570.

MEBCO proposes that MEPPs should be permitted to elect to cap transfer values at either 100% of the going concern funded amount or 100% of the amount that would be payable from a plan that does not qualify for subsection 3570, or the greater or lesser of the two computations, where that is legally permitted.

The Québec Supplemental Pension Plans Act (QC SPPA) embraces the concepts of subsection 3570, but requires the actuarial computations to be determined on a solvency funding basis. MEBCO believes that this computation should be accepted actuarial practice. Indeed, we believe that any reasonable determination, such as the going concern basis without removing PfADs, should be accepted actuarial practice.

MEPPs are constrained by the fact that contributions are fixed in collective agreements, so the consequence of additional actuarial calculations is an increase in administrative expenses and therefore a decrease in the assets available to provide benefits. The requirement to do a recalculation within three months of the commuted value date, and the requirement to remove PfADs from the assumptions, both necessarily increase the cost of the actuary’s work, to the detriment of the non-terminating participants. As a minimum, a roll-forward of the actuarial present values should be clearly permitted.

Determining the funded ratio based on the actuarial cost method last filed makes sense under individual determinations of the actuarial accrued liability, but not under aggregate methods. The unit credit actuarial cost method should be required where the filed valuation used an aggregate method.

Because most MEPPs have portability among employers, deferred members may not take their deferred pension at the most valuable age. It should be made clear that the assumed retirement age may be based on actual experience, not the most valuable age. It should also be made clear that reciprocal agreements with other plans may be reflected consistent with the actuarial assumptions.

Please feel free to contact us to discuss these matters.

Yours truly
Robert R. Blakely, QC President

August 21, 2017

MEBCO Comments

The Multi-Employer Benefit Plan Council of Canada (MEBCO) was established in 1992 to represent the interests of Canadian multi-employer pension and benefit plans (MEPs). MEBCO consults with provincial and federal governments regarding proposed or existing legislation and policies affecting these plans. MEBCO is a federal no-share capital corporation, operating on a not-for-profit basis.

MEBCO is representative of all persons and disciplines involved in MEPs, including trustees (union, independent, professional and employer), professional third party administrators, non-profit or “in-house” plan administrators, and professionals including actuaries, benefit consultants, lawyers,  investment managers, investment counsel and chartered public accountants. MEBCO is administered by a Board of Directors consisting of representatives from each of the above groups. The Board of Directors serve MEBCO on a volunteer basis, and are responsible for identifying issues that impact MEPs, developing a strategy to address those issues, and then carrying out the strategy. MEBCO’s member-plans provide comprehensive health coverage to over 1,000,000 Canadians.

Background

In recent years, legislators and regulators have increasingly become aware that there are fundamental differences between typical single employer defined benefit pension plans (SEPPs) and traditional multi-employer target benefit pension plans (MEPPs). This salutary recognition has resulted in different funding requirements and transfer value computations, in addition to the historic differences in the ability to reduce accrued benefits. MEBCO is disappointed that this consultation paper (CP) treats SEPPs and MEPPs identically.

A multi-jurisdictional SEPP typically has uniform provisions, a uniform history, and, of course, a single participating employer. That will often not be the case for a MEPP, particularly (but not exclusively) with respect to industrial MEPPs.

A MEPP has fixed contributions that are not within the control of the Trustees. Increased expenses, for regulatory purposes or otherwise, necessarily reduce the portion of those contributions available to provide participant benefits. Any increased expenses for regulatory purposes should therefore be subject to increased scrutiny before being imposed on MEPPs. Likewise, minimum benefit provisions usually come at the expense of adequate pensions for career participants.

MEBCO’s position is that intergenerational equity is an important consideration for Trustees, but is not an appropriate subject for regulatory consideration. To the extent that regulation of MEPPs imposes intergenerational inequity, MEBCO opposes such regulation.

MEBCO is opposed to permitting terminating MEPP participants to cash out the value of their accrued pensions, as that converts the negotiated target benefit pension into a defined contribution entitlement that was not negotiated.1

MEBCO has long recognized that benefit security cannot be improved by lowering benefits – the only available option with fixed contributions. Therefore, MEBCO has consistently opposed solvency funding and mandatory provisions for adverse deviation for MEPPs, which, under current economic circumstances, compel lower current benefits and intergenerational inequity without adding to benefit security.

Funding

As an example of differing funding requirements by jurisdiction, consider a real case involving a national MEPP registered in Ontario, a jurisdiction that has had a solvency funding moratorium for MEPPs that it intends to make permanent. A large Federal jurisdiction employer and its union petitioned to be accepted into the plan. The trustees rejected that application because of the risk that the plan might have its major authority transferred from Ontario to Federal,2 which would require benefit reductions nationally. The result was that these employees now have a single employer defined contribution plan, against their wishes and perhaps against their best retirement income interests. They also do not have portability with other similar employers in the same industry who are already in the plan.

MEBCO recommends that the CP be modified so that a change in the major authority of a MEPP can only take place if (a) the Trustees consent or (b) the MEPP no longer has members in the current major authority’s jurisdiction.

Further, MEBCO recommends that the CP be modified so that it is clear that the funding rules of the major jurisdiction for MEPPs are the sole applicable rules, even if there are members in a jurisdiction that has solvency funding, but solvency funding does not apply in the major authority’s jurisdiction. All assets in a MEPP are available for benefits for all participants from all employers. A requirement to identify assets as “belonging” to a particular jurisdiction’s participants (as would be required for solvency funding determinations for a minor authority) is completely inconsistent with the nature of a MEPP.

Asset Allocation

Again, consider a real situation. A national MEPP was comprised primarily of employers in Western Canada, but more recently admitted a number of large employers from another province. The long-time employers had fully funded accrued benefits; the new groups, of course, came in with no assets.

For a variety of reasons, some years later the Trustees decided to spin off the newer groups into a separate plan. The requirement to allocate assets in proportion to liabilities distorted the allocation in favour of the new groups, and resulted in substantial benefit reductions for the members of the long-time employers, even though, without the new groups, those benefits were fully funded. The simplistic rules that are preserved in the CP resulted in a significant inequity.

MEBCO proposes that MEPPs be permitted to define asset allocations for major and minor events as the Trustees deem appropriate. The rules of the CP can be a default if the Trustees have not exercised this prerogative. Reasonable regulatory approval could be required to prevent abuses.

Transfer Values

MEBCO proposes that the CP be expanded to provide that the availability and amount of transfer values be determined for all plan participants in accordance with the requirements of the major authority. The inequities and administrative complexities of multiple transfer value determinations, especially as these rules are now diverging among jurisdictions, operates against a principal objective of MEPPs – treating like situations alike and different situations differently.

Conclusion

MEBCO urges CAPSA to follow the lead of several jurisdictions by having separate multi-jurisdictional plan rules for MEPPs and SEPPs, consistent with the fundamental differences between such plans.

We would be pleased to have MEBCO and CAPSA representatives meet to discuss how best to implement our recommendations.

Yours truly,

Robert R. Blakely, QC
President


1 Small amount cashouts are an acceptable exception to this position.
2 One of the jurisdictions that continues to have solvency funding requirements for MEPPs.

Comments of MEBCO

The Multi-Employer Benefit Plan Council of Canada (MEBCO) was established in 1992 to represent the interests of Canadian multi-employer pension and benefit plans (MEPs). MEBCO consults with provincial and federal governments regarding proposed or existing legislation and policies affecting these plans. MEBCO is a federal no-share capital corporation, operating on a not-for-profit basis.

MEBCO is representative of all persons and disciplines involved in MEPs, including trustees (union, independent, professional and employer), professional third party administrators, non-profit or “in- house” plan administrators, and professionals including actuaries, benefit consultants, lawyers, investment managers, investment counsel and chartered public accountants. MEBCO is administered by a Board of Directors consisting of representatives from each of the above groups. The Board of Directors serve MEBCO on a volunteer basis, and are responsible for identifying issues that impact MEPs, developing a strategy to address those issues, and then carrying out the strategy. MEBCO’s member-plans provide comprehensive health coverage to over 1,000,000 Canadians.

MEBCO believes that sponsors of defined benefit plans should be informed of the risks related to the maintenance of such plans. However, which risks are of consequence varies significantly based on the characteristics of the plan and the sponsor. Based on this reality, MEBCO believes that disclosure of risk is essentially a consulting matter and is not a suitable topic for actuarial standards of practice, at least as proposed in the Exposure Draft (ED).

MEBCO notes that the ED includes special provisions that would primarily apply to typical multi- employer pension plans (MEPPs). MEPPs have fixed contributions, and therefore any increase in expenses (such as for additional actuarial work) leaves less for participant benefits. MEBCO is not persuaded that universal mandatory compliance with the ED as part of every going concern actuarial valuation for a MEPP is a good use of limited funds.

Further, the risks are borne by the participants, not the intended users of that actuarial report – the Trustees and the regulators. In short, those who bear the risks are not intended users. With respect to the potential impact of a decline in the contribution base of a MEPP, any illustrative calculations are likely to be an unreliable forecaster of the actuarial impact, primarily because that decline can come about due to a variety of causes, individually and especially in combination. Possible sources of a decline might include:

  • Hours worked per active member decline. Contributions decline by person, but actuarial costs may stay the same or change disproportionately, depending on the service credit rules.
  • Retirements may accelerate, causing actuarial losses but also lowering the average age of the actives.
  • Actives with the least service may lose their jobs, thus increasing the average age.
  • Employers may go out of business or withdraw from the plan, thereby triggering certain benefit reductions for those who worked for that company.
  • Most likely, the decline will be from an unpredictable combination of causes.

In summary, any disclosure of funding risks is only useful if it meets the needs of the intended users of that report. That is best handled as a consulting matter, not an actuarial standard. Many MEPPs are getting that sort of advice from their consultants now, tailored to the needs and desires of the Trustees. MEBCO strongly supports such advice for all MEPPs, as well as meaningful communication of the funding risks to the plan participants. The ASB’s attempt to mandate the existence and form of such disclosure, however, is unlikely to do anything more than the current disclosure. This is because of the unpredictability of the impact of risks on most MEPPs most of the time. In short, if the events of a plausible adverse scenario actually appear to happen, the outcome is highly likely to diverge significantly from the forecasted effect, because those events will not happen in isolation. That will actually reduce Trustee confidence in the actuarial reports. MEBCO therefore believes that the ED should not be adopted as presented. If there is to be a pension risk disclosure standard, MEBCO suggests that it be limited to language directing the actuary to disclose the areas of perceived risk for the plan under review and to make recommendations for additional studies, if any, that would be enlightening for the intended users with respect to those risks. This would also allow the Trustees of MEPPs to manage costs better. We would be pleased to discuss any of these comments with you.

Yours truly,

Robert R. Blakely,QC
President

June 30, 2017 – TORONTO – The Multi-Employer Benefit Plan Council of Canada (MEBCO) is the expert voice of multi-employer plan interests in Canada. MEBCO welcomes yesterday’s announcement by the province of Ontario that there will be permanent relief from solvency funding for SOMEPPs. This has been a goal MEBCO has advocated for on behalf of our members for several years.

However, MEBCO remains concerned about the introduction and uncertainty regarding a provision for adverse deviation (PfAD) requirement because it can have unintended consequences such as intergenerational inequity.   MEBCO remains committed to working with the Ministry of Finance to develop funding, and more specifically reserve requirements, that are appropriate for Ontario MEPPs.   Accordingly, MEBCO will take all available opportunities to make submissions on these issues that are of critical importance for all members and beneficiaries of these plans.

In yesterday’s announcement, the government intends to introduce legislation in the fall and regulation in 2018 to implement these changes and will be consulting on the details of the new framework, including the design of the reserve and how plans transition to the new requirements. As an interim step, the government is extending the temporary solvency funding exemption currently in place for SOMEPPs by one year to August 2018.

For more information, please contact:

Michael Mazzuca
MEBCO Director
This email address is being protected from spambots. You need JavaScript enabled to view it.

 

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  1. The threat to multi-employer plans is real.
    The legislative framework is constantly changing, and cost-management and cost reduction are at the top of every agenda.
  2. Legislative changes can be significant.
    Recent proposed changes have threatened to offload costs onto plans, restrict plan coverage, and have compromised the viability of some plans
  3. Multi-employer plans are worth protecting.
    Multi-employer plans play a vital role in providing health services and retirement plans to over 1 million workers and their families in industries typified by small companies and a mobile work force.
  4. Multi-employer plans need a united lobby.
    Multi-employer plans carry a low profile due to the fact that the coverage is thinly spread over many employer groups and mobile workers.
  5. MEBCO is committed to protecting your interests.
    When governments propose changes, MEBCO is the single, clear voice at the table representing the unique interests of multi-employer plans.