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| Pension Plans: Always read the fine print By Louis Erlichman Canadian Research Director |
| “Always read the fine print”. It’s an old adage, but it still holds true, not just for any contract you may be signing, but particularly when you hear government pronouncements. It didn’t get much coverage in the press, but buried on page 9 of one of the background papers to Ontario Finance Minister Janet Ecker’s Budget Speech in June, there were a total of three paragraphs on pension regulation in Ontario. One paragraph said that the government was going ahead with its merger of the Ontario Securities Commission and the Financial Services Commission, which regulates, among other things, pension plans. Since this merger, which was originally announced a couple of years ago, is turning out to be more complicated that the government originally thought, and the advantages are far from clear, the merger will probably not proceed very soon. One paragraph said that the government would introduce legislation to provide more “flexibility” for surplus sharing arrangements based on a consultation paper put out for comment for a few weeks in the summer of 2001. The 2001 proposals would have tilted the law on surplus sharing very much to the benefit of employers, making it easier for employers to take contribution holidays and withdraw surplus without member consent, from both ongoing and winding up pension plans. The current regulations on surplus, while far from perfect, offer incentives to reasonable deal-making. There was much in the 2001 discussion paper that was confusing and unclear, and it was difficult to figure out what they were really proposing without seeing draft legislation. In keeping with the Ontario Conservative’s strategy of presenting a kinder, gentler face for the Ernie Eves Government, the June budget paper did say that the proposed surplus legislation will be discussed with stakeholders. The third and final paragraph concerning pensions in the budget document said that the government will discuss with stakeholders and propose legislation to facilitate the transfer of pension assets between pension plans when groups of employees are transferred. This is a government response to a request from employers, who would no longer be required to guarantee earned benefits, but could simply provide benefits of an equivalent “value”. These proposals raise many questions about the calculation of equivalent value, the amounts to be transferred between pension plans, the effects on plans and plan members, and rights to pension surplus. It now appears that the Ontario government is planning to include legislation on both the surplus and asset transfer amendments in the “omnibus” bill they will introduce this fall to enact all of the changes proposed in the Budget. This is scary, for several reasons. There are serious problems with both the surplus and transfer proposals, and serious questions about what the government considers to be adequate stakeholder discussions. On the asset transfer issue there are wide-ranging implications, for both public and private sector plans, concerning the amounts to be transferred, and the process, as well as the retroactive impact of the proposals. Pension legislation is complex, and the implications are often not clear even to “experts”, so it is crucial that there be widespread open consultations on legislative changes before action is taken. The Ontario Government’s “discussions with stakeholders” on this issue seem to have so far been limited to some private discussions with members of the Association of Canadian Pension Management (ACPM), an employer’s pension lobbying group. Of even greater concern are the changes to the surplus sharing provisions. The proposals in last year’s discussion paper would, amongst other problems, make it easier for employers to remove surplus from ongoing plans. In the light of the recent stock market meltdown, a lot of pension plans that had big paper surpluses at their last valuation are currently in a deficit position. By allowing employers to more readily remove surplus, the government’s proposals could put a lot of plans and a lot of pensions at risk. There has to date been no public release of draft amendments for critical analysis. Once the government introduces legislation as part of a budget bill, it is very difficult to change. Amendments to pension legislation need broad public review and debate, which are generally not possible in the push to pass an omnibus budget bill (usually in the last few hours before the Christmas break). The Ontario Federation of Labour is trying to stop the government from pushing these pension changes through without the necessary time for a broad public review of draft legislation. This is not just an Ontario issue. Ontario is the largest pension jurisdiction in the country, so that what happens in Ontario can have a big influence on what happens to pension plans and their members across the country. |
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