Alberta’s New Pension Legislation: Bill 10, the Employment Pension Plans Act

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Bill 10, the proposed new Employment Pension Plans Act (EPPA), was introduced in the Alberta legislature on October 25, 2012, and passed third reading on November 20, 2012. Although the new Act has been passed, it will not become effective until proclamation, which will follow the release of a new Employment Pension Plans Regulation. The new EPPA follows from the report of the Joint Expert Panel on Pension Standards, and represents the Alberta government’s intention to provide greater flexibility and affordability for private sector pension plans. Bill 10 is also the culmination of Alberta and British Columbia’s efforts to harmonize pension laws between the two provinces, following British Columbia’s introduction of Bill 38, the Pension Benefits Standards Act, earlier this year.

Highlights of the new EPPA include the introduction of new pension plan designs; more flexibility in funding by employers; greater clarity in plan governance requirements; increased focus on member disclosure; changes in minimum standards,including immediate vesting of member benefits and locking-in based on minimum dollar amounts rather than years of service; and enhanced regulatory oversight in the form of additional powers, including monitoring and enforcement. Also of note is the introduction of a new Alberta Employment Pension Tribunal to hear appeals from certain decisions of the Alberta Superintendent of Pensions, rather than recourse to the courts.

New Plan Designs

The new EPPA will facilitate several new pension plan designs and features, including the following:

  • Negotiated cost plans: these are plans that are established under a collective agreement, which determine and limit the contributions by the employer. The liability of a participating employer for funding the benefits under a negotiated cost plan is limited to the amount that the participating employer is contractually required to contribute to the plan. 
  • Target benefit plans: these plans will provide a specific pension amount when a member retires, similar to a defined benefit plan; however, the target benefit provision must be amended to reduce benefits or increase contributions if the plan experiences funding difficulties, thereby lowering employer funding risk. The liability of a participating employer for funding target benefits is limited to the amount that the participating employer is contractually required to contribute to the plan; however, in order to ensure that plan members can have reasonable confidence that the promised benefit will be delivered, specific funding rules for these plans will be prescribed. The new EPPA does not specifically limit target benefit provisions to collectively bargained multi-employer plans.
  • Jointly sponsored plans: these are defined benefit plans which will provide that members share in the total cost of the plan and in the responsibility for the governance of the plan with the employer. The liability of participating employers and active members for funding the benefits under the plan is limited to the amount that both are contractually required to contribute to the plan. Jointly sponsored pension plans are also exempt from performing excess contribution calculations. The regulations under the new EPPA will prescribe additional criteria which jointly sponsored plans must meet.

Under the new EPPA, the Superintendent will also have the specific power to designate a plan as a collectively bargained multi-employer plan (formerly known as specified multi-employer pension plans), a non-collectively bargained multi-employer plan (formerly known as multi-unit pension plans), or a single employer plan.

Funding

The new EPPA introduces a number of new measures to provide greater flexibility in funding, including the following: 

  • First, it provides for the establishment of a solvency reserve account for defined benefit pension plans (other than plans that provide target benefits), a separate account within the pension plan’s fund exclusively for depositing payments in respect of a solvency deficiency. (Note that a prescribed actuarial excess or surplus in the solvency reserve account may be withdrawn in accordance with the regulations.) 
  • Second, it also allows employers (other than participating employers in a collectively bargained multi-employer pension plan) to obtain a letter of credit made out to the fund holder for the benefit of the pension plan, instead of making some or all of the payments required with respect to a solvency deficiency, provided that the letter of credit satisfies certain criteria to be prescribed by the regulations. 
  • Third, with respect to contribution holidays, it allows for the reduction or elimination of employer contributions in the event of actuarial excess, subject to prescribed conditions to be set out in the regulations and the provisions of the plan text. This will provide plan sponsors with flexibility during periods of actuarial excess. The new EPPA will also provide the Superintendent with the power to direct the administrator to stop applying the actuarial excess to reduce or eliminate contributions.
    The new EPPA also indicates that new funding requirements for participating employers under a defined benefit plan will be prescribed. For example, the Alberta government’s backgrounder to Bill 10 provides that the new EPPA will extend timelines for funding shortfalls.

Finally, the new EPPA includes new definitions for surplus (in a terminated plan) and actuarial excess (in an ongoing plan). The Bill also provides the conditions that must be met for a distribution of funds in the event of an actuarial excess or surplus. The requirements for distribution of an actuarial excess are: (1) the administrator must obtain the consent of members and other persons to the proposal (as described below), or establish entitlement to the excess funds under the plan text document; (2) the administrator must comply with all requirements to be prescribed by the regulations; and (3) the administrator must receive a written notice from the Superintendent consenting to the distribution. The requirements for distribution of a surplus on plan termination are the same, with the additional condition that all benefits which members of the plan are entitled to upon termination of the plan must have been paid.

If the plan text document does not provide for the distribution of an actuarial excess or surplus, or provide to whom it may be distributed, the administrator may, subject to the regulations, present a proposal to the members and to other persons to distribute the excess or surplus. If the administrator obtains the consent of two-thirds of active members and two-thirds of a group comprised of deferred and retired members and other persons, the participating employer may apply to the Superintendent in writing for consent to the distribution of the actuarial excess or surplus.

Roles and Responsibilities of the Plan Administrator

The new EPPA will institute several new requirements for pension plan administrators. For instance, plan administrators will be required to establish a governance policy for the purpose of overseeing, managing and administering the pension plan. The required content of the governance policy will be set out in the new regulation.

In addition, the administrator will be required to establish a written funding policy, if the pension plan provides either defined benefits or target benefits. The funding policy must meet the prescribed requirements respecting funding objectives and must set out the method for achieving those objectives, and the required content will be set out in the new regulation. A copy must be provided to the plan actuary.

Further, the new EPPA provides that administrators must assess the administration of the plan, including the plan’s compliance with the EPPA and its regulations, the plan’s governance, the funding of the plan, the investment of the pension fund, the performance of the trustees and the performance of the administrative staff and agents. The administrator must prepare this assessment in writing, and provide the report to the Superintendent upon request. The timing and frequency of this report will be prescribed in the regulations.

Finally, the plan administrator (along with participating employers, the fund holder and prescribed persons) will be required to retain in Canada any records (or copies of such records) pertaining to the pension plan for a prescribed period of time.

Disclosure

The Alberta government’s backgrounder to Bill 10 refers to a focus on disclosure requirements, with a view to providing clarity to all parties regarding the terms, risks and health of the pension plan, as well as their responsibilities with respect to the plan.

In this regard, the new EPPA sets out the administrator’s obligation to disclose certain information and records to members, surviving pension partners, beneficiaries, employees and prescribed persons. However, reference to the upcoming regulations will be required to determine the nature of the prescribed information and records, and the timing of disclosure.

The new EPPA will also require plan administrators to disclose to the Superintendent when they know that a participating employer in the pension plan (other than a collectively bargained multi-employer plan) is undergoing insolvency proceedings, immediately after becoming aware of the commencement of the proceeding.

Moreover, administrators will be expected to prepare and disclose certain reports concerning the pension plan to the Superintendent, or to the actuary engaged to prepare the actuarial valuation report. These reporting requirements are discussed above.

Plan Administration and Member Benefits

The new EPPA also introduces a number of reforms to minimum standards for member benefits, including the following: 

  • Immediate vesting of all plan benefits (replacing the previous qualification of two years of plan membership). 
  • The plan provisions are not permitted to discriminate on the basis of gender in determining member benefits.
  • Locking-in of benefits will no longer be based on years of service, but will be based on a prescribed minimum dollar amount. (The backgrounder to Bill 10 states that the amount will be increased annually, to eliminate locking-in of amounts that are too small to provide a meaningful pension, thereby allowing for locking-in rules to keep pace with inflation.) 
  • Defined contribution pension plans may provide that upon termination, members or surviving pension partners must transfer their benefit out of the plan if it is their only benefit entitlement remaining in the plan. 
  • A plan may permit additional options for members who continue employment after their pension eligibility date, including phased retirement. Phased retirement benefits will permit members of defined benefit pension plans to simultaneously receive pension benefits and accrue further benefits in accordance with the Income Tax Act, subject to certain conditions.

The new EPPA permits auto-enrollment to be a term and condition of employment for an employee who is employed by a company that has a pension plan, and provides that employees may be permitted to opt out of enrollment in the pension plan. In addition, the new EPPA permits plan administers to pay administration and investment expenses of the pension plan from the pension fund, unless the plan text provides otherwise.

The new EPPA also introduces significant changes with respect to transferring benefit entitlements from a pension plan in respect of members and other persons who cannot be located. The EPPA will now permit transfers to the unclaimed personal property fund administered by Alberta Treasury Board and Finance (rather than the Alberta Public Trustee) without a court order. Also, for ongoing plans, the administrator may transfer small pension amounts of missing persons, and amounts in respect of missing persons who are required to commence receiving a pension, to the unclaimed personal property fund. For terminated pension plans, a plan administrator must transfer all missing persons’ benefits to the unclaimed personal property fund. All amounts transferred to the unclaimed property fund must be unlocked, and certain amounts must be deducted.

Finally, in respect of pension plan amendments, while the new EPPA will continue to provide that the Superintendent must register a plan amendment unless the administrator has the EPPA, it adds prescribed circumstances as to when the Superintendent may refuse to register an amendment. When applying for registration of an amendment, an administrator will also be required to file a statement which certifies the amendment complies with the EPPA, along with other prescribed information.

Monitoring and Enforcement

The new EPPA will provide the Superintendent of Pensions with several additional powers. For example, the Superintendent will be permitted to designate an actuary if he is of the opinion that the assumptions or methods used in the preparation of an actuarial valuation report or a termination report are inappropriate for the pension plan in the circumstances.

In addition, where the Superintendent performs a compliance evaluation of a pension plan which results in a direction for compliance or an administrative penalty imposed on a person, the new EPPA provides that the Superintendent may order that the person against whom the action was taken pay for the expenses related to the compliance evaluation. Also, the Superintendent will have the ability to impose conditions on any approval, authorization, extension, consent or permission given by the Superintendent under the EPPA.

The new EPPA will also expand the Superintendent’s authority to terminate a pension plan if the plan documents are not in compliance with the EPPA or the regulations, or if the administrator is in contravention of the EPPA, the regulations, the plan documents or a direction issued by the Superintendent.

In addition, the Superintendent will have the power to (a) revoke registration of an amendment, (b) direct the administrator to reverse any transaction that was based on an amendment that the Superintendent revoked or refused to register, or (c) direct that the refusal or revocation be retroactive.

Finally, the new EPPA will also grant the Superintendent the power to impose administrative penalties for contraventions of the EPPA and regulations, such as failure to file or provide required documents, disclose required information, or make the required contributions. The Superintendent may also impose an administrative penalty on an officer, director or agent of the corporation if he or she is found to have directed, authorized, assented to or acquiesced to the contravention, whether or not the corporation is liable for, or pays, an administrative penalty. For such contraventions, the Superintendent may now order a maximum administrative penalty of $250,000 for a corporation or administrator, and $50,000 for individuals other than an administrator. For more serious offences, such as destroying records or making false statements, the maximum penalty that can be ordered by a court is $500,000 and $100,000, respectively. Payment in respect of penalties cannot be made from the pension fund. Further, the limitation period for prosecution of administrative penalties and offences is three years (an increase from the prior two-year limitation period for offences).

Significantly, Bill 10 also establishes the Alberta Employment Pension Tribunal, which will have exclusive jurisdiction in respect of the EPPA to determine all matters and questions of fact and law, and to hear appeals from decisions of the Superintendent. The new Bill provides that a decision of the Tribunal on a matter that it has exclusive jurisdiction over is final and not open to review in any court; however, an appeal lies with the Alberta Court of Queen’s Bench on questions of law and jurisdiction.

Cost of Living Adjustments

Bill 10 includes cost of living adjustments within the list of ancillary benefits which a pension plan may provide. This is in contrast to the current EPPA, which refers to the Employment Pension Plans Regulation to include cost of living adjustments as ancillary benefits except to the extent that they are required to be provided under a pension plan. This change will clarify the treatment of cost of living increases as ancillary benefits which may not be reduced or removed once eligibility requirements have been met.

Multi-Jurisdictional Pension Plans

The new EPPA will provide a detailed framework governing multi-jurisdictional pension plans (MJPPs), which replaces the old provisions under the EPPA with respect to reciprocal agreements. The Bill provides detailed guidelines for agreements between Alberta and the federal government or the government of another province or territory with respect to specified MJPPs. The new EPPA provides several provisions that may be included in MJPP agreements, such as terms governing which jurisdiction’s pension legislation will apply, the powers of the Superintendent and the other jurisdiction’s pension regulator with respect to the MJPP, how the pension fund assets are to be allocated between jurisdictions, and the duties or requirements of those responsible for funding, administration or investment of the pension fund. The new EPPA enhances the guidelines for MJPP agreements, which should address inconsistent laws, overlapping powers and irregular administration of similar laws which have impeded the administration of pension plans with members working in more than one jurisdiction.

Conclusion

Bill 10 is substantially similar to British Columbia’s Bill 38, although there will not be a single pension regulator or tribunal for both provinces, nor will the Acts be completely harmonized due to differences in other provincial legislation referenced by the Acts.

We will not know the full impact of the changes in the new EPPA until the accompanying new regulations are released, which is anticipated in 2013. The new EPPA will not come into force until proclamation, which will follow the release of the new regulation. Overall, the Bill represents a significant modernization of Alberta’s pension legislation, providing greater flexibility to employers in pension plan design and funding, while strengthening standards for benefits, plan governance and regulatory oversight of private sector pension plans in Alberta.