On April 16, 2014, the government of Alberta tabled Bill 9, Public Sector Pension Plans Amendment Act, 2014 (Bill 9), which proposes significant changes to public sector pension plans in Alberta.
In this blog post, I will discuss proposed changes that, if passed, will impact the Management Employees Pension Plan (MEPP), Local Authorities Pension Plan (LAPP), Public Service Pension Plan (PSPP) and Special Forces Pension Plan (SFPP). (Note that Bill 9 also addresses the Universities Academic Pension Plan and Public Service Management (Closed Membership) Pension Plan.)
Closure of MEPP
MEPP will be closed to individuals who were not participants at the end of 2015 (including those who terminate membership after 2015 and subsequently become re-employed). The proposed changes include a new provision on termination of the plan. It provides that benefits are payable only to the extent assets are available to pay them, subject to any Crown liability for unfunded liabilities for pre-1992 service.
Transitioning LAPP, PSPP and SFPP to Jointly Sponsored Plans
With respect to LAPP, PSPP and SFPP, the proposed changes include various rules designed to assist in the transition of these plans to jointly sponsored plans administered by Boards of Trustees.
The transition rules contemplate that the transition plan sponsors (employers and members) will make preparations to apply to transition the relevant plan to a successor plan that will be jointly sponsored. The proposed rules provide latitude in the processes and procedures to be used by the sponsors to implement the transition. These transition sponsors are required to ensure that certain requirements are met prior to the proposed transition date, including ensuring that the Board of Trustees for the successor plan is in place. These sponsors will apply to the Lieutenant Governor in Council, who has the discretion to:
make an order declaring the transition to the successor plan to take effect on a specified date (not before January 1, 2016);
close the predecessor plan; and
order the transfer of the assets and liabilities of the predecessor plan to the successor plan.
The post-transition sponsors (i.e., employers and employees) will also be set out in the regulations.
Under the successor plans, contribution rates will be subject to a set maximum. The Hon. Doug Horner, the Alberta Minister of Finance, explained in his speech to the Legislature on the second reading of Bill 9 that the caps on contribution rates will not be set without “significant consultation with employers and labour groups”.
There is also a requirement to have a funding and benefits policy to address how the benefits will be managed (e.g., the potential for reducing benefits and declining cost of living increases) . Like other target benefit designs, the new rules provide that on termination of a successor plan, benefits are payable only to the extent that assets are available to pay them (for LAPP and PSPP). For SFPP, this is subject to any Crown liability for unfunded liabilities related to pre-1992 pensionable service.
In addition, the Minister of Finance announced that the early retirement benefits in LAPP, PSPP and MEPP will be modified to a “60/90 factor” (from an “85 factor” for LAPP and PSPP, and an “80 factor” for the MEPP) where plan members can receive an unreduced pension if they work to at least 60 years of age and their combined age and years of service equals 90. Plan members can still retire starting at age 55, but they will incur a 5% reduction in the pension benefit earned after 2015 for each year they are short of the “60/90 factor”.
Plan Administration and Investment
The proposed changes contemplate that the Alberta Pension Services Corporation will continue as the administration services provider for a period of time to be set out in the regulations. Similarly, Alberta Investment Management Corporation will continue as the investment manager for a period of time to be set out in the regulations.
The proposed changes also contemplate certain agreements that must be in place for the successor plans, including the following:
a sponsorship agreement dealing with the relationships between sponsors and the successor plan and its component parts;
a trust agreement; and
agreements with Alberta Pension Services Corporation and Alberta Investment Management Corporation for at least the period of time set out in the regulations.
Limitation of Liability
As these are fundamental changes to the plan design structure for these plans, Bill 9 also contains certain immunity provisions. Bill 9 provides that where there is a benefit decrease or increase in contributions in accordance with these amendments, no liability attaches to the Crown, Minister, employer or member of the Board of Trustees and no action or proceeding may be brought against any of them in respect of the benefit reduction or contribution increase. Similarly, there is an immunity provision protecting the Crown and the Minister with respect to any losses or damages arising in respect of a transition to the jointly sponsored pension regime.
The “Big Picture”
These proposed changes are consistent with changes recently introduced in certain other provinces to public sector pension plans. They provide greater cost certainty and cost control from the perspective of the province, but still provide a targeted pension benefit to plan members based on a formula. Also, they provide for a joint governance model that gives members a significant role in plan administration. As governments in Canada and elsewhere grapple with limited resources and plan demographic shifts, such as increased longevity, these types of changes to public sector plans are increasingly seen as necessary.