Pensions: A tale of two (and a half) commissions – and four provinces (by Louis Erlichman)

For several years before the most recent stock market meltdown, there was already a lot of talk about a pension crisis in Canada. The 2000/01 collapse of the tech market bubble and declining interest rates meant that sponsors of defined benefit pension plans could no longer take the contribution holidays they had gotten used to, and had to make significant pension contributions.
Even though pension surpluses were no longer common, many employers were complaining that court rulings restricting their unfettered right to all surpluses were unfair. In the new environment, multi-employer plans were facing uncertainty about their need to fund for unlikely plan windups.
The proportion of the workforce covered by pension plans was gradually declining (though most of the decline just reflected declining unionization rates – most unionized workers have pension plans; most non-unionized workers do not; and pension legislation in most Canadian jurisdictions had not been thoroughly reviewed for 15 or 20 years.
Ontario led the way a couple of years ago by naming law professor and arbitrator Harry Arthurs as a Commissioner to review provincial pension legislation. With support from pension experts from both labour and management, Arthurs commissioned a number of research studies, help extensive hearings and finally released his report in November of 2008.
Alberta and British Columbia followed Ontario by appointing a joint “panel on pension standards”, chaired by two management-side pension lawyers. After a somewhat less extensive process (they used some of the Arthurs Commission research and held a shorter series of consultations), they also released a report in November 2008.
Finally, (though the federal government has also said it will do a review, and other provinces may follow), Nova Scotia has also set up a Pension Review Panel, chaired by the former President of Maritime Life, which issued a Position Paper for further discussion in October, 2008, prior to issuing a final report.
It is interesting to compare the reports and their recommendations.
The Ontario Report
Arthurs called his report “A Fine Balance”, and, reflecting his arbitrator background, tried to balance various interests in his recommendations. For plan members, he recommended immediate vesting (now required only in Quebec), an extension of “grow-in” benefits, and some restrictions on employer contribution holidays. Arthurs also proposed increases in the maximum coverage under the Pension Benefit Guarantee Fund.
For employers, he provided somewhat greater access to surplus, particularly when plans are merged, split or partially-wound-up. He rejected, however, the employer claim that giving them a free hand to take surplus would increase coverage.
The Alberta/B.C. Report
The Alberta/B.C. Report pretty much presents a one-sided set of recommendations. There are no recommended improvements in standards. Instead the focus is on making plans less “onerous” and more attractive to employers, by giving them even easier access to surplus, and reducing regulation.
The Nova Scotia Position Paper
The Nova Scotia panel takes a different tack. It proposes a set of funding rules that would be significantly different from every other Canadian jurisdiction. The overall impact of the proposal is difficult to estimate. The Nova Scotai paper is less extensive than the other reports, but it proposes a move to immediate vesting, and the abolition of grow-in provisions.
There is a degree of consensus among the three reports in some areas. Both the Ontario and B.C./Alberta reports would remove solvency/windup funding requirements from multi-employer plans. All three reports call for the encouragement of new or less common plan designs, particularly single or multi-employer plans where governance and funding responsibility are shared between members and employers.
All of the reports call for an end to the few remaining substantive restrictions limiting pension fund investment, arguing that plans, particularly large plans with good analytical capacity, could be trusted to invest under the vague principles of prudence. This call for further deregulation of pension investment is troubling, since recent history has exposed the fact that large, “sophisticated” investors operating with weak regulation and limited public scrutiny are quite capable of walking into financial disasters.
Finally, each of the reports proposes the setting up of a province-wide voluntary supplementary plan to expand coverage to the majority of workers not currently in a workplace pension plan. In fact, the B.C. and Alberta governments have already announced their intention to move ahead with a joint “ABC” plan.
While the notion of public plan that provides a better deal than currently-available RRSP arrangements through economies of scale is attractive, it remains to be seen whether conservative governments will actually deliver a credible plan that competes with our bloated RRSP industry. In other countries, national savings schemes have generally benefited only the management firms earning investment fees.
It is also questionable whether a new plan on a voluntary basis (even with an automatic opt-in provision as proposed for ABC) would actually increase coverage, or simply shift members from existing plans.
We already have an efficient, virtually universal, workplace pension scheme in Canada – the Canada and Quebec Pension Plans. The public pension system (C/QPP, Old Age Security, Guaranteed Income Supplement) now provides half of the total income of Canadian seniors. If retirement incomes are inadequate, the cheapest and simplest way to do it is to improve public benefits. It is important to ensure that the new provincial plans are not presented as an alternative that weakens the public system, or stands in the way of improvements that would help the vast majority of Canadian workers.
Now we await the provincial governments’ legislative proposals, which should tell us a lot about interests they are interested in protecting.