Chapter Ten – The Future Of Defined Benefit Pensions And Pension Policy In Ontario

10.1 Introduction

This report has so far concentrated — as my mandate contemplates — on “the importance of maintaining” Ontario’s defined benefit (DB) pension system. Accordingly, my analysis and recommendations have focused on improving “the security, viability and sustainability” of that system with respect to some 16 specific issues set out in my terms of reference. However, my mandate does not stop with recommendations designed to “maintain” the present system. I am to concern myself as well with “encouraging and enhancing” the DB system “as an important policy instrument that supports workforce attachment and fosters an entrepreneurial economy…” and to consider “other matters relevant to enhancing the viability of defined benefit plans in Ontario.”

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10.2 Optimism and Pessimism about the Future of Ontario’s Defined Benefit System

10.2.1 The views of experts and stakeholders

In reviewing what I heard from stakeholders and pension experts representing many different disciplines and affiliations, I was struck by two recurring themes. On the one hand, almost everyone agreed that DB pensions are highly desirable for those workers who have access to them; that they are useful to employers seeking to attract and retain workers in the context of tight labour markets; that they form an integral part of the province’s strategy for providing income security for retirees; that funds generated by DB plans make a significant contribution to Ontario’s capital markets and to its economy more generally; and that DB pensions ought for all these reasons to be encouraged.

On the other hand, most observers acknowledged that the DB system is experiencing serious difficulties; many foresaw its continuing decline unless various problems were “fixed;” and a few even pronounced it as already “on life support” or even “dead.” Indeed, even those who were more optimistic about the system were guarded in their predictions and modest in their expectations.

In general, the optimists seemed to feel that improvements in the legislation and the regulatory machinery might slow or arrest the long-term decline in DB coverage, but not — under present conditions and with a voluntary system — that coverage would return to levels reached, say, 30 years ago. Their best hope for stabilizing and reinvigorating the system seemed to involve introducing a new generation of large-scale DB-like plans, on promoting other forms of employment-based retirement savings, or on modifying or abandoning our present voluntary system in favour of one based on some degree of compulsory participation. These last possibilities were often acknowledged — and sometimes welcomed — even by otherwise pessimistic commentators.

That said, not everyone who commented on the present difficulties of Ontario’s DB pension system thought that government had an obligation to “maintain” it, let alone to “encourage and enhance” it or to replace it with something similar.

A few presenters at the Commission’s hearings seemed to feel that if DB pensions represent an unsustainable burden for Ontario businesses under present economic circumstances, they will be — and should be — abandoned. In a similar vein, others suggested that since DB pensions are no longer available to most private sector workers, taxpayers ought not to be forced to bear the heavy cost of maintaining them in the public sector. Adherents of these two positions converged on the implicit conclusion that businesses, governments and institutions such as hospitals and universities should be allowed to maintain, reconfigure, reduce or eliminate their pension plans as they deem best.

Another group, while implicitly accepting the conclusion that markets ought to determine public policy, focused on the fact that pension plans do in fact originate in market transactions. Individual or collective wage bargains that provide for pensions constitute a tacit or explicit agreement between the parties that some part of the total remuneration package will be deferred until retirement, when it will arrive in the form of a pension. If, in the negotiation of the wage bargain, no arrangement is made for deferred compensation, market forces will presumably ensure that workers’ current take-home pay is adjusted to reflect that fact. Of course, having elected to accept a wage bargain that does not include an element of deferred compensation, workers remain free to set aside some part of their extra remuneration in order to buy a pension (or equivalent) for themselves. If they fail to do so, and choose to spend what they earn on current consumption rather than save for the future, they will have only themselves to blame if they experience hardship in retirement.

While I understand, and to some extent accept, the relatively pessimistic forecast concerning the future of DB pensions, I do not accept the “good riddance” verdict on the DB system implicit in the latter two positions. Indeed, “good riddance” is not a position my mandate would permit me to take. My mandate assumes that DB and other occupational pension plans contribute to the economic and social well-being of the province; that the sustainability and coverage of the pension system are therefore matters of public concern; and that the state has an interest in ensuring that occupational pension plans, once established, should be properly funded and administered. These assumptions no doubt explain why I have been asked to recommend measures not only to “maintain” but to “encourage” and “enhance” the present voluntary DB system, even in the face of rather pessimistic predictions concerning its future.

10.2.2 “Fixing” problems

The measures I recommend, of course, depend not only on my mandate, but on my diagnosis of the difficulties confronting the DB system. In Chapter Three I reviewed various explanations for the decline of the system proffered during our hearings and in commissioned research studies: changing labour markets, declining union density, demographic and attitudinal changes, over-regulation and inappropriate legal rules, the so-called “perfect storm” encountered early in this decade by both financial markets and pension funds, and — most seriously — fundamental and incurable flaws in the architecture of the DB system. Having considered all of these explanations, I concluded in Chapter Three that on the basis of the best evidence available, labour market factors and shrinking union density seem to be responsible for most of the decline in DB coverage. In light of this conclusion, there are intrinsic limits to the kinds of recommendations I might make to improve coverage and strengthen the system.

On the other hand, as I note in Chapters Four through Seven, rules relating to funding, surplus ownership and related issues have also contributed to the cost and volatility of DB plans, and hence to their declining attraction to sponsors — while deficiencies in the legal–regulatory framework can threaten the interests of plan members. I therefore make recommendations in these chapters that aim to enhance “the security, viability and sustainability” of the system by “fixing” these problems.

Yet if “fixing” the present system is a necessary step toward “encouraging and enhancing” the DB system, it is not a sufficient step to halt its shrinkage, let alone to stimulate its growth.

10.2.3 Improving coverage: from reform to innovation

So long as our DB system rests on the voluntarism principle, shrinkage will stop and growth will resume only if and when more sponsors choose to maintain their existing plans or to start new ones — whether for their own reasons, to match job perquisites offered by their competitors or under pressure from a union representing their employees. Sponsors are more likely to make such choices, in my view, if they have access not only to familiar plan designs but to new types of plans whose advantages and outcomes approximate those of classical DB plans. And social policy analysts, active and retired plan members and their representatives will more readily support changes to the Pension Benefits Act (PBA) if they are convinced that innovative measures are being introduced that will expand coverage without unduly impairing security. The answer seems to be that a new pension system must be developed whose features are comparable, though not identical, to those of the present DB system.

That is why in Chapters Eight and Nine my proposals to increase the attractiveness of the pension system to sponsors focus on innovation. For example, sponsors prepared to adopt the shared governance model that I have termed a jointly governed target benefit pension plan (JGTBPP) would be permitted, like multi-employer and jointly governed pension plans (MEPPs and JSPPs), to provide target rather than defined benefits. “Affinity” plans based on relationships other than employment would make DB or DB-like pensions available to people who are not strictly speaking “employees,” or to those whose employer does not presently offer pension benefits. The risk-spreading, investment and administrative capacities of small single-employer pension plans (SEPPs) would be enhanced, their financial results improved, and their costs reduced, by encouraging them to join existing MEPPs or establish new ones, and by enabling them to take advantage of services offered either by large, sophisticated plans — such as the existing JSPPs — or by commercial providers. Existing MEPPS would be expanded by redefining who is eligible for membership or what services they can offer their members. And if prospective sponsors and members are not attracted by these variations on current pension arrangements, new pension designs would be permitted, such as target or contingent benefit plans or cash balance plans. In Chapter Nine I also suggested that large-scale pension systems that depart from the voluntarism principle — which are mandatory or provide default membership with an employee opt-out — are worthy of careful consideration over the long term.

These, in my view, are all sensible suggestions that both the government and the stakeholders ought to consider very carefully. However, not all sensible ideas about reforming the present system are considered on their merits or win acceptance after close scrutiny, nor will innovation designed to encourage wider and better pension coverage occur spontaneously. Ontario’s pension system is too complex, too convoluted and, especially, too conflicted. My extensive encounters over the past two years with stakeholders, regulators, professionals, experts, employers, workers, retirees and other members of the pension community lead me to conclude that several important changes in the pension environment are necessary before change can be expected to occur on a significant scale.

10.2.4 Improving the environment for reform, innovation and long-term pension policy development

First, both reform and innovation must be more thoroughly grounded in careful analysis than they now are. Unfortunately, as Chapter Two reveals, the current state of our knowledge about the pension system leaves much to be desired. This must change. It is not only essential to gather statistics more extensively, accurately and promptly than we now do — it is crucial that those statistics should be analysed objectively, that their implications for public pension policy and private pension provision should be weighed carefully, and that information and analysis should be shared with and discussed by the broader pension community. At the very least, if there are to be disagreements about the desirability and feasibility of proposals for reform and innovation in the DB system, the facts about current practices and outcomes should not be in dispute.

Recommendation 10-1 — The 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.

In Chapters Seven and Eight, and later in this chapter, I review the relative attractions of assigning responsibility for data collection and analysis to either a reconstituted pension regulator or the proposed Pension Champion, or both. While the choice of who ought to be assigned this responsibility remains an important issue, a far more important one is whether someone is doing these things, and doing them well.

Second, the government and the pension community must both become not only habituated but committed to informed and ongoing discussion as the predicate for making change. There are some hopeful signs. As I note in Chapter One, the Ministry of Finance has begun to improve its statistical capacity in the pension field and has appointed a task force to evaluate the analysis and recommendations provided in this report; the Financial Services Commission of Ontario (FSCO) has begun to consider improvements in its regulatory approach; members of the pension community representing both sponsors and plan members volunteered to assist the Commission’s work; partisan briefs presented at public hearings and informal comments by stakeholders during our consultations often acknowledged the need to accommodate opposing points of view; and (I have been advised) some influential actors in the pension field have been in touch with each other directly about possible ways to improve the DB system. Moreover, as Kendra Strauss noted in a study for the Commission, Ontario so far retains a relatively “strong pensions culture” as compared to the United States and the United Kingdom, where a much larger proportion of DB plans have been closed, capped or converted to defined contribution (DC) plans.

On the other hand, attitudes originating in those countries are likely to exert an important influence on Ontario’s “pension culture” in the future. Strong ties exist among pension professionals from the three countries who often belong to the same international consulting, actuarial or law firms or networks; serve the same clients; read the same books and journals; use the same or similar analytical tools; and adhere to the same, or similar, professional norms. More importantly, investment decisions affecting Canadian subsidiaries and, often, decisions relating to pension plans, are made by their American and (less frequently) British parent companies. Consequently, attitudes shaped by corporate experience and professional practice in the United Kingdom and the United States are likely to end up determining the fate of many Ontario pension plans.

Not that Ontario lacks for home-grown controversy over pension reform. Indeed, controversy over proposed amendments to the PBA and regulations has been quite intense. One result has been that previous governments have been reluctant to update or amend the Act, despite the obvious need to do so, for fear of political consequences. Nor have governments alone become risk-averse with regard to pensions. Two incidents during the Commission’s hearings suggest that obstacles to pension reform and promotion are becoming embedded within the conventional wisdom of private sector and professional actors. On one occasion, I was told by a law firm spokesperson that contractual language used to consummate corporate mergers and acquisitions routinely requires the closure or capping of DB pension plans; on another, a representative of a highly respected DB pension plan active in private equity placements told me that it would not invest in firms with ongoing DB plans. If the DB system is to remain viable, and to move forward, significant effort must be devoted to changing the attitudes toward pension reform of both government and private sector stakeholders.

A final problem is that the identity of “stakeholders” is unclear and their mandate or capacity to support changes in the pension system is open to question. No single organization or group of organizations speaks for sponsors or employers; responsibility for pension policy within the labour movement appears to be distributed between central organizations and their affiliates, which have different pension needs and experiences; retirees’ organizations are relatively new and have only the mandate they claim for themselves; non-union workers who have, had or want pensions have no single spokesperson of record; and firms of pension professionals and service providers speak only for themselves and not (except when on retainer) for their clients. Moreover, even when organizations can fairly claim to represent significant interests within the pension community, they do not necessarily employ dedicated pension staff who can speak knowledgeably on pension issues whether at a technical level or at the level of policy.

In such a context, to seek to build consensus by promoting informed discussion and positive attitudes within government and among stakeholders must be understood as a very approximate and long-term project. Nonetheless, such an approach must be tried. The alternative is to allow suspicion, misunderstanding and conflict to perpetuate what has become a virtual impasse in the process of reforming Ontario’s pension system.

Recommendation 10-2 — A 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.

Third, change in the pension system must be regarded as continuous. New conceptual insights and analytical approaches should be rapidly incorporated into thinking about the pension system. New developments in the general economic and social environment — for example, the decline of the manufacturing sector, the apparent persistence of lower long-term interest rates or fundamental changes in investment philosophy — should trigger prompt consideration of new approaches to providing pension coverage and safeguarding pension funds. New pension products should be made speedily available in response to the pressures of supply or demand, or to lessons learned from other jurisdictions. And as a necessary corollary, appropriate new approaches to regulation and governance should be introduced in tandem with these new products.

Given the delays that are inevitable in the legislative process, how can changes in regulation be accomplished with the requisite speed and frequency? One sensible strategy — already widely used in the pensions field — is to empower the Minister responsible for pensions, or the regulator, to institute changes by enacting or amending rules or regulations made under the statute, rather than by amending the statute itself. As a corollary, those who will be affected by new rules and regulations should — except in emergencies — have an opportunity to contribute to their formulation.

Recommendation 10-3 — The Pension Benefits Act and regulations should be drafted in such a way that changes can be made with all deliberate speed to facilitate the introduction of new types of pension plans, to enable rapid regulatory responses to significant changes in the social and economic environment, and to safeguard the interests of sponsors and plan members.

Significant changes in pension law should be accomplished through regulation-making. Except in emergencies, the process of regulation-making should provide for timely notice to and comment by stakeholders and other interested parties, and for advice by the proposed Pension Community Advisory Council.

Finally — especially if continuous change becomes a feature of its pension system — Ontario should not again find itself in a situation where 20 years elapse between comprehensive reviews of its pension law and policy. Too many things can go wrong; too many interests can become vested; too many opportunities can be missed; too many misconceptions can take root; too many lines in the sand can be drawn.

Recommendation 10-4 — Ontario’s pension policy, legislation and performance should be comprehensively reviewed every eight years.

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10.3 Making Change Happen: A Pension Champion for Ontario

At least so long as the voluntarism principle continues to remain a central pillar of Ontario’s pension system, new initiatives will depend to a significant extent on the pension community itself. But this does not mean that government is — or can afford to be — a mere onlooker. Government establishes a policy and regulatory framework that can facilitate change (or frustrate it); it creates, staffs and empowers a regulator whose responsiveness (or lack thereof) may build momentum (or cause gridlock); and it constructs or countenances broader public sector pension plans that may set good examples (or bad ones). Above all, government engages constantly, closely and cooperatively with the pension community (or not).

In my view, benign neglect or “hands off” is not an appropriate stance for government to take vis-à-vis the pension system. Engagement is essential in a voluntary system where individual sponsors and service providers, and in some cases unions, will be the primary moving parties. Only through engagement can government introduce new ideas for consideration by the stakeholders, bring new actors to the table, and conduct studies that will provide a foundation and context for stakeholder initiatives. Only through engagement can government facilitate innovation, mediate divergent interests, ensure that the general direction of change is in the public interest, and make appropriate and speedy changes in the statute or regulations in the interests of both sponsors and members.

But who will engage on government’s behalf? Who will speak for government? What person or agency within government is mandated and qualified to work closely with the stakeholders to reinvent the system?

To the best of my knowledge, no official or agency presently plays that role. FSCO has a small policy branch that, in practice, concerns itself exclusively with regulatory issues. The Superintendent of Financial Services has a statutory mandate “to conduct surveys and research programs and to compile statistical information related to pensions and pension plans,” and as CEO of FSCO, to “make recommendations to the Minister on matters affecting” the pension sector; but in practice, the Superintendent apparently does neither. The Ministry of Finance has a Pension and Income Security Policy Branch (PISPB) whose broad mandate includes both occupational pensions and other aspects of income security, while other provincial government ministries or agencies — Labour, Economic Development, International Trade and Investment, Community and Social Services, Government and Consumer Services, Citizenship and Immigration, the Seniors’ Secretariat — have some interest in pension policy-making as well. However, to the best of my understanding, none of these has adequate data-gathering and analytical capacity, none has a specific mandate to actively promote the defined benefit system or occupational pensions more generally and, in particular, none is presently organized in such a way that it can become proactively involved with the stakeholder community in the manner suggested above.

Recommendation 10-5 — Ontario should identify an agency or unit of government as its Pension Champion with responsibility for conducting research into the pension system, for working closely with the stakeholders and the proposed Pension Community Advisory Council, for promoting and facilitating innovation in the pension system and for leading policy development efforts in the pension field.

The questions immediately arise: what will the Pension Champion look like, and where will it be located? These are questions that can be answered only at a high level of generality:

  • The Pension Champion should be a high-level agency or unit of government, not a single individual or private sector or academic undertaking.
  • It should possess staff resources sufficient to enable it to carry out its assigned functions. Since research would be one of its primary functions, it should have a small but high-quality staff of expert researchers. A second-best solution — because it would not ensure the continuity needed for longitudinal studies — would be to enable the Champion to “buy” research from elsewhere in the government or from academe or the private sector.
  • The head of the agency should have the knowledge, skills, experience and stature necessary to secure the attention, respect and cooperation of key pension sector actors as well as government policy makers.

There are good arguments for locating the Pension Champion within the Ministry of Finance:

  • The Ministry has had prime responsibility for pension policy and regulation for many years and has reaffirmed its leadership in the field by launching several recent initiatives (including this Commission).
  • It is a senior Ministry that is in a position to coordinate many social and economic programs that bear on pension policy.
  • Many personnel with relevant skills and experience are already located there.

However, there are arguments to the contrary:

  • Locating a Pension Champion at arm’s length from the Ministry of Finance would signal a new beginning in pension policy.
  • A unit or agency within the Ministry might lack the functional autonomy — and the appearance of autonomy — needed to engage successfully with stakeholders, in regard to such matters as promoting innovative pension plans, consulting with the proposed Pension Community Advisory Council and mediating among conflicting stakeholders.
  • Locating the Pension Champion outside of the Ministry of Finance might facilitate liaison with other relevant Ontario ministries, and with counterpart ministries in other provinces, in many of which pensions are not the responsibility of Finance.

While not out of the question, the least attractive location for the Pension Champion would be within the agency responsible for regulating the pension system — either FSCO or its possible replacement, the proposed new Ontario Pension Regulator (OPR). FSCO’s basic structure and functions, rather than its current capacities or recent record, suggest that the Champion should be lodged elsewhere:

  • FSCO was conceived, designed and resourced (however inadequately) as a regulatory agency. Its regulatory functions — often adversarial in character — are not consistent with the kind of close, cooperative working relationship that the Pension Champion ought to develop with the stakeholders.
  • FSCO operates on a cost-recovery basis. To place the financial burden of research, stakeholder engagement, interest mediation and policy leadership on the stakeholders themselves potentially provides them with a veto over the extent and nature of such activities, if not their actual outcome.
  • FSCO currently has responsibility not just for pensions, but for many aspects of the financial sector such as credit unions and mortgage companies. To assign it a leading role in research and policy development in the pension field alone would be anomalous. (Of course, this particular objection would fall away if my recommendation for a stand-alone single-purpose OPR is accepted.)

Wherever the Pension Champion is located, and whatever its form, it is clear that its important functions cannot be undertaken without some cost to the government. It will require strong leadership — someone who commands respect in the pension community as well as in government, who can bring the stakeholders together, who can negotiate non-statutory changes in the pension system, and who can persuade public policy makers and regulators to accommodate such changes. It will also require sufficient high-quality staff with academic and professional credentials — actuaries, lawyers and economists, for example — who will have to be offered higher salaries than appear to be currently paid such individuals in FSCO or elsewhere in the provincial public service. On the other hand, providing adequate resources to the new Pension Champion is not so much an expenditure as it is a prudent investment. If the information base of pension policy making can be improved; if litigation can be avoided, regulatory burdens eased and long-standing disputes among stakeholders resolved; if innovation can be encouraged and new pension vehicles introduced; if the occupational pension system can be revived and expanded; if present and future retirees can be provided with decent retirement income from their own forgone earnings and do not have to be added to the rolls of government-funded income support programs — if all these things happen, even to a limited extent, the benefits will far more than offset the costs.

Recommendation 10-6 — The new Pension Champion should be provided with highly qualified and sufficient staff and resources adequate to undertake its assigned functions.

In summary, what is crucial is that the proposed Pension Champion should be located somewhere; that it should be properly resourced and empowered; and that it should embark as quickly as possible on the suggested range of activities whose non-performance will continue to frustrate the resuscitation and reform of Ontario’s occupational pension system.

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10.4 Harmonization and Policy Coordination

I have mentioned several times the need to coordinate pension policies with other policies, especially federal policies related to income tax and insolvency. I have also referred to the administrative costs and complications imposed on plan sponsors, administrators and beneficiaries as a result of differences among provincial pension regimes. Reducing or eliminating policy conflict between Ontario and the federal government, and of administrative divergence and duplication among provincial and federal pension regulators, would greatly assist the smooth operation of the pension system.

That said, divergences in policy and regulatory approaches among various jurisdictions are not always the by-product of Canada’s federal system. At the highest level, to be sure, they may reflect differences in provincial economies, political perspectives, policy logics or ministerial mandates. At the level of detail and procedure, however, they may reflect nothing more than the capacity and experience of local regulators, the desire to resolve particular local problems or the literary preferences of local legislative draftspersons. In either event, policy coordination will always be extremely difficult to achieve, and detailed regulatory requirements only a little less so.

Nonetheless, I feel obliged to address the issues of coordination and harmonization for several reasons. First, they were raised frequently at the Commission hearings and during stakeholder discussions, both as distinct subjects and, implicitly, when stakeholders proposed improvements in provincial regulation that would require federal legislative changes. Second, they have been the subject of ongoing, if intermittent, initiatives by various organizations in which Ontario representatives participate, including, most recently, the Joint Forum of Financial Market Regulators (JFFMR). Third, pension legislation has recently been or is presently being reviewed in Quebec, British Columbia and Alberta (jointly), Nova Scotia, Ontario and in the federal jurisdiction — half the provinces and a significant majority of Canadian pension plans, sponsors and members. And finally, meetings of provincial and federal Ministers responsible for pensions have not been held for some time.

The time is right — indeed overdue in my opinion — for pension Ministers to meet and address at least a limited agenda of measures related to harmonization of pension laws and regulatory regimes, and to the adjustment of federal laws to better coordinate with provincial pension policies.

Recommendation 10-7 — The Minister of Finance for Ontario should promote and support a meeting, at the earliest feasible date, of provincial and federal ministers responsible for pension issues with a view to discussing:

  • the possible implications of further divergence in provincial pension policies, legislation and regulatory arrangements if, as and when the recommendations in this report, and in the reports of other provincial pension commissions, come forward for consideration, enactment and implementation by the governments involved;
  • the need for the provinces to act collectively in order to secure changes in federal legislation, particularly the raising of pension contribution limits under the Income Tax Act and the more favourable treatment of pension plans and members under federal bankruptcy and insolvency legislation; and
  • the potential for some greater standardization of procedural and technical requirements in provincial pension legislation, in light of recommendations contained in the reports of the three current pension commissions and an anticipated report from the Canadian Association of Pension Supervisory Authorities.

The Minister of Finance — the Minister responsible for pensions in Ontario — bears ultimate responsibility for coordination of the province’s pension policy and for its contributions to the harmonization of pension regulation across Canada. Of course, the Minister must depend for advice on at least three sources — the Ministry’s PISPB, which has primary responsibility for policy development regarding pensions; FSCO, the pension regulator responsible for the day-to-day administration of pension legislation and a member of both the Canadian Association of Pension Supervisory Authorities (CAPSA) and the Joint Forum of Financial Market Regulators (JFFMR); and the proposed Pension Champion, which will be closely engaged with the stakeholders and mandated to identify and promote changes in their interest and in the public interest. One of these, or all acting in concert, should be given the responsibility of supporting a timely initiative by the Minister, and a clear mandate to seize the moment to promote harmonization and policy coordination. It is a moment that will not likely come again soon.

A final word: harmonization and coordination are highly desirable, but they are not more desirable than making the right decisions about Ontario’s pension policies and legislation. In fact, making the right decisions for Ontario may hasten harmonization in three ways: first, because this report has identified and drawn upon important innovations in other Canadian jurisdictions; second, because the demonstration effect of well-conceived and well-administered Ontario legislation is likely to influence regulatory regimes in those jurisdictions; and finally, because a significant plurality of active and retired members across the country is already enrolled in plans based and regulated in Ontario. Thus, Ontario should do its best to reach consensus with other jurisdictions, and should spare no effort in removing inconsequential and irritating differences among Canada’s regulatory regimes — but in the end, it should act in accordance with what it deems to be good pension policy.

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10.5 Getting from Here to There

This report provides a lengthy and ambitious agenda for change in the already complex system of legal rules governing occupational pensions, summarized above in sections 10.2.2 and 10.2.3. However, it also recommends a number of changes in the regulatory, adjudicative, administrative, consultative and policy making institutions associated with that system. The latter changes are captured in Figure 1, below. Of particular importance are three institutions — the Ontario Pension Regulator, the Pension Champion and the Ontario Pension Agency — each of which has a rather different relation to the Ministry of Finance, performs quite different functions and is funded in a different way. Figure 1 also recapitulates these differences.

Figure 1: Proposed New Structures for the Ontario Pension System

Figure 1: Proposed New Structures for the Ontario Pension System

Many of the substantive recommendations in the report will be impossible to implement in the absence of these institutions, or something approximating them.

Finally, my report is accompanied by a memorandum of detailed technical and operational reforms unanimously proposed by my expert advisors. If adopted, these reforms will help to streamline pension regulation and be of great assistance to the stakeholders.

In an ideal world, the government and the pension community would quickly consult, agree to some or all of the changes recommended in the report and in the expert advisors’ memorandum, and implement them immediately by comprehensively redrafting the PBA. However, for various reasons, this is unlikely to happen as quickly as it might. Some stakeholders are almost certain to object to significant parts of the report on grounds they would describe as “principled.” Others, who acknowledge that the overall balance of the report’s recommendations is fair, may yet seek to change particular features on “practical” grounds. Others, who may be willing to accept those features in principle, may make their acceptance conditional on the resolution of details that have not been addressed in the report itself.

Consultation is likely to take some time. So, too, is drafting. In its present incarnation, the PBA assumes that single-employer plans — SEPPs — are paradigmatic; but as I have noted several times, an increasing proportion of plan members is actually enrolled in other types of plans. In its present incarnation, the PBA and regulations are exceedingly detailed but, paradoxically — because of the persistence of common law (contract) and equitable (trust) doctrines — still radically incomplete. Translating the PBA into what amounts to a complete code of pension law that provides for the unique treatment of many kinds of plans will be a formidable task. In its present incarnation, the PBA assigns responsibilities to, and confers powers upon, officials, tribunals and agencies whose titles, functions, mandates and resources will have to change considerably under the new dispensation. To repeat: drafting new legislation is likely to take a long time, especially if it is to be done well.

Finally, the report rests ultimately, if not exclusively, on the ability of some public agency — the Pension Champion? the Ministry of Finance? the Regulator? — to alter the dynamic of Ontario’s pension system by facilitating and encouraging the introduction of new plan designs and practices, and to improve relationships within the pension community by developing better information and analysis, and undertaking more regular and extensive consultations.

All of this could amount to a prescription for delay. However, in my view, delay must be avoided if at all possible. The time for moving ahead is now. The Commission’s engagement with stakeholders was extensive and arguably unprecedented; its research represents a significant increment to previous knowledge —though much remains to be done; its review of the issues is comprehensive in scope, if sometimes controversial; and the issues are ripe for resolution.

Certainly, implementation will need to be staged and transitional measures put in place: pension plans organized and funded on some other basis will need time to adapt to the new requirements; pension professionals will have to refresh their understanding of the system and, in some cases, revise their strategies and routines; and personnel to staff the new agencies will have to be recruited, trained and deployed. And of course, some of the positive outcomes being promoted in the recommendations —innovation in plan design, for example — will take years or decades to become manifest. But these inherent delays provide all the more reason to begin to “get from here to there” as quickly as possible.

Recommendation 10-8 — The government should maintain momentum in pension reform by moving as rapidly as possible to determine whether or to what extent it wishes to implement the recommendations in this report. Having established its basic direction, the government should then identify issues for priority treatment. An early priority for the government should be to put in place appropriate agencies and officials who can carry forward the ongoing work of reform.

Recommendation 10-9 — The government should identify recommendations that will require phased implementation as well as transitional measures to allow stakeholders to bring themselves into compliance with the new regulatory regime over some reasonable period of time. However, it should be vigilant to ensure that arguments favouring phased implementation and transitional measures are not used to obstruct reforms that the government believes to be necessary and appropriate.

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