New Pension Law Introduced
On October 19, 2016 Parliament introduced Bill C-27 An Act to amend the Pension Benefits Standards Act, 1985 (Canada). This federal law is a new legal framework for employers, unions and pensioners to negotiate an "exchange and surrender" of pension benefits, in exchange for a new pension plan with a modern governance structure and funding standards (See Jana Steele’s summary of it here. See Blakes' summary here. See Koskie's summary here).
The federal government has introduced an “exchange and surrender” model, importing a contractual standard for changing the pension plan. The law requires an employer to make an offer and acceptance to each plan beneficiary to move over their earned benefits into the new pension plan. This is intended to ensure that each member who moves over does so with informed consent, knowing that they are exchanging the benefits and assurances of the old plan for the new benefits and risks, and that they are surrendering all rights and claims to their former benefit. If a member does not consent, their accrued benefits remain in the original plan – for better or worse.
For the active workforce, the law provides that each employee may consent to the change to their contract of employment. In unionized workplaces, the law defers to the collective bargaining process for negotiating the new deal (unions can consent on behalf of represented members if they are authorized to do so).
The federal model is consistent with the Ontario process for converting plans to Jointly Sponsored Pension Plans. Both processes try to deal with the problems of forcing existing pensioners into the new deal (“converting” their benefits involuntarily). In Ontario, the check and balance is that pensioners and former members have a veto over any plan conversion negotiated between the employer and union, if one third of the pensioners as a group vote against the new deal.
The federal model turns the Ontario system around by explicitly mandating individual consent. I think this aims for the highest degree of dignity to former plan members, recognizing more than a right to be heard in the process, rather, their consent. And it respects the autonomy of all stakeholders by creating space for co-sponsors finding themselves rubbing against fiduciary principles and potential conflicts of interest as they prepare new deals taking into account pensioners who they may not represent.
Bill C-27 is a high-water mark in pension reform processes as it explicitly acknowledges that all stakeholders have interests and within that, pensioners at a minimum have a right to be individually heard in the process. For example, what does it mean if pensioners assert a seat at the table in changing over their plans? How would that look? The federal law tries to address this as it permits elected pensioners on the board of trustees. Not every plan will need this -- the law leaves the negotiation to the circumstances of each particular plan and their stakeholders.
The federal target benefit framework is specific in its prescriptions (and regulations are forthcoming). Ultimately, is it not a universal model for pension innovation in a most Canadian way, namely, it legislates processes to facilitate negotiated resolutions to hard pension questions.
I wrote this post on vacation in Mt. Tremblant, QC, grateful and privileged to be here amongst the autumn splendour enjoyed for centuries by Algonquins, Iroquois, Weskarinis and Kichesipirnis nations. Mont Tremblant means "trembling mountain ", identified by Algonquins in the seventeenth century as Manitou Ewitchi Saga, mountain of the great god, and Manitonga Soutana, mountain of the spirits. Manitou the god of nature makes mountains tremble when people interfere with the natural order. Source: Ville de Mont Tremblant. I thought of this as I wrote this post.