CBA’s National Pensions and Benefits Law Section took part in a recent consultation on the Pension Commission of Manitoba’s review of The Pension Benefits Act, responding to questions contained in a consultation paper issued in January.
In its submission to the commission, the Section noted that CBA members are not of one mind on the merits of defined-benefit pension plans vs. defined contribution, or shared risk plans, so it could not unequivocally recommend one or the other.
The consultation paper covered questions such as whether a regulatory framework should be developed for defined-benefit or shared-risk plan designs; buying annuities; entitlement to ancillary benefits; locking-in provisions; and whether the new plan should be limited to unionized workplaces.
On the question of converting plans from one style to another, the CBA Section urged caution, because the conversion of defined benefits, and especially accrued benefits, is controversial and has been subject to challenges, including constitutional challenges.
“A model has yet to be proposed or implemented that is free from opposition or potential for challenge,” the Section writes. “This potential is elevated where there is a possibility of converting accrued benefits, making them subject to possible reduction.
“In the view of some members of the CBA Section, the ability to convert earned benefits from a guaranteed benefit to one that is contingent on external factors is unsupportable.”
In response to questions about solvency funding rules, the Section advocates three values remain top of mind when considering potential changes:
- Sustainability – robustness with respect to changing economic conditions;
- Clarity – legislative guidance on entitlements to and uses of plan funds; and
- Harmonization – alignment with rules in provinces that have already undergone solvency funding reform.
“A new solvency funding framework (if any) must be designed to be manageable in the long term, and fair and equitable to all stakeholders in all economic environments,” the Section says. “There should be sufficient flexibility in the solvency funding regime to provide the necessary counterbalances to economic shifts.”
Given current concerns with solvency of pension plans, a number of jurisdictions have been reviewing their legislation/examining proposed changes to solvency funding rules – the Pensions Section commented on a similar review in Nova Scotia in 2017. While the Section has divergent opinions on solvency funding, it continues to advocate harmonization, clarity and sustainability. These principles will continue to be paramount as more jurisdictions review their legislation and approach to solvency funding.