Canada: Alberta’s New Pension Legislation: Noteworthy Changes

Alberta's new Employment Pension Plans Act (EPPA) and Employment Pension Plans Regulation (EPPR) came into force on September 1, 2014. This new Alberta legislation, which responds to the 2008 Joint Expert Panel on Pension Standards Report, constitutes a substantial revision of pension standards legislation in that province. Below is a discussion of a number of changes, some of which are innovative.

Vesting and Locking-in

All benefits, including those accrued prior to September 1, 2014, are now immediately vested.¹ A benefit is not locked-in if it is less than 20% of the Year's Maximum Pensionable Earnings. Unlocking is also permitted in these circumstances:

• the member has an illness or a disability that is certified by a medical practitioner to be terminal or to likely shorten the member's life considerably, and has elected to convert all or part of the benefit to a series of payments for a fixed term or to withdraw the commuted value of the benefit or less; or
• the member, who is of pensionable age, withdraws the commuted value of the benefit on providing to the administrator written evidence that the Canada Revenue Agency (CRA) has confirmed the person's status as a non-resident for the purposes of the Income Tax Act (Canada).²

Mandatory Enrollment and Auto-enrollment

A plan may now provide that, as part of the employee's terms and conditions of employment, he or she must become a member of the plan.³ However, instead of mandatory enrollment, an opt-out right may be provided, in which case the employee must signify his or her refusal to join the plan within 60 days of receiving the auto-enrollment notice from the plan administrator.⁴

Missing Beneficiaries

A plan administrator may now transfer, upon application to the Minister in accordance with the Unclaimed Personal Property and Vested Property Act (Alberta), (i) any unlocked benefit to which a terminated member or surviving pension partner is entitled, or to which a former pension partner is entitled under a matrimonial property order or agreement; (ii) an actuarial excess allocated to anyone; (iii) any death benefit; (iv) the commuted value of a pension payable to a deferred vested member, when the recipient is missing.⁵ When the plan is wound up, the administrator must make such transfer.⁶

A missing recipient is someone who the administrator can confirm, in writing with supporting evidence, remains unfound despite searches by a licensed skip tracing firm and the National Search Unit of Service Canada (Department of Human Resources and Skills Development Canada), and under the Vital Statistics Act (Alberta).⁷

Governance and Funding Policies

Each pension plan must now have a written governance policy.⁸ If the pension plan is a defined benefit (DB) or a target benefit plan (TBP),⁹ there must also be a written funding policy.¹⁰ These policies must be in place by August 31, 2015. The governance policy must set out the following:

• structures and processes for overseeing, managing and administering the plan as well as the outcomes they are intended to achieve;
• the decision makers and their roles, responsibilities and accountabilities;
• performance measures and the process for monitoring each decision maker's performance;
• procedures to ensure that decision makers have access to relevant, timely and accurate information;
• a code of conduct for the administrator and a procedure to disclose and address conflicts of interest;
• educational requirements and necessary skills;
• material risks and internal controls to manage those risks; and
• a dispute resolution process to deal with benefits claims.¹¹

Administrators who have been fulfilling their fiduciary-like duties will realize that the governance policy is a document that they have already adopted in delegating and describing the various duties associated with the administration and investment of the plan and its assets.

The funding policy must set out the following:

• the plan's funding objectives as they relate to benefit security and levels, and contribution stability and levels;
• the material risks that affect funding requirements, tolerances for those risks and internal controls to manage the risks;
• expectations for the going concern funded ratio and the amortization of unfunded liabilities and, if applicable, for the solvency ratio and the amortization of solvency deficiencies;
• when required by circumstances and the plan is a jointly sponsored plan (JSP),¹² a negotiated cost plan (NCP)¹³ or a TBP, expectations for the reduction of benefits;
• expectations for the utilization of actuarial excess and surplus;
• a standard for the frequency of actuarial valuation reports, whether filed or not.¹⁴

Interestingly, although the governance policy is clearly an administrative issue, whereas the funding policy is not, the legislation does not say who is to develop these policies, indicating only that the administrator is to "ensure" that they are established.

Solvency Reserve Accounts

The administrator of a plan, other than a TBP, that contains a benefit formula may set up a solvency reserve account within the pension fund. A solvency reserve account is an account to which are deposited payments made in respect of a solvency deficiency. Despite the wording of the plan text, the prescribed portion of the actuarial excess or surplus in the solvency reserve account may be withdrawn, subject to the Superintendent's consent.¹⁵ Effectively, this amendment mitigates the risk of "trapped surplus" if a plan's solvency ratio improves considerably in between valuations.

The cost certificate must account separately for the solvency reserve account, and the actuarial excess in relation to a solvency reserve account is to be calculated on a plan termination basis.¹⁶

Disclosure

Plan summaries and annual statements must now provide contact information for the administrator and a statement communicating the right to examine and obtain plan documents and records. Plan summaries must also now provide the plan's name and CRA registration number. Additional disclosures are required depending on the type of plan.¹⁷

Annual statements must now be provided to retirees and other pension recipients. In addition, other statements such as those regarding marriage breakdown have also been enhanced.¹⁸ Adverse amendment notices are replaced with a notice of a change in member contributions or benefit reduction.¹⁹

Finally, the administrator must inform the Superintendent of Pensions as soon as it is aware of any proceeding under the Companies' Creditors Arrangement Act (Canada), the Winding-up and Restructuring Act (Canada) in relation to liquidation, receivership or secured creditor enforcement, or the Bankruptcy and Insolvency Act.

Next Steps

The many changes brought about by the EPPA and the EPPR will require that administrators of pension plans, whether registered in Alberta or containing members located in Alberta, revise their plan text and other documentation such as summaries and statements. Administrators of DB plans and TBPs registered in Alberta will also have to revisit their plan governance documents and see to the development of a funding policy. The Alberta government has indicated that it expects compliance plan amendments to be filed by December 31, 2014, which gives plan administrators very little time to have these amendments prepared and adopted.

Footnotes

[1] Section 32 of the EPPA.

[2] Section 76 of the EPPA.

[3] Section 29(2) of the EPPA.

[4] See section 26 of the EPPR. Mandatory enrollment is not an issue under the Employment Standards Code (Alberta) since section 12 thereof allows an employer to deduct from an employee's wages amounts, such as employee contributions, that are "permitted or required to be deducted by an enactment."

[5] Section 102 of the EPPA.

[6] Section 103 of the EPPA.

[7] Section 93 of the EPPR.

[8] Section 43 of the EPPA.

[9] TBPs contain a pension formula and provide that benefits may be reduced. Section 1(nnn) of the EPPA.

[10] Section 44 of the EPPA.

[11] Section 53 of the EPPR.

[12] JSPs are those (i) whose funding costs are shared by employees and employers and (ii) that are administered by a board at least half of which must be appointed by plan members. Section 1(dd) of the EPPA and section 5 of the EPPR.

[13] NCPs are bargained defined benefit or target benefit plans whose contributions are limited by collective agreement. Section 1(kk) of the EPPA.

[14] Section 55 of the EPPR.

[15] Section 54 of the EPPA and sections 65 and 66 of the EPPR.

[16] Section 3 and 49(8) of the EPPR.

[17] Sections 30 and 31 of the EPPR. For example, the summary must set out (i) for defined contribution plans, the investment options, the default option and the way investment directions are to be provided; (ii) for plans other than JSPs, that contain a benefit formula, when and how benefits may be reduced; and (iii) for JSPs, when and how benefits or contributions may be increased or reduced and how the plan is governed.

[18] Sections 32 and 35 of the EPPR.

[19] Section 44 of the EPPR.

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