When considering changes to its pension funding framework, the Nova Scotia government should keep in mind the regulations that exist in other provinces.
The CBA’s Pensions and Benefits Law Section recently commented on a discussion paper released by the Nova Scotia government titled Improved Funding Framework for Nova Scotia Pension Plans: The Road Forward.
The Section advocated that four principles should guide any changes to a funding framework: sustainability, clarity, harmony and retirement income security.
On harmonization, the Section noted that Nova Scotia’s approach to funding reform differs from initiatives adopted by other provinces.
“To date, no other Canadian jurisdiction has adopted an approach which includes reforms to going concern and solvency funding rules as well as reserve accounts,” the Section said in its submission. “While not problematic in itself, the adoption of both approaches introduces greater variation to funding rules across Canada.” Limiting contributions to reserve accounts to solvency special payments would further harmonization, as it would be consistent with the regulatory scheme in Alberta and British Columbia.
When it comes to going-concern provisions for adverse deviation, the two options presented closely mirror – but are not identical to – the Quebec regulations and the Ontario regulations, respectively. Unless there’s a compelling reason otherwise, the Section recommends precisely following the Quebec regulations precisely if Option 1 is chosen, and the Ontario regulations if they go with Option 2.
And while both options are more complex than the approach in British Columbia or Alberta, “we recommend the wholesale adoption of either the Quebec or the Ontario approach to defining fixed income securities since the definition is closely aligned to how the PfAD is calculated. A wealth of regulatory and industry experience already exists in both Quebec and Ontario that would assist pension plan administrators in Nova Scotia in understanding and applying either definition.”
Allowing a three-year transition period to the new funding regime would align with the four guiding principles, the Section says.