Submission: Submission

Eckler Consultants & Actuaries Submission

February 27, 2009

The Honourable Dwight Duncan
Minister of Finance
Attention: Comments on Report of the Expert Commission on Pensions
c/o Pension and Income Security Policy Branch
5th Floor, Frost Building South
7 Queen's Park Crescent
Toronto, ON M7A 1Y7

Dear Mr. Duncan:

Re:   Comments on Report of the Expert Commission on Pension

On behalf of the retirement practice actuaries in the Toronto office of Eckler Ltd., we commend the Ontario Expert Commission on its report. The report is comprehensive and contains a number of significant, insightful and innovative recommendations. We are pleased to see that many recommendations serve to ease the regulatory – particularly funding – burdens for multi-employer and jointly-sponsored pension plans.

Our comments on the report follow. As you will see, we support many of them. However, we are concerned that the report does very little to foster and protect the viability of single-employer pension plans (SEPPs).

Specifically, we believe that to maintain SEPP viability, consideration should be given to:

  1. Easing the solvency funding burden through a variety of measures, including:
    • Avoiding large swings in contribution requirements – especially those associated with fluctuations in interest rates or asset values – by maintaining the ability to smooth solvency discount rates and assets over a reasonable period and reducing or eliminating the funding required for grow-in benefits; and
    • Allowing amortization of solvency deficiencies over 10 years.
  2. Streamlining paperwork and reducing the administrative burden. We recommend undertaking a wholesale review of the data the pension regulator needs to conduct its oversight, and developing one or two forms per year to cover these needs. This could include eliminating the IIS and requesting additional information in the AIR instead, requiring Form 7 only when a valuation is filed (unless the plan sponsor is making major changes to its funding between valuations), and eliminating audited financial statements for plans with assets under $10 million (instead of $3 million).

Below, we provide our broad response to each chapter, with more detailed commentary on select recommendations. The bulk of our commentary relates to Chapter 4.

Chapters 1-3 — Ontario's Occupational Pension System

The introductory chapters of the report provide an excellent summary of the history of occupational plans in Ontario, the role they play both in terms of individual income security and as an important source of investment capital, and the reasons for their decline. We appreciate the effort to obtain, integrate and verify the available data, and to present it in a cohesive format.

For the most part, the report does an excellent job of upholding the guiding principles underlying the Commission's mandate. We agree that defined benefit pension plans should be maintained and encouraged, and that achieving pension security without overburdening plan sponsors requires a delicate balance.

However, when it comes to the treatment of single-employer pension plans (SEPPs), we believe the report comes up short in three of its guiding principles:

  • Maintain and encourage defined benefit pension plans
  • Create a positive environment for defined benefit pension plans within a voluntary system
  • Ensure predictability and affordability for plan sponsors.

As the report notes, there are more SEPPs than any other type of plan in Ontario, and they represent a significant percentage of Ontarians' retirement savings. Increasing burdens in governance, funding or other requirements for SEPPs will only serve to hasten their decline. As the current economic climate has made abundantly clear, all plans are feeling the strain from funding and regulation requirements. Encouraging every type of employer-sponsored pension plans, including SEPPs, will help avoid an increasing reliance on social assistance programs by retired Ontarians.

Chapter 4 – Funding

We agree with many of the recommendations in this chapter. Where we disagree with the recommendations or wish to raise additional considerations, we offer the following comments.

Recommendation 4-1 – The Superintendent should work with the Canadian Institute of Actuaries to ensure that actuarial standards and practices continue to evolve in the direction of greater transparency and more structured discretion. For example, actuarial valuations should reveal the reasons behind the assumptions used in valuations to set discount rates and to select the mortality trends used to calculate plan liabilities. They should also reveal whether the sponsor intends to take a contribution holiday.

We agree with the concept of greater transparency and support the suggestion that closer collaboration between the CIA and the regulator would facilitate improved standards. In particular, if there is any additional information the regulator would like to see in an actuarial report, we suggest that the regulator work with the CIA, so that the CIA can include it in its Standard of Practice. With regard to contribution holidays, the decision to take a contribution holiday is not within the actuary's domain and we do not believe that it belongs in the actuarial report. We recommend that the plan sponsor include this information in the Form 7 annual disclosures.

Recommendation 4-2 – The Superintendent should have the power to require that plans cease using assumptions that are unreasonable or that depart materially from accepted actuarial practice, and to order an independent valuation or peer review of a report, at the expense of the plan, if there are grounds to believe that the actuarial valuation misrepresents a material factor in its funding.

We believe that in cases where assumptions are unreasonable or depart materially from accepted actuarial practice, the Superintendent should first raise the issue directly with the actuary. If the situation remains unresolved, the Superintendent should request the involvement of the CIA. Only if the breach of standards continues, should it warrant a full review, which we suggest should be conducted internally by the regulator. The term "depart materially" should be defined along with further detail regarding who would be responsible for determining the material departure.

The actuary is subject to professional standards and should retain discretion to set individual assumptions to reflect a particular plan's unique characteristics, within the limits of those professional standards. Assumptions should not be mandated for going concern valuations. For SEPPs, the regulations currently determine the funded position based on the solvency valuation, for which assumptions are largely outside the control of the individual actuary.

Recommendation 4-3 – Going concern valuations should no longer permit the exclusion of promised indexation benefits. Solvency valuations should no longer permit the use of smoothing practices or the exclusion of benefits. A special exception should be made for those plans that continue to provide plant closure benefits pursuant to a specific, long-standing commitment to continue their non-funded status.

Potential increases in sponsor contributions attributable to these enhanced transparency measures should be offset so far as possible by the extension of amortization periods, by selective relief from contribution increases for well-funded plans or by other means.

We agree with increased transparency for actuarial valuations, but do not believe that it is appropriate to eliminate smoothing or include indexation benefits in solvency valuations, particularly in the current economic environment. The use of smoothing is very important to protect a SEPP from having dramatic fluctuations in contribution levels. Contribution volatility is one of the major reasons plan sponsors abandon defined benefit plans in favour of defined contribution plans with predictable contribution rates.

Recommendation 4-4 – The current requirement for an actuarial valuation every three years should be maintained. The time for filing the valuation after it is due should be reduced from nine to six months. Extensions should be given only in exceptional circumstances.

We agree that the current requirement for an actuarial valuation every three years should be maintained, but we disagree with the reduction in filing to six months. Our experience with the six-month deadline for federally-regulated plans is that it is very difficult to get clean valuation data and all the required calculations, verifications and report writing done in six months. While we fully support earlier disclosure of the funded status of a pension plan as a general concept, we question whether the additional burden is worth it, particularly when contributions are required with interest on filing the report, and only a fraction of any additional required contributions would be contributed between the six and nine month period in the unlikely scenario that the plan sponsor becomes insolvent during that period.

Recommendation 4-6 – The Superintendent should develop the capacity to monitor the pension system, and individual plans, more closely, and should have the power to order an interim valuation at any time if there are reasonable grounds to believe that a particular plan is at risk of failure.

We agree with the concept, provided the interim valuations are as of the plan's year-end. The terms "reasonable grounds" and "risk of failure" require definition – and should not be so narrowly defined as to trigger a valuation in the event of a significant drop in pension plan assets, as experienced in the fall of 2008. An interim valuation would be redundant if a regular valuation is due shortly after the drop in assets and unnecessary if the assets rebound a month or two later.

Recommendation 4-7 – The Superintendent should more aggressively discourage and more predictably sanction late filings, and develop a capacity to scrutinize filings to the extent necessary to improve the likelihood that inaccuracies will be detected.

We agree, provided the current nine-month filing deadline remains in place and late filings due to unforeseen circumstances not involving malice, such as administrative issues beyond the administrator's control, are addressed.

Recommendation 4-8MEPPs, JSPPs and SEPPs should have separate funding rules related to their distinctive characteristics. In general, MEPPs and JSPPs should be allowed more flexibility in funding, while SEPPs should be subject to stricter rules than other plans.

We agree that MEPPs, JSPPs and SEPPs should have separate funding rules based on their differences in sponsorship, governance, ability to change benefits retroactively, risk sharing and union involvement.

Recommendation 4-9 – Following consultation with Ontario's multi-employer pension plans, special legislation and regulations should be developed relating to all aspects of their funding, regulation and governance. The basis for such legislation and regulations should be the Specified Ontario Multi-employer Pension Plan regulation of 2007. After five years, the practical effects of these arrangements should be assessed.

We agree with this recommendation, provided the definition of a SOMEPP is reviewed. We further recommend that the definition be amended to permit a plan that is a Specified Multi-Employer Plan (SMEP) under the federal Income Tax Regulations, whether by meeting the requirements or by ministerial approval, be designated automatically as a SOMEPP. We also believe that additional groups with similar risk of failure characteristics should be eligible to qualify for SOMEPP status (e.g., universities, municipalities, and certain non-profit organizations).

Recommendation 4-12 – Jointly governed target benefit pension plans that are based on an agreement between one or more sponsors and one or more unions, that have established explicit arrangements for joint governance, and that permit accrued benefit reduction in an ongoing plan in order to deal with funding deficiencies, should be funded in a manner similar to jointly sponsored pension plans, as provided in Recommendation 4-11.

We applaud the Commission for recommending the introduction of innovative target benefit plans. We agree that these plans should be permitted to be funded in a manner similar to SOMEPPs. Moreover, we suggest that JGTBPPs be extended to non-unionized environments where there is a bona fide employee association or pension committee. We further recommend that JGTBPPs have the ability to reduce accrued benefits, subject to protection on transition for retired members. (We offer additional remarks on JGTBPPs in our commentary on Chapter 8.)

Recommendation 4-14 – Single-employer pension plans should be required to maintain a security margin (or provision for adverse deviation) of 5% of solvency liabilities. This margin should be amortized over an eight-year period. The security margin should be deemed to be part of the plan surplus on wind-up, but not for other purposes.

In recognition of the enhanced security provided to plan members by this security margin, plans that are en route to achieving it should enjoy a longer amortization period.

We do not agree with this concept, as it seems to impose an additional unnecessary condition for SEPPs. We further question why sponsors should fund beyond 100% if there is a requirement that this additional funding is to be shared with members in the case of wind-up.

Recommendation 4-17 – Plan sponsors should be entitled to reduce or omit their contributions to a plan in any year in which it is funded at 105% or more of its solvency liabilities. However if — based on benchmarks to be developed by the regulator — a plan administrator knows, or ought reasonably to know, that funding has fallen below 95%, the administrator should immediately notify the sponsor to resume contributions until the plan is again funded at 105% of solvency liabilities. The pension regulator should develop benchmarks based on the plan's annual financial statements that will enable plan administrators to determine when contributions should be resumed.

If the regulator finds that a contribution holiday was improperly taken or continued, any contributions withheld from the plan should become immediately due and payable, together with interest, regardless of the plan's present funded status, and the sponsor should be subject to an administrative fine of up to $1 million, or double the amount withheld during the improper contribution holiday, whichever is less. The improper use of plan surplus to pay the expenses of the plan, including PBGF premiums, should be treated in similar fashion.

The parties to a collective agreement should be free to negotiate other arrangements for the use of surplus in an ongoing plan. These arrangements should prevail notwithstanding those proposed in this recommendation or established in the plan documents.

We agree, in principle, with the concept of resuming contributions in some circumstances, but further details and practical concerns should be addressed. The recommendation suggests that continuous monitoring of a plan's solvency funding position would be required and that an administrator who failed to monitor the position and appropriately notify the sponsor to resume contributions could be subject to significant penalties. We believe that continuous monitoring of the solvency funding position, and the potential to trigger contribution resumption at any time for the plan sponsor, would not be practical for plans to administer (or for the regulator to monitor and enforce), and would impose undue difficulty for the plan sponsor's budgeting and cash flow management processes. We presume that the main risk to be mitigated is a plan having its solvency funding position drop well below 100% in conjunction with the sponsor taking a contribution holiday for a significant period. To address this risk more appropriately, and taking into account the practical considerations of the administrator, regulator and plan sponsor, we recommend that: (1) monitoring should be required no more frequently than is manageable in practice – we suggest no more frequently than every six months, with a trigger to resume funding effective from the start of the following plan year; and (2) the defined threshold should not be greater than 90%.

We commented above on our opposition to the requirement of maintaining a security margin of 5% of solvency liabilities. In the same vein, we believe that placing the thresholds, relative to this recommendation, at 100% and 90% respectively, would be more reasonable than the 105% and 95% suggested in the recommendation.

Recommendation 4-24 – The Ontario government should endeavour to persuade the federal government to increase benefit and contribution levels for registered pension plans under the Income Tax Act, and to consider policies that encourage participation by workers and employers in DB plans or their functional equivalents.

We agree, especially in respect of MEPPs, whose ability to improve the funding of the plan is restricted by the current tax limits. In many circumstances, the only corrective action available to improve a plan's funding status is to reduce benefits, even though members may be willing to increase contributions for the sole purpose of improving the funded position. Further, we recommend that the Ontario government support the same tax treatment for JGTBPPs as SMEPs, because the risk sharing and benefit entitlements are the same. Further, this tax treatment will provide additional incentive for plan sponsors and members to consider implementing a JGTBPP.

Chapter 5 - Pension Plans in a Changing Economy

In general terms, we agree with the recommendations of this section that help to facilitate the administrative processes of plans and accommodate changes that are agreed to by the plan sponsor and the plan members. We applaud the report for suggesting that surplus on partial wind-up should not be distributed and would encourage allowing this to also be applied retroactively. We would suggest that changes in plan provisions for SEPPs be allowed based on the plan sponsor and membership agreement where member agreement is at or above a certain percentage (70% or 75%) of members who vote.

Recommendation 5-2 – The Lieutenant Governor in Council should establish an Ontario Pension Agency to receive, pool, administer, invest and disburse stranded pensions in an efficient manner.

We agree with the establishment of an Ontario Pension Agency, but it is hard to conceive how it would work. It is important not to burden plan sponsors with any additional expenses associated with the creation of a new agency.

Recommendation 5-8 – Existing "grow-in" rights that provide access to early retirement benefits for all qualifying single-employer pension plan members in the event of a full or partial plan wind-up should be extended to all such members who are involuntarily terminated. "Qualifying members" should continue to be those whose age and years of service add up to 55.

We do not support grow-in rights, which we feel disadvantage Ontario employers, and we would prefer to see them removed altogether. We believe that the required funding associated with current grow-in provisions is very punitive to the plan sponsor and that providing grow-in rights to terminated members would be even more damaging.

If grow-in rights are not removed, and funding grow-in rights is required, we would recommend adopting a more reasonable approach to funding these benefits to avoid the risk of exacerbating the decline in DB coverage. This would include providing individual grow-in only for those members who are within five years of being eligible for subsidized benefits and whose age plus service equals at least 55. The determination of the commuted value for all grow-in benefits should be calculated based on the early retirement assumptions of the valuation, rather than on the assumption that members will retire at the time they receive the highest financial value. This will greatly reduce the "cliff" effect, where some members unfairly receive considerably more benefits than other members. Currently, for example, members who are part of a wind-up receive a higher value of benefits than members who retire under the plan. Under the recommendation to provide terminated members with grow-in benefits, members who are involuntarily terminated due to poor performance, would receive higher benefits than members who stay on in the plan or members who opt to change employers. Valuing grow-in benefits based on the assumed retirement dates of the valuation will help to mitigate these differences. No partial wind-ups should be required when members receive full vesting and grow-in on termination.

Recommendation 5-12 – Active plan members who are involuntarily terminated, whether in groups or individually, while a plan is ongoing, should not be entitled to an immediate distribution of surplus. However, those who leave their pension assets in the plan should retain the right to participate in any subsequent surplus distribution.

We fully agree with taking out the requirement to distribute surplus when members are involuntarily terminated and allowing those who keep their pension assets in the plan to participate in any surplus distribution in the future.

Recommendation 5-17 Any surplus in a plan that is to be split (the "original plan") can be allocated to any of the new plans derived from it, provided that the liabilities associated with the original plan and all of the derivative plans remain fully funded (including the 5% security margin) as of the date of completion of the transaction.
We are opposed to imposing an additional 5% security margin on single-employer plans as it is an arbitrary margin and further exacerbates the funding burden.

Recommendation 5-22 A sponsor considering the conversion of a defined benefit plan to a defined contribution or other type of plan must give notice of the proposed conversion to active and retired plan members and to any union or other organization representing them. The notice should be accompanied by an accurate, readily understood explanation of its implications, as well as technical data relating to the new plan in a form approved by the regulator.

We agree with recommendations that expedite processes for establishing replacement plans or merging defined benefit plans. Also, changes in single employer plans that are agreed to by a certain percentage (70% or 75%) of the responding members should be allowed to proceed.

Chapter 6 – When Plans Fail

We agree with the general sentiment of the recommendations in this chapter. However, we have concerns with some elements of the recommendations, specifically:

Recommendation 6-1The Superintendent should have the power to establish benchmarks that identify plans "at risk of failure;" to order additional valuations and reports by such plans, if the benchmarks are met; and to require such valuations and reports to be conducted or reviewed by independent auditors and actuaries, or by auditors, actuaries or other staff of the pension regulator, at the cost of the sponsor.

We believe that the regulator should not have the ability to order a plan to incur costs for any additional valuations or reviews required by the regulator to monitor the plan. These costs should be borne by the regulator.

Recommendation 6-7 The government of Ontario should support recent federal legislation that gives priority to unpaid current pension service costs in the event of bankruptcy. It should also initiate discussions with the federal government concerning the possibility of extending similar priority to all special payments to fund both solvency deficiencies and unfunded liabilities owing to the plan by the sponsor at the time of insolvency.

The wording of this recommendation is ambiguous. Priority should be granted to payments due to be remitted to the pension fund before the date of bankruptcy. We do not support priority for scheduled special payments due to be remitted after the bankruptcy.

Recommendation 6-9 Plan assets should be distributed on a pro rata basis. However, benefit improvements introduced within the last five years should be postponed until after other benefits are paid, in accordance with Recommendation 6-5, above.

We agree that benefit improvements in the last five years should be postponed. However, the allocation of remaining benefits should be based on plan documents, where there is a separate funding by group and a method for separately tracking assets and liabilities. Pro rata allocation according to legislation should apply only where no alternative method is defined in the plan.

Recommendation 6-13 The Pension Benefits Guarantee Fund should be continued in its present form, but with the improvements proposed in Recommendations 6-14 to 6-17 for at least five years or until completion of the review proposed in Recommendation 6-18, whichever is later. On the basis of the findings of that review, the government should determine whether to continue, amend, replace or discontinue the PBGF.

We believe that the current Pension Benefits Guarantee Fund should be continued in its present form, without the benefit improvements proposed in Recommendations 6-14 to 6-17,until the outcome of the study described in Recommendation 6-18 is decided.

Chapter 7 – Regulation

We agree with many of the recommendations in Chapter 7, since they enhance the functionality of the Act, the regulator or the Tribunal. We agree in principle that the Act:

  • be clear with different codes for different pension arrangements,
  • be the exclusive source of pension law,
  • include a purpose clause promoting the pension system, and
  • use both principle-based and rule-based legislation.

We also support the creation of template plans for small- and medium-sized businesses, along with simplified registration and filing requirements, to encourage sponsorship of DB pension plans.

We note, however, that many of the recommendations will increase the cost of government oversight. Given that occupational pension plans are in the best interests of all Ontarians, we suggest that the majority of these additional costs be paid from general tax revenues. Well-run plans should not pay for additional oversight when they do not need it.

Recommendation 7-7The pension regulator should develop filing requirements, processes and review procedures that enable it to better discharge its compliance, risk-assessment and data-gathering mandate. It should develop an electronic system for the timely review of filings and for the development of useful interrelated databases and reports.

We suggest that web-based portals be developed to allow for electronic filing of all forms. We would envision a portal that also enabled uploading of actuarial reports, plan amendments and other documents supporting a pension plan.

Rather than increase the number of required forms, we suggest that the regulator first consult with the pension industry on the type of data available. Once it understands the information that is available, we recommend the regulator identify what is truly required for its risk assessment activities, and pare back current forms accordingly.

Recommendation 7-9 — The pension regulator should issue policy statements indicating how it views and intends to process all standard pension transactions. Before doing so, it should give notice of its intention to issue such statements, and provide stakeholders with an opportunity to submit comments. After doing so, while not bound by such statements, the regulator should depart from them only for good reason and, preferably, by way of an amending statement rather than in the context of a particular proceeding.

We are fully supportive of the regulator issuing policy statements, as it will make it easier for plan sponsors to address the pension issues they face, in particular when planning business transactions. The industry should be consulted in the establishment of these policy statements.

Recommendation 7-10The pension regulator should have power to provide opinion letters and advance rulings in connection with proposed or pending transactions. The regulator should feel free to disregard such letters or rulings in subsequent proceedings if the applicant has not made full disclosure of relevant facts; if they adversely affect other parties who have not had a prior opportunity to be heard; or if they contravene legal rules or regulatory policies that were not in force when the letter or ruling was issued.

We encourage the development of a system to shorten the response time for advance rulings and opinion letters. We would add that changes in pension law negating earlier advance rulings should not apply retroactively to organizations that relied on the advance ruling.

Recommendation 7-11The regulator should:

  • develop a program of proactive monitoring, auditing, inspections and investigations directed especially at plans whose profiles, sponsors' profiles or sectoral location suggest that they may be at risk of failure or of significant under-funding;
  • expand and update its existing systems for monitoring risks, ensure that these systems are designed and administered by expert staff, and supplement them with other strategies for detecting plans at risk; and
  • be empowered to undertake remedial measures based on the results of its proactive monitoring.

We agree with the intent of identifying plans at risk. But if plan sponsors are contributing in accordance with the law, we question whether remedial action should be taken to require additional contributions. Once a plan is already significantly under funded, the plan sponsor may not have capacity to contribute more than the minimum required by legislation and forcing additional funding may increase the risk of failure.

Recommendation 7-22The Ontario Pension Regulator should have greater control over its budget and hiring practices so that it can recruit, train and retain the professional and expert staff it needs to discharge its enhanced regulatory functions. With the approval of the Lieutenant Governor in Council, the Regulator should be able to fix levies on plans according to plan size or type, to charge user fees for particular regulatory transactions and to retain for its own purposes administrative fines levied by the new Pension Tribunal of Ontario.

We suggest the regulator seek out industry professionals who have recently retired to work with the regulator on a consultative basis, as a way to enhance the regulator's expertise and knowledge.

Chapter 8 – Governance

We applaud the report's call for increased pension plan governance and disclosure, and believe that this can only lead to improved management of plans and their associated risks. The recommendations in this chapter relating to governance and disclosure are admirable goals but, in all likelihood, can only be achieved at increased costs to plan sponsors at a time when most sponsors already think defined benefit plans are expensive to administer. We, therefore, suggest that plan sponsors be strongly encouraged to adopt better governance rather than being mandated to do so by legislation, as this could lead to a further erosion of plans in Ontario.

We recognize that there is an increased level of member involvement and risk sharing for multi-employer and jointly-governed plans, and agree that a greater margin of regulatory discretion is required for plans without such a structure. Moreover, for those single employer sponsors who are able to include some form of joint governance, the report does suggest an excellent alternative to the traditional single employer plan and we fully support such initiatives. Nevertheless, the report does not provide any relief for single-employer sponsors who are not able or do not wish to include member involvement in the decision-making process. Without relief, we are concerned that these types of plans will not survive in Ontario over the longer term.

Recommendation 8-1The Regulator should establish benchmarks or performance indicators covering the broadest possible range of governance issues, including funding, benefits, expense ratios, administrative costs and service to members and retirees. Plan administrators should provide, and the regulator should collect and analyse, data relevant to these indicators.

The results of this exercise should be made publicly available so that sponsors, administrators and beneficiaries can evaluate the performance of their plans as against the performance of specific comparator groups and of the whole system.

Requiring the regulator to establish best practices, benchmarks and governance standards is an excellent concept; however, we have the following concerns:

  • Who will fund the regulator's additional functions? In our opinion, additional financing should not be borne by plan sponsors as this would be another impediment to the expansion of plans in Ontario.
  • How will the regulator collect information and what will it do with the information it gathers? Currently pension plan sponsors are required to complete and file a number of forms. Collection of information is an excellent idea, as long as it is not a burden on plan sponsors and provided the information is relevant, easy to understand and useful.
  • Widely accepted best practices for governance have already been established by CAPSA. Any governance best practices generated by the regulators should be consistent with the CAPSA governance guidelines so as to avoid confusion and duplication.

Recommendation 8-9 Plan sponsors who administer their own plan should be encouraged to reduce or eliminate inherent conflicts of interest by:

  • ensuring, so far as possible, that those assigned to the role are given an unequivocal mandate to act in the best interest of the plan;
  • providing representation for members and/or retirees and/or independent members on the plan's highest decision-making body; or
  • retaining arm's-length professional advisors to administer the plan on their behalf.

We believe that this recommendation, along with the other recommendations on conflicts of interest, are all valid and worthwhile. In particular, we agree that plan sponsors should provide clear mandates to third party advisors, the plan should have divergent representation on its governing body, and that members of the governing body should have adequate knowledge and skills.

Recommendation 8-12 The pension regulator and/or the proposed Pension Champion should initiate consultations with stakeholders and with representatives of the relevant professional governing bodies in order to ensure that their members provide services in the pension context in a manner consistent with the good governance and proper regulation of pension plans.

These consultations should focus on rules governing the conduct of professionals in pension
practice, and on the redesign of regulatory and governance structures and processes — in
both cases, with a view to ensuring the honest and transparent administration of pension plans.

This section of the report states that professionals including actuaries are conflicted. For actuaries, the report asks: "Is the point of a valuation to maximize plan security or to indicate to the sponsor how contributions can be kept to the absolute minimum permitted by law? Does the actuary provide advice or merely information to his or her clients?"

In our opinion, the purpose of a valuation is to indicate the minimum and maximum contributions permitted by legislation and to give the sponsor the information needed to make an informed decision as to the amount of contribution it will make. Certainly, it would be desirable if each plan sponsor funded the maximum amount permitted under legislation; however, most sponsors do not have unlimited cash resources and have to balance the pension plan's funding requirements with other cash requirements. At the time a valuation is filed, the actuary may not necessarily know the intentions of the sponsor as to the level of funding. As minimums and maximums are provided to the plan sponsor, it is up to the plan sponsor to make a decision within the requirements of the law.

We agree that it is possible that actuaries may prepare reports that are not "fit for purpose" or that reports may be "prepared negligently or improperly influenced by the primary client – the sponsor."  However, we believe that the current system, under which the CIA monitors and addresses any complaints about an actuary's work, is the correct process and should remain in the jurisdiction of the CIA.

Recommendation 8-13 — The pension regulator and/or the proposed Pension Champion should initiate consultations with stakeholders and with representatives of the relevant professional governing bodies in order to clarify:

  • which participants in the governance of pension plans are bound by fiduciary duties;
  • the scope of such duties;
  • whether such duties can be assigned to professional advisors and agents;
  • whether advisors and agents are themselves bound by the same duties; and
  • whether fiduciaries, their advisors and agents can enter into exculpatory contracts and indemnification agreements in order to limit their liability to the client or third persons.

We strongly believe that advisors and agents should be able to enter into contracts and indemnity agreements in order to limit their liability to the client or third parties. Entering into a contract that limits the liabilities of the advisor is necessary so that the advisor can acquire reasonable insurance coverage at an acceptable rate. Please note that these agreements do not reduce the advisor's obligation to provide accurate and quality work.

Recommendation 8-24Except as provided in Recommendation 8-26, every pension plan should be required to establish a pension advisory committee (PAC). A PAC should comprise at least five members, including one representative selected by retired members and one by each class or group of active members.

While we support the concept of pension advisory committees and believe plan sponsors should be encouraged to establish them, we believe they should be voluntary.

Recommendation 8-27The sponsor of a single-employer pension plan may enter into an agreement with a trade union, or other union-like organization that represents plan members, to establish a jointly governed target benefit pension plan. Such plans should (a) be governed by a board of trustees or comparable body on which representatives of plan members and retirees should comprise not less than one-half of its members, (b) offer target benefits, and (c) be funded on the same going concern basis as multi-employer and jointly sponsored plans.

We fully agree with the commission's recommendation that single-employer pension plans be permitted to establish jointly governed target benefit pension plans. This is an innovative solution and may address many of the issues single employer plan sponsors are facing, such as volatile funding. We also fully support the recommendation that the funding of these plans should be afforded the same rules as those proposed in the report for MEPPs and JSPPs. JGTBPPs may be an attractive design for many sponsors who wish to share the risk, decision-making and overall governance of their pension plan with their employees.

We also believe that JGTBPPs are an excellent alternative for plan members who currently only have a defined contribution pension plan or are at risk of losing their traditional defined benefit pension plan. JGTBPPs allow a significant amount of the risks associated with defined contribution pension plans, such as investment and longevity risks, to be spread among the plan members.

We fully support the introduction of JGTBPPs and recommend the following:

  • JGTBPPs should be available to any sponsor and employee group that wish to enter into this type of arrangement, not just employers operating in union and union-like environments;
  • Employers and their employees should be given latitude to determine how the membership should be represented on the plan's governing body; and
  • Employers and their employees should be given freedom to negotiate the terms of treatment for benefits already accrued for active employees when the target plan is introduced. This should include allowing a plan sponsor to move to a target benefit plan for benefits earned to date by current active employees under a SEPP either by agreement with the union (if a union plan) or with agreement by a certain percentage (70% or 75%) of plan members who vote (if not a union).

    In the absence of agreement, we suggest the plan be converted to a target benefit plan for current active employees on the condition that the plan sponsor agrees to fund all special payments established at the date of conversion. Gains or losses revealed in future valuations would not cause the special payments established at the date of conversion to decrease or increase. Once the benefits accrued as of the conversion date are fully funded, the plan sponsor's contribution obligations would be based on the JGTBPP plan terms.
  • Reductions in benefits should not be permitted for members who are retired at the time of the conversion to a JGTBPP.

Chapter 9 – Innovation in Plan Design

We agree with most of the recommendations in this chapter, with the exception of one of the suggestions in Recommendation 9-4.

Recommendation 9-1Innovation in plan designs should be promoted and facilitated by the proposed Pension Champion.

We believe that, historically, innovations in pension design and delivery have occurred within the confines of existing legislation and regulation. We strongly believe that it is much more likely that innovation will take place, and will deliver positive benefits for Ontario society, if government plays an active promotion and facilitation role. As noted in our comments on Chapter 10, we support the establishment of a Pension Champion, with this primary mandate, provided the funding of such an agency does not increase the administrative costs of DB plans.

Recommendation 9-2 Pension policy and legislation ought to facilitate the growth and operation of large-scale pension plans or to enable and encourage cooperation among small- and medium-sized plans.

We agree with the report's premise that larger plans offer potential economies of scale and thus potentially better benefits for members for the same cost (or the same benefits at lower cost to sponsors). We would add that, in addition to demonstrable economies of scale, there are complex dynamics and factors that will affect sponsor and member action in this area. We believe that government – through the Pension Champion – will need to take a consultative and collaborative approach to this initiative and will need to strongly consider the role of tax or other financial measures to create sponsor incentives and/or worker demand for such arrangements.

Recommendation 9-4The government of Ontario should investigate the advantages and disadvantages of expanding the mandate of the Canada Pension Plan, or creating a comparable provincial plan, so as to enhance pension coverage, control costs and improve benefit portability.

We do not support creating a comparable provincial plan, since we believe this is counter to a desirable trend in Canada towards greater harmonization of financial systems among provinces. As well, in the absence of such plans for employees in other provinces, a supplemental Ontario plan could put Ontario business at an economic disadvantage.

Recommendation 9-5The government of Ontario should support the call for a national pension summit whose agenda should extend to all ideas for significantly expanding pension coverage, including the innovative proposals contained in this report.

We support the call for a national pension summit, and believe that the focus should be on expanding voluntary occupational pension coverage and achieving uniform pension legislation across all jurisdictions. For example, we note that other provincial expert commissions have recommended plan innovations similar to the jointly governed target benefit plan recommended by the Commission, and we strongly endorse a consistent legislative and regulatory approach to establishing these plans across all jurisdictions.

 Chapter 10 - The Future of Defined Benefit Pensions and Pension Policy in Ontario

We are in agreement with the recommendations in this chapter, provided they are implemented without creating an additional burden or increased fees for plan sponsors. Above all, we support harmonization and speedy implementation of significant pension change through regulation.

Recommendation 10-1The government should:

  • considerably improve the collection of data concerning all aspects of the pension system;
  • regularly produce analyses of pension coverage, the funding status of pension plans, the contribution of pension plans to capital and labour markets, the performance of the pension regulator and other indicators of how Ontario's pension system is working;
  • use such analyses to support periodic and ongoing review of pension policy and the regulation of the pension system; and
  • make pension data and analysis readily available to stakeholder, professional and academic users.

Improving the amount and quality of data available on pension plans is beneficial to the industry and should be encouraged. The methods used, however, should not be overly onerous on plan sponsors, nor lead to significant increase in costs; otherwise the benefits may be cancelled out.

Recommendation 10-2A Pension Community Advisory Council should be formed comprising representatives of all significant stakeholder groups together with other interested parties such as professionals, service providers, academic researchers and business and social advocacy groups. It should be provided with access to data and interpretative studies on Ontario's pension system, invited to advise on significant policy initiatives, and used as a forum to promote an informed and ongoing exchange of views on pension issues.

Setting up a body comprising stakeholders who will be involved in policy initiatives is a good concept. In practice, the success of the council will depend on how it is funded, how interested stakeholders are in participating, and whether it is sufficiently diversified. These considerations should be addressed to improve the chances of such a council being successful.

In closing, we commend the Ontario government for embarking on this important and necessary review of pension legislation in Ontario. We look forward to a new era for pensions in Ontario and would be pleased to assist in any way we can to facilitate the speedy adoption and implementation of positive legislative change.




Wafaa Babcock FSA, FCIA


Anthony Benjamin FSA, FCIA

Jasenka Brcic FSA, FCIA

Mark Davis FSA, FCIA


Ian Edelist FSA, FCIA

Steve Gendron FSA, FCIA

Cameron Hunter FSA, FCIA


George Mitchell FSA, FCIA

Catherine Robertson FSA, FCIA

Jill Wagman FSA, FCIA