Submission: Submission

Multi-Employer Benefit Plan Council of Canada Submission



MEBCO was established in 1992 to represent the interests of all types of Canadian multi‑employer benefit plans, including multi-employer pension plans ("MEPPs") and multi-employer health and welfare benefit plans (`MEBPs"). MEBCO is representative of all persons and disciplines involved in these plans, including union and employer trustees, professional third party administrators, non-profit or "in-house" plan administrators, actuaries, consultants, investment management professionals and chartered accountants. MEBCO is administered by a Board of Directors consisting of representatives from each of these groups. MEBCO is representative of MEPPs that have, on average, 400 participating employers.

MEBCO members have responsibility for administering benefit plans with accumulative membership of workers and families of over one million persons in Canada.

Multi-Employer Pension Plans ("MEPPs")

Over the past decades, labour and management joined together to respond to the problems of delivering retirement benefits to workers and their families in industries typified by small companies and a mobile work force. Members of MEPPs work in industries as diverse as building and construction, food, service, retail, hotel and restaurant, graphic arts, garment manufacturing, security, textiles, transportation, and entertainment. A single MEPP may be national, regional, provincial, or local in coverage. Anywhere from two to over 1,000 employers may contribute to one of these plans under collective agreements.

MEPPs provide continuous benefits coverage to workers as they change employment from one contributing employer to another. This portability provides seamless pension coverage, and is essential for workers in mobile or seasonal industries such as construction and entertainment.

A MEPP is typically structured as a pension trust fund for purposes of s. 149(1)(0) of the Income Tax Act (the "ITA"). The trustees, appointed pursuant to a trust agreement, are usually responsible for the administration of the plan and the fund. A fund will either handle its own administration or hire a third party administrator.

Multi-employer defined benefit pension plans based on labour-management negotiations in the private sector are a cornerstone to the provision of retirement income in Canada.1 Unlike single employer plans (SEPPs), these plans are not being wound up, converted to (or replaced by) defined contribution plans, or subject to wind-up because of the insolvency of a single employer.

They are not the subject of disputes about contribution holidays or surplus ownership. Further, the "defined benefit" is in reality a target benefit, because contribution rates typically are fixed in collective agreements.

In order to provide effective relief to "traditional" Multi-Employer Pension Plans (MEPPs) – so-called specified contribution target benefit plans – there are certain key elements that one must understand, particularly because there are key differences compared to Single Employer Pension Plans (SEPPs). These include:

  • MEPPs are administered by a Board of Trustees comprised of at least 50% member representatives. All aspects of plan administration, investment of funds, etc. are the responsibility of the Trustees, not the participating employers.
  • "Traditional" MEPPs have fixed contribution rates that cannot be changed by the Trustees who administer these plans. Minimum funding requirements under a Pension Benefits Act (PBA) do not cause the MEPPs' contribution income to increase. The only way to remedy an apparent minimum funding violation is to reduce benefits. In all jurisdictions except Québec2, the Trustees have the authority to make such benefit reductions, typically subject to approval by the regulator. Thus, these plans are more accurately described as having "target" benefits, with the members effectively bearing the risk.
  • There are many aspects to benefit security in MEPPs, including the nature and sustainability of the industry (particularly the unionized segment); the number, independence, and diversity of employers; the participant support; and the level of plan assets and future contributions relative to obligations.
  • Benefit security in Canada is traditionally viewed primarily in terms of the risk that participants will or will not receive the full promised pensions, based only on service to date, if the plan winds up. MEBCO believes that the concept of benefit security should encompass a participant's ability both to continue to earn pension benefits and to plan for retirement on the basis of the current benefit formula. MEPPs are far less likely to wind up than SEPPs, although the risk does exist in certain circumstances.
  • All assets in a MEPP belong solely to the participants – there are no issues of surplus ownership or funding of deficits. Benefit security can be improved by added funding (as happens with SEPPs), but it cannot be improved by benefit cuts.

MEBCO appreciates the research included in the OEPC Report, particularly the documentation of the importance of the union-related connection to the survival of defined/target benefit plans and the importance of the MEPP model. MEBCO also appreciates the clear acknowledgement that MEPPs are fundamentally different from SEPPs and therefore require a different legislative and regulatory framework.

This submission generally follows and responds to the OECP Report's recommendations in numerical order.

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.

MEBCO supports Recommendation 4-1, and notes that contribution holidays are virtually non­existent in the MEPP framework. MEBCO also notes that the Canadian Institute of Actuaries has already revised its standards to require disclosure in pension actuarial reports of the reasons behind each assumption.

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.

MEBCO supports Recommendation 4-2, provided the Superintendent has given the plan actuary an opportunity to express his or her rationale for the assumptions selected. MEBCO believes that the process for the review of the actuary's assumptions should be transparent and should have full and ample disclosure and discussion with the plan administrator. MEBCO would prefer to see the term "unreasonable" not used in this context, as "depart materially from accepted actuarial practice" is likely sufficient to describe the situation in which the Superintendent would act.

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, longstanding 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.

MEBCO supports Recommendation 4-3 with respect to going concern valuations. MEBCO firmly believes that solvency funding is not appropriate for MEPPs.

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.

Recommendation 4-5 — Plans whose triennial valuation shows that their funding has fallen below a threshold to be specified by regulation should continue to be required to perform and file an annual valuation.

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.

MEBCO generally supports Recommendations 4-4, 4-5, and 4-6. However, the six month filing deadline is not appropriate for MEPPs. The source of participant data is the administrator, not the employers. The administrator will not have all the required information until some months after the end of the prior plan year, and there may be inconsistencies identified by the administrator or actuary that require follow-up with individual employers. In the construction and entertainment industries, employers routinely move in and out of a plan's coverage and the payroll/contribution records may be kept in a centralized location far removed from where the work is being performed. Where employment is transient, there may be delays or failures in obtaining birthdates, beneficiary information, addresses, accurate SINS, etc. Likewise, the financial information, particularly with respect to employer contributions, is more complex than for single employer plans. Therefore, the actuarial data is rarely available less than three or four months after the close of the prior plan year. Once a valuation is completed, it needs to be discussed with and approved by the Trustees, who often meet on a quarterly basis. MEBCO therefore believes that the current nine-month filing date should be retained for MEPPs.

MEBCO believes that the test for filing an annual valuation for a MEPP should be related to the going concern funding status, not the wind-up funding status.

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.

For the reasons discussed above, MEPPs are perhaps more susceptible to legitimate delays in the preparation of actuarial valuations than SEPPs. MEBCO therefore believes that Recommendation 4-7 should be modified to maintain a simplified extension process for MEPPs that legitimately cannot provide a timely filing.

Recommendation 4-8 — MEPPs, 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.

Recommendation 4-8 affirms a long-term core position of MEBCO, and MEBCO fully supports it.

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.

Recommendation 4-10 — Multi-employer pension plans should be required to fund only according to going concern valuations, but should continue to provide solvency valuations for the information of the regulator as well as their active and retired members.

MEBCO fully supports Recommendation 4-10. MEBCO supports the consultation portion of Recommendation 4-9. However, MEBCO believes that (1) there is no need for a five-year trial period; (2) amortization periods for MEPPs should be no shorter than for SEPPs (because that does not improve benefit security – it only artificially depresses benefit levels); (3) SOMEPP eligibility should be automatic and extended to all plans that are Specified Multi-Employer Pension Plans (SMEPPs) under the Income Tax Act (because otherwise some MEPPs that fail some minor aspect of the requirements might be ineligible, even though they have SMEPP status as a result of Ministerial approval); and (4) MEBCO's recent recommendations for special relief due to the recent market declines should be implemented immediately.

Recommendations 4-11 through 4-18, by their terms, do not apply to MEPPs, and therefore MEBCO takes no position with respect to those recommendations.

Recommendation 4-19 — Ontario should investigate strategies for reducing the cost of annuities and the influence of the annuities market.

MEBCO supports recommendation 4-19, as it might facilitate MEPPs reducing their financial risks by transferring certain obligations to an insurer. Further, MEBCO supports the development of non-insurer options for transferring pension obligations, as are currently being implemented in the United Kingdom. MEBCO suggests that the Superintendent review its recent communication that indicated that, even if a pension plan has transferred its liability for a pension to an insurer, it remains responsible for ensuring that the pension purchased is properly maintained by the insurer. MEBCO disagrees with that position and considers that it would be the responsibility of the insurer to maintain accurate records of annuities purchased and to carry out their administration according the agreement between the pension plan and the insurer.

Recommendation 4-20 — Every plan should contain a clause stating explicitly what provision, if any, has been made for the indexation of benefits and for the funding of indexation. Each triennial valuation and each annual statement provided to the regulator, active plan members and retirees should provide the same information.

MEPPs do not typically include any automatic indexing. However, in the interests of comparability and transparency, MEBCO would not object to the implementation of Recommendation 4-20.

Recommendation 4-21 — The government should proclaim in force the provisions of the Pension Benefits Act that allow it to require that pensions be inflation-adjusted in accordance with a formula to be prescribed. That formula should be restricted to "inflation emergencies."

MEBCO is opposed to the application of Recommendation 4-21 to MEPPs. Where contribution income is fixed in collective agreements, any government-mandated benefits can only be provided by reducing the normal retirement benefit. MEBCO believes that the Trustees, not the government, are in the best position to determine the optimum use of fixed resources, even in "inflation emergencies."

Recommendation 4-22 — Irrevocable letters of credit should be permitted as security for a fixed proportion of contributions owing to a plan, and for a maximum period of time, provided they are enforceable by the plan and immune from inclusion in the sponsor's estate in the event of insolvency. The Superintendent should have no power to relieve against these requirements either before or after the fact. After five years, experience with letters of credit should be reviewed by the regulator. If no difficulties are found, they should be made available as a permanent feature of pension funding in Ontario.

MEBCO does not support Recommendation 4-22 for MEPP contributions. Where contributions' are fixed in collective agreements, there should be no option other than to pay obligated contributions in cash on a timely basis. This is particularly true because, in MEPPs, the members have full surplus ownership.

Recommendation 4-23 — Ontario ought to investigate the possibility of permitting the use of asset pledges to provide security for unpaid contributions to pension funds, and to define the purposes for which, and the conditions under which, such pledges might be used. If asset pledges seem useful for sponsors, safe for pension plans and capable of being overseen by the regulator, their use ought to be allowed for an initial period of five years, subject to renewal on a permanent basis if experience warrants.

For the reasons discussed above, MEBCO generally does not support Recommendation 4-23 for MEPPs. However, it would be appropriate to permit the Trustees of a MEPP to accept an asset pledge if they determine, in their sole discretion, that an employer cannot meet its bargaining obligations immediately but will be able to do so in a reasonably short time period.

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.

MEBCO supports Recommendation 4-24.

Recommendation 4-25 — The Ontario government should endeavour to persuade the federal government to reform the federal investment rules and, in particular, to remove or amend particular quantitative restrictions that no longer make sense, such as those involving prohibitions on Canadian, but not foreign, investments.

However, if the federal government does not do so within a reasonable time frame, the Ontario government should cease to rely on the federal regulations and establish its own investment rules, tracking the federal rules only to the extent that doing so is deemed good public policy in Ontario.

MEBCO supports Recommendation 4-25.

Recommendation 5-1 — The pension regulator should immediately investigate the causes

of extreme delays in approving transactions, including splits, mergers, asset transfers and conversions, and provide a report that can be used to facilitate the processing of such transactions in accordance with the recommendations of this Commission.

MEBCO supports Recommendation 5-1.

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.

MEBCO generally supports Recommendation 5-2. It should be noted, however, that most stranded pensions will never be paid, because the administrator will have already pursued all available avenues to locate the participant in question. Therefore, it is likely that significant amounts will be accumulated that will never provide pensions to anyone. There needs to be some option for addressing such accumulations. One option to consider is an additional benefit to participants from the same plan that were located but who did not receive a full pension entitlement under the plan.

Recommendation 5-3 — Sponsors should be required to develop a standard policy for dealing with newly hired employees who seek pension credit for service during employment with a previous employer. The policy should state whether such credit will be given and, if so, on what terms, and should be made available to all such employees.

MEBCO does not believe that Recommendation 5-3 is appropriate for MEPPs except with respect to granting past service credit when an employer first participates in a MEPP.

Recommendation 5-4 — When individual or group transfers from one plan to another are contemplated, the importing plan should provide a detailed statement of the benefits to be provided. Each transferee should be given four options:

1. as a default option, to accept the asset transfer and begin future accruals in the importing plan, provided it offers benefits of comparable aggregate value to those provided under the exporting plan;

2. to remain as a deferred member of the exporting plan;

3. to transfer the value of the first pension to the Ontario Pension Agency; or

4. to transfer the value to a locked-in account.

If active plan members are represented by a union or similar organization, it may accept one option on behalf of all members, or allow each member to exercise one or more of the options provided.

The value of benefits provided by an "importing" plan should be deemed to be "comparable "to those provided by an "exporting" plan for purposes of the default option, if (a) approved by the Superintendent as approximating the aggregate collective value of such benefits, notwithstanding differences in the nature, value or terms of individual benefits, or (b) agreed to by a union representing active plan members affected by the transfer.

MEBCO has no objection to Recommendation 5-4, although it will generally be impractical for MEPPs. If this matter is implemented, it should be made clear that reciprocal agreements among MEPPs (including those in the United States) are acceptable, including particularly those where "money follows the worker."

Recommendation 5-5 is not applicable to MEPPS, so MEBCO takes no position on it.

Recommendation 5-6 — When a pension plan is being wholly or partially wound up, when a transaction provides the opportunity for a pension asset transfer, or when an active plan member leaves a job in which she or he has earned pension credits, active plan members and retirees should be given the choice of depositing the value of any pension accruals standing to their credit with the Ontario Pension Agency. Sponsors and unions negotiating the consequences of corporate or government restructuring should, by mutual consent, also be able to transfer plan assets to the Ontario Pension Agency in respect of some or all of the members affected.

As indicated previously, MEBCO supports creative options whereby a MEPP may reduce its risk profile by transferring obligations to another responsible party. To the extent that Recommendation 5-6 creates additional options for doing so, MEBCO supports it.

Recommendation 5-7 — The Ontario Pension Agency should receive and administer funds payable to pension beneficiaries who cannot be located. Plan sponsors should be obliged to file with the Ontario Pension Agency a list of all beneficiaries who cannot be located, and of all deferred members whose assets remain under the control of their plan. Plan members seeking to trace their stranded or deferred pensions should have access to this list.

As indicated in the response to Recommendation 5-2, MEBCO generally supports this recommendation, subject to a process whereby assets intended to provide pensions are eventually used for this purpose. MEBCO also notes affirmatively the U.S. requirement for every Qualified Plan to submit an annual federal filing of new deferred vested benefits. At the time a worker applies for Social Security benefits, he or she receives a listing of all pension plans from which a deferred pension may be payable.

Recommendation 5-8 is not applicable to MEPPS, so MEBCO takes no position on it.

Recommendation 5-9 — Multi-employer plans, jointly sponsored plans, and the proposed jointly governed target benefit plans should not be required to provide grow-in benefits.

MEBCO supports Recommendation 5-9. Given the fixed contribution income of MEPPs, mandatory grow-in benefits represent a diversion of funds that could be used to provide improved retirement benefits.

Recommendation 5-10 — The Pension Benefits Act should be amended to provide for phased retirement as contemplated by the Income Tax Act.

MEBCO supports Recommendation 5-10, provided that the provisions for phased retirement do not have the effect of requiring plan resources to be used to provide pensions to those who are working full-time.

Recommendation 5-11 — All active plan members should be immediately vested for all

accrued pension benefits. However, as at present, the plan administrator should retain the discretion to authorize the payment out of small amounts in specified circumstances.

MEBCO does not support Recommendation 5-11 for MEPPs. Primarily, MEBCO' s concern is that, given fixed contribution income, immediate vesting represents a mandatory diversion of resources that would otherwise provide pensions. Indeed, in industries where there is significant early turnover, imposition of immediate vesting might require a reduction in the retirement benefit already offered. Providing short-service vesting typically provides benefits that are small and that are cashed out without locking in, thus diverting pension resources to current income. Administrative costs are, of course, increased as well, which also diverts funds that would otherwise be used for benefits. Finally, MEBCO notes that MEPPs already have superior portability to SEPPs, as there is continuity of pension credit for employment within the coverage of the plans.

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.

MEBCO does not support Recommendation 5-12 for MEPPs. Most MEPPs have no way of distinguishing between voluntary and involuntary terminations. In construction, workers are routinely terminated "involuntarily" when a job is completed, and they routinely continue in covered employment with other employers. Indeed, MEBCO believes that there is no place for the concept of partial wind-ups for MEPPs.

Recommendation 5-13 — Involuntarily terminated members may have their benefits annuitized at the option of the sponsor.

MEBCO believes all plan sponsors should have this option available for all plan members as a means of risk management, but that it should not be required.

Recommendations 5-14 and 5-15 are not applicable to MEPPS, so MEBCO takes no position on them.

Recommendation 5-16 — If a multi-employer or jointly sponsored pension plan experiences a reduction of 40% of its active members, or of sponsors providing 40% of its contributions, or if the sponsoring union splits, the administrator should prepare a plan reduction report and file it with the regulator. The regulator may require the administrator to prepare such a report if there are reasonable grounds to believe that the plan may no longer be viable.

MEBCO has no objection to Recommendation 5-16, provided that its implementation is limited to reporting. Of course, it would be completely appropriate for there to be follow-up with the regulator to reach consensual agreement on the future of a plan under these circumstances. MEBCO notes that, unlike most SEPPs, a plan in the circumstances described may have merger options available to it.

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.

Recommendation 5-18 — Any surplus in a plan that is to be merged with another plan can be assigned to the merged plan, provided that the members of the original plan remain in the new merged plan, and that the merged plan itself is fully funded (including the 5% security margin) as of the date of completion of the transaction.

MEBCO generally supports Recommendations 5-17 and 5-18 for MEPPs. However, MEBCO does not believe that a plan with a surplus ought to be obliged to transfer more than 100% of the actuarial present value of the transferred benefits.

Recommendation 5-19 — A sponsor considering a plan split or merger must give notice of the proposed transaction to active plan members and retirees, and 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.

If the union or representative organization approves of the proposed transaction or, in the absence of such an organization, if the transaction is approved by two-thirds of the active members and retirees voting in a secret ballot, the approval shall be filed with the regulator.

Upon receiving the approval and ensuring that the transaction is otherwise in accordance with Recommendations 5-17 and 5-18, the regulator may, without further delay, issue an advance ruling approving the transaction.

In the absence of approval from the union, organization or plan beneficiaries, the sponsor must give 90 days' notice to all interested parties and to the regulator. After expiry of the 90-day notice, the regulator should process the proposed transaction in the normal manner.

Where a split or merger is proposed by any plan on whose governing body at least 50% of the members are nominated by active plan members and/or retirees, approval by that governing body should serve in lieu of the approval process set out in this recommendation.

Recommendation 5-19 has significant potential difficulties for MEPPs. Any action under consideration is inherently uncertain. Requiring notice during the consideration period may create unwarranted expectations, concerns, or interference. It can also adversely affect negotiations on the terms of a merger, as it makes those negotiations public. Therefore, MEBCO would only support a notice requirement at the point where a preliminary decision has been made. MEBCO also notes that some number of MEPP splits and mergers are related to a change of authorized bargaining representative; the proposal would give the new union rights with respect to actions taken by the former union's pension fund trustees. Given that unions provide at least half the trustees of MEPPs, MEBCO does not believe that Recommendation 5-19 should be implemented for MEPPs.

Recommendation 5-20 — Notwithstanding Recommendations 5-18 and 5-19, a sponsor may, with the consent of the Superintendent, use surplus from the original plan to fund a new plan into which it has been merged, or from which it is derived, provided that (a) if the original plan continues in force, its security margin is maintained; (b) the new plan is funded at not less than 100% from its inception by sponsor contributions, if necessary; and (c) the security margin in the new plan is funded within five years.

MEBCO supports the principle of Recommendation 5-20, although its implementation will need to be somewhat different for MEPPs with fixed contributions.

Recommendation 5-21 — Following conversion from a defined benefit to a defined

contribution plan, or to a hybrid plan with elements of both, surplus carried over from the original plan should first be used to provide the required security margin for defined benefits earned under either plan. If additional surplus remains, it should be available to fund contribution holidays or other expenses of the converted plan.

MEBCO does not believe mandatory security margins should apply to MEPPs, but otherwise supports Recommendation 5-21.

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.

As indicated previously, MEBCO does not support mandatory notices of actions that are under consideration. However, MEBCO does support the notice requirements once a decision has been made.

Recommendation 5-23 is not applicable to MEPPS, so MEBCO takes no position on it.

Recommendation 6-1 — The 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.

MEBCO supports Recommendation 6-1, provided that MEBCO has input into the benchmarks applicable to MEPPs and the regulator pays for the independent review.

Recommendation 6-2 is not applicable to MEPPS, so MEBCO takes no position on it.

Recommendation 6-3 — The Superintendent should have the power to initiate, facilitate

and approve arrangements relating to all aspects of multi-employer plans at risk of failure or of significant benefit reduction. The Superintendent may exercise this power notwithstanding the provisions of plan documents.

Arrangements submitted to the Superintendent for approval must be agreed to by the plan sponsors and by a union or other organization authorized to represent active plan members and retirees. In the absence of a union or other authorized organization, the arrangements must be approved by a two-thirds majority of active and retired plan members voting by secret ballot.

MEBCO supports Recommendation 6-3.

Recommendation 6-4 — When a pension plan has been identified as "at risk," the Superintendent should have power to approve the arrangements identified in Recommendations 6-2 and 6-3, conditional upon the suspension or cancellation of any agreement to improve plan benefits, and/or a prohibition on plan benefit improvements, until funding is restored to a specified level.

Recommendation 6-5 — When a plan fails and is being wound up, payments attributable to benefit improvements initiated up to five years prior to the date of the wind-up should be paid only after all pre-existing benefits are paid in full.

MEBCO supports Recommendations 6-4 and 6-5.

Recommendation 6-6 — The regulator should create an office of compliance to deal with the failure of sponsors to remit contributions and other violations of the Pension Benefits Act that imperil the security of pension plans and impede regulatory oversight of the pension system. That office should also maintain, for its own purposes and for the benefit of interested parties, an on-line register of delinquent sponsors and other offenders, and the measures taken to deal with them.

MEBCO supports Recommendation 6-6. Collection issues for MEPPs are significantly different from those for SEPPs because the contribution rate has been negotiated and is independent of the

actuarial valuation results. Nonetheless, it would be desirable to have regulator support with respect to collection of contributions from employers who are routinely delinquent.

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.

Recommendation 6-8 — The Pension Benefits Act should be amended to permit the Superintendent to approve arrangements and changes in arrangements that involve the claims of pension plans under federal bankruptcy legislation.

MEBCO supports the principles of Recommendations 6-7 and 6-8, but notes that their application will need to be different with respect to negotiated contributions due to MEPPs, given that there is no breakdown of the contribution obligation into component pieces.

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.

MEBCO believes that MEPP trustees should have reasonable discretion, subject to regulatory review, with respect to priorities in the highly unlikely event of a plan wind-up. In particular, the consequences of a reduction in pension amount to an elderly retiree are substantially different from the consequences for a young worker. Further, the active workers may have made the decisions that trigger the wind-up (e.g., change in bargaining representative or change to a defined contribution plan), and the trustees may feel it is inappropriate to penalize retirees who had no voice in that decision. Also pre-rata is not appropriate in situations where a MEPP can actually track assets and liabilities for any subset of members (in which case the allocation should be based on the separate account for the group of members).

Recommendation 6-10 — The Ontario government should seek to persuade the federal government to amend its bankruptcy and insolvency legislation to give the pension regulator the right to intervene in proceedings under that legislation to defend the interests of any pension fund and its members. Provincial law should allow the pension regulator to act on behalf of and to assert all the rights and powers of the plan administrator in the context of bankruptcy and insolvency proceedings, if the regulator believes such action is warranted.

MEBCO supports Recommendation 6-10.

Recommendation 6-11 — The regulator should be specifically empowered to replace the administrator of a plan whose sponsor is involved, or is deemed at risk of being involved, in bankruptcy or insolvency proceedings. The Ontario government should ask the federal government to amend the relevant legislation to ensure that the new administrator so appointed can participate in all proceedings on behalf of the plan.

MEBCO does not believe that Recommendation 6-11 is appropriate for MEPPs. The insolvency of an individual employer rarely is of great consequence to a MEPP.

Recommendation 6-12 — The Ontario government should explore with the federal

government the amendment of relevant federal legislation so as to ensure that pension plans, beneficiaries and organizations representing them can participate as of right in bankruptcy and insolvency proceedings. It should also explore ways to facilitate the collective participation of pension litigants in such proceedings by means of representation orders or otherwise. And it should amend the Pension Benefits Act so as to enable courts to order pension plans to reimburse beneficiaries and representative organizations for successfully defending the interests of the plan.

MEBCO supports Recommendation 6-12.

The balance of the recommendations in Chapter 6 relate to the PBGF, and therefore are inapplicable to MEPPs. MEBCO supports the continued exclusion of MEPPs from PBGF coverage.

Chapter 7 's recommendations for a revised regulatory structure specific to pensions are generally supported by MEBCO.

Recommendations 8-1, 8-2, and 8-3 appear to be directed at SEPPs, and therefore MEBCO has no comments on them.

Recommendation 8-4 — Multi-employer and jointly sponsored pension plans should develop governance policies that ensure participation of representatives of both active and retired members in their governance, establish the means of selection of those representatives, fix their remuneration and lay down rules governing their conduct in office.

MEBCO does not support Recommendation 8-4. By definition, trustees are charged with the fiduciary responsibility of taking the best interests of all plan members into account when managing the plan. To suggest that there must be representation from different groups implies that there should be a form of advocacy in decision-making. Where employee trustees are elected, the experience has been mixed. In some cases, this has worked well. In others, it has resulted in frequent turnover of trustees and political agendas that may not be in the best interests of the participants. Where retired members are represented, they sometimes become advocates for the retirees as opposed to trustees with a balanced interest, particularly as they are no longer allocating part of their compensation to the pension plan. We believe that the participants are best served by continuing the present practice of allowing the settlors who establish a plan to determine the best option for selecting trustees under their facts and circumstances.

Recommendation 8-5 — Multi-employer and jointly sponsored pension plans should provide annual statements to all active, deferred and retired plan members, which include:

  • a statement of the plan's current funded status;
  • a reminder that benefits provided under the plan are not defined or guaranteed but subject to reduction while the plan is ongoing (in the case of multi-employer plans)
  • or on wind-up (in the case ofjointly sponsored plans);
  • disclosure of any known events likely to lead to a reduction in benefits; and
  • an indication of any procedure or formula specified by law or in the plan documents by which benefit reduction may be determined.

MEBCO supports recommendation 8-5.

Recommendation 8-6 — Multi-employer and jointly sponsored plans should develop and abide by investment rules that prevent self-dealing either by the union that has negotiated them or by plan trustees.

MEBCO supports recommendation 8-6.

Recommendation 8-7 — All policies, statements or reminders required by current law or provided by multi-employer and jointly sponsored plans pursuant to these recommendations should be communicated to plan members and beneficiaries and filed with the regulator. The regulator should have the power to sanction violations of both statutory requirements and plan policies.

MEBCO believes that the trustees of a MEPP are in the best position to determine the appropriate level of communications with plan members. The concept of a trust is to require trustees to act as prudent fiduciaries, not to subject every policy to scrutiny by every beneficiary. Certainly, the benefit entitlements and limitations should be clearly communicated. On the other hand, details of the investment policy, education policy, internal delegation of responsibility, etc. represent "too much information," and can only lead to constant second-guessing of trustees.

Recommendation 8-8 — Any plan with some recognized form of joint governance and with the requisite capacity to make complex investment decisions (as defined by regulations) should be allowed to adopt a resolution claiming an exemption from the 30% investment rule. The resolution should be filed with the pension regulator and have effect upon filing, unless and until it is successfully challenged.

MEBCO supports Recommendation 8-8, but believes that it should be extended to MEPPs that have only employee representatives as trustees.

Recommendation 8-9 is not applicable to MEPPS, so MEBCO takes no position on it.

Recommendation 8-10 — Plans that appoint active or retired members to serve on their governing bodies should be encouraged to resolve potential conflicts of interest in advance by:

  • adopting clear policy statements in the plan documents;
  • ensuring the significant representation on those bodies of groups with divergent interests; or
  • appointing some trustees or governors unaffiliated with any group whose members are covered by the plan.

As previously indicated, MEBCO believes that the makeup of a MEPP's Board of Trustees is best left to the discretion of the settlors without interference or direction from the government. Having said that, MEBCO supports MEPPs having written conflict-of-interest policies, consistent with the thrust of Recommendation 8-10.

Recommendation 8-11 — The Pension Champion, proposed in Recommendation 10-5, should work with stakeholders to identify approaches to the resolution of conflicts of interest appropriate to their particular circumstances.

MEBCO supports Recommendation 8-11, provided the Pension Champion is limited to furnishing non-binding mediation in difficult situations on request.

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.

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.

Recommendation 8-14 — Following such consultations, the pension regulator should draw up codes of best practice for the guidance of all participants in the governance process. The regulator should urge the governing bodies of professions whose members are involved in the pension field to:

  • adapt this code to the particular circumstances confronted by their members;
  • implement the code, as adapted, through revision of their own professional standards, if required; and
  • educate — and i f necessary, discipline — their members in order to ensure compliance with the new standards.

Recommendation 8-15 — All persons responsible for providing valuations, reports or other documents that are filed with the regulator, or provided to active and retired plan members, should be required to certify that all such documents have been prepared in accordance with the law and with relevant professional standards.

MEBCO generally supports Recommendations 8-12 through 8-15. However, MEBCO notes that, particularly for MEPPs in the construction and entertainment industries, it may be difficult or impossible to audit employer contributions sufficiently to obtain a "clean" audit opinion. Therefore, MEBCO proposes that the auditor be permitted to opine on the adequacy of a MEPPs process for insuring collection of obligated contributions without requiring that the auditor opine on the accuracy of the reported contributions.

Recommendation 8-16 — An early task for the proposed Pension Champion should be to consult with pension stakeholders, relevant professional bodies, educational institutions and the pension regulator with a view to determining what lay and professional participants in plan governance ought to know about pension plans and the pension system, how they might best acquire such knowledge, and to what extent its acquisition should be a necessary qualification for service as a trustee or administrator of or advisor or service provider to, a pension plan.

Recommendation 8-17 — Following the consultations outlined in Recommendation 8-16, the Pension Champion ought to develop standards for educational programs for all participants in pension governance. The Pension Champion ought also to determine how educational programs should be provided and at whose expense, and whether acquisition of appropriate educational qualifications should be mandatory and, if so, for the performance of what functions.

MEBCO supports the concept of trustee education that is embodied in Recommendations 8-16 and 8-17, but does not believe that this needs to be an area of government regulatory involvement.

Recommendation 8-18 — The regulator should develop codes of best practice to guide plan governors, administrators and their agents. These codes of best practice should be based on the experience of successful plans, disseminated across the pension system and used to give meaning to the general statutory requirements for "prudence," "care," "diligence" and "skill. "

MEBCO supports the development of "best practice" guidelines as described in Recommendation 8-18, but is not persuaded that the regulator, who likely only has involvement with plans that get into difficulty, has the knowledge or experience to establish such guidelines.

Recommendation 8-19 — The regulator should make available on-line to active and retired plan members and their authorized representatives — without charge but subject to security arrangements — all plan documents as well as triennial, annual or other valuations and reports required to be filed with the regulator.

MEBCO supports Recommendation 8-19. MEBCO has concerns about the ability of the pension regulator to establish the appropriate security clearance and is therefore concerned that plan documents may be used for purposes other than interest in the pension plan by the plan member.

MEBCO believes that the pension regulator should clearly establish which documents must be made available to plan stakeholders and leave the dissemination of this information in the hands of the pension plan administrator.

Recommendation 8-20 — The regulator should develop guidelines and codes of best practice with regard to the provision of plan information to active and retired members in accessible form.

MEBCO supports Recommendation 8-20, but is not persuaded that the regulator, who likely only has involvement with plans that get into difficulty, has the knowledge or experience to establish such guidelines.

Recommendation 8-21— Plan administrators should provide an annual information statement to active and retired plan members in easily understood language or languages. The statement should include:

  • a simple description of how pensions are funded and benefits are calculated under the plan;
  • information on the plan's funded status (including whether it is in surplus or deficit and whether a contribution holiday is in progress or contemplated);
  • the potential impact of its funded status on active and retired members ' pensions; and
  • a telephone number and/or website address where further information can be obtained from the administrator or the sponsor, and similar coordinates for the pension regulator.

MEBCO supports Recommendation 8-21.

Recommendation 8-22 — Plan board members, governors or trustees should prepare, file with the regulator and make available to active and retired members at three-year intervals (or more often, if material changes have occurred) the plan's detailed governance, funding and investment policies. Particulars of the matters to be addressed by these policies should be developed by the pension regulator in consultation with the stakeholders. Template policy statements should be developed for the assistance of smaller plans.

MEBCO supports the concept of transparency of Recommendation 8-22, but has doubts as to the value of circulating these policies to every plan member. MEBCO suggests that they be filed with the regulator and made available on request to the plan sponsor, but does not believe that anything except confusion and phone calls will be generated by mass circulation.

Recommendation 8-23 — Plan statements of investment policy should reveal whether, and if so, how, socially responsible investment practices are reflected in the plan's approach to investment decisions.

MEBCO supports Recommendation 8-23.

Recommendation 8-24 — Except 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.

When plan members are represented by one or more trade unions or equivalent organizations, such unions or organizations should nominate their PAC representatives.
Recommendation 8-25 — The PAC should:

  • be provided with effective means of communicating with all plan members, including retired members;
  • have access to all information distributed to plan members or filed with the regulator;
  • receive notice of all amendments, applications, proceedings or transactions involving the plan; and
  • be informed of all votes or consultations designed to solicit the views of plan members.

The PAC should present annually to plan members a report on the state of the plan and an account of its own activities during the year. This report should be distributed with other information that the administrator is required to provide to plan members.

Recommendation 8-26 — No PAC need be formed when (a) a plan provides for the participation of active and retired member representatives on its governing body, (b) a collective agreement provides for a joint sponsor–member–retiree advisory committee, or (c) a majority of active and retired members vote in a secret ballot not to establish a PAC.

Because MEPPs are required to have at least half of the trustees as employee representatives, MEBO believes that PACs should be available to, but not required for, MEPPs.

Recommendation 8-27 is not applicable to MEPPS, so MEBCO takes no position on it.

Recommendation 8-28 — The Pension Benefits Act should be amended to describe pensioners as "retired" rather than "former" plan members.

Recommendation 8-29 — Retired and deferred plan members should be assured effective access to all plan information available to active plan members.

Recommendation 8-30 — Retired plan members should be eligible to participate in any plan governance process in which active plan members are eligible to participate. The extent of their representation and participation in governance should be determined by the governing body of each plan, but must be sufficient to ensure that their voice is heard and their interests protected.

MEBCO supports Recommendations 8-28 through 8-30, but reiterates that the appointment/election of a retiree trustee should be permissive, not mandatory.

MEBCO supports the Recommendations of Chapter 9 and Chapter 10. We particularly support:

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 ff*, 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.

A significant number of large MEPPs are regional or national in scope. The inter-jurisdictional challenges are numerous, particularly with respect to participants in Québec, where the regulatory regime for MEPPs is different from, and often contradictory to, the regime in the rest of Canada.

MEBCO notes that certain issues raised in its submission to OECP have not been addressed in the OECP Report. Specifically, MEBCO continues to believe that its proposals with respect to transfer values and suspension of benefits require affirmative action to improve the regulatory environment for MEPPs. A MEPP should not be required to pay 100% of the wind-up liability to a withdrawing employee when it is not obligated to fund the plan itself to 100% of the wind­up liability, as that treats a withdrawing employee more favourably than a continuing employee. Further, a MEPP should not be required to pay a pension to a former member who continues to be fully employed in the same industry with an employer who is not contributing to the MEPP but who is in direct competition with contributing employers.

The OECP report was prepared before the recent unprecedented turmoil in the financial markets. MEBCO reiterates the need for short-term relief, as embodied in its recent submission on this topic.

MEBCO appreciates the opportunity to provide these comments, and looks forward to continued active participation as the implementation process moves forward.

1 In rough terms, there are nearly 200 MEPPs in Canada covering over a million participants.

2 The laws applicable to MEPPs in Québec are different in fundamental ways from those in the rest of Canada. This submission will generally not be applicable in Québec, nor will it address any issues that are unique to Québec.