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CCCA_V3No1_Col-Osler-FIN.qxd:CCCA_V1No2_Col-CorpLaw-V1.qxd 1/21/09 3:11 PM Page 40 Legal Update – Osler Hoskin & Harcourt LLP The shape of things to come? Two reports tackle pension reform in Canada. ensions have assumed a prominent role in MEPPs and JSPPs would be permitted sion to a newly established agency that would Precent discussions on the economy. Of greater funding flexibility, in that these plans administer the plan assets. particular note are two major reports on would only have to be funded on a going- Surpluses could be allocated to new plans, Canadian pension plan reform that were concern basis. SEPPs would still have to be provided the original (and all derivative) issued in quick succession.Although neither funded on a solvency basis and meet a new plan(s) remain fully funded. The regulator report addresses the global financial crisis and requirement to maintain a security margin of would be able to approve plan splits and its impact on pensions,both do highlight the 5% above full solvency funding (which would mergers quickly where the union or two- need for pension reform,given that there has clearly increase a plan sponsor’s costs);howev- thirds of active members and retirees are in been no review for over 20 years and many er, such restrictions would be somewhat ame- agreement. underfunded plans are now struggling. liorated for SEPPs that are funded at or above While the Ontario report provides for con- On November 20, 2008, the Ontario 95%. These “well-funded” SEPPs would be tinued partial wind-ups in situations where Expert Commission on Pensions released its permitted to take advantage of longer amorti- plan memberships have declined in accor- review of the Ontario pension system; a zation periods (eight years as opposed to five) dance with set percentages,the purpose would week later, the Joint Expert Panel of Alberta when funding solvency deficiencies. be to check in on a plan’s funded status,not to and British Columbia published its recom- provide member entitlements. Instead, all plan mendations for modernizing and harmoniz- Surpluses: Easing Access members would be vested upon joining, and ing the pension standards legislation of those When pension plan language is not clear on grow-in rights (i.e., benefit enhancements) two provinces. how surpluses should be distributed upon would be granted to all active SEPP members Both reports recognize that new legislative plan wind-up, the Ontario report recom- involuntarily terminated.While the expansion frameworks should accommodate a wider mends that the parties be empowered to of vesting and grow-in rights clearly represents variety of pension schemes. The Ontario negotiate a surplus distribution agreement. an increased employer cost,wind-up situations report, for example, differentiates among sin- Where an agreement cannot be reached,par- would be somewhat improved by no longer gle-employer (SEPP), multiple-employer ties could submit the matter to a dispute res- requiring surplus distribution and annuitiza- (MEPP) and jointly-sponsored (JSPP) pen- olution procedure or apply to the superin- tion of benefits on a partial wind-up. sion plans, tailoring its recommendations tendent for referral to a tribunal.This proce- Although the Alberta/B.C. report differs accordingly.Both reports anticipate an end to dure would be an improvement over the in certain respects from the Ontario report, the“one size fits all”approach to pension reg- current system, which does not allow nego- it does address many of the same issues fac- ulation. The Ontario report’s recommenda- tiated agreements to prevail over often ing Ontario: enhancing solvency, providing tions on funding, the use of surpluses, and ambiguous historic entitlement language. greater flexibility and encouraging new ways business restructuring are particularly notable. For ongoing plans,the report recommends of designing plans. permitting contribution holidays where the Funding: Combining Solvency plan is funded at 105% or more on a solven- Impact: Pension Reform? with Flexibility cy basis, with contributions to resume where Alberta,B.C.and Ontario are awaiting public Recognizing that solvency is a pressing issue funding drops below 95% (as determined on comment on their respective reports.While it facing pension schemes, the Ontario report the basis of benchmarks set by the regulator). is uncertain whether the respective govern- recommends that actuarial valuations be made ments will even act on these recommenda- more comprehensive and transparent.To facil- Restructuring Businesses: Facilitating tions, it is clear that these reports speak to the itate this regime, it recommends that the the Plan Combinations need for change and hopefully will initiate a superintendent be given the power to prohib- In a business restructuring, the Ontario new era in pension regulation. it the use of“unreasonable”assumptions,order report recommends providing options to independent valuations, approve new funding individual and group transferees, including Evan Howard is a partner in Osler, Hoskin & arrangements for SEPPs at risk, and facilitate accepting an asset transfer, moving to a Harcourt LLP’s Pensions & Benefits Department. and approve arrangements for MEPPs at risk. locked-in account, and transferring the pen- (ehoward@osler.com). 40 CCCA Canadian Corporate Counsel Association SPRING 2009