Canadian Pension Plans

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These executive summaries were compiled from EMPLOYEE BENEFITS INFOSOURCE database, a source for information on employee benefits and human resources.

Another Chapter in Buschau v. Rogers Litigation.
Yau, Andrea; Plans & Trusts; v30 no2 pp 13-14 Mar-Apr 2012; journal article

Availability : International Foundation of Employee Benefit Plans
Abstract : The case of Buschau v. Rogers Communications Inc. started in 1995, questioning the disposition of the actuarial surplus in a pension plan sponsored by Premier Communications, which Rogers acquired in 1980. Rogers transferred much of the surplus to itself and merged the plan with four other plans, three in deficit. This phase of the litigation stems from an application for judicial review of the 2010 decision of the Office of the Superintendent of Financial Institutions. The court refused to reconsider four of the eight issues raised, since they had been correctly decided in 2007 and there was no legislative authority to reopen the decisions. The applicants pointed to more recent cases they claimed gave new and stronger weight to their cause, but the court felt the circumstances were insufficient to revive the points of contention. The court also rejected the applicants' pleas about adding new members to the plan, legal costs and employer disclosure obligations. The case is next headed for the Federal Court of Appeal.
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Can PRPPs Save Retirement?
Archer, Simon; Plans & Trusts; v30 no2 pp 7-9 Mar-Apr 2012; journal article

Availability : International Foundation of Employee Benefit Plans
Abstract : To address the likelihood that Canadians' retirement savings will be insufficient, two main options have been considered, expanding the Canada Pension Plan (CPP) or, the government's choice, establishing pooled registered pension plans (PRPPs). As described in Bill C-25, PRPPs could be sponsored by employers, though employers need not contribute, and would be administered by banks, insurance companies, pension funds and banklike entities. They would feature auto enrollment with an opt out provision. The goal would be low fees and varied investment options. But Bill C-25 and related Income Tax Act amendments were tabled, leaving it up to the provinces to enact similar legislation. Expanding the CPP would make contributions unaffordable, but PRPPs may not yield adequate income due to the unknowns of contribution levels and investment performance.
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Court of Appeals Upholds Finding of Plan Member Entitlement to Surplus on Plan Wind-Up.
Godkewitsch, Clio M.; Plans & Trusts; v30 no2 pp 15-16 Mar-Apr 2012; journal article

Availability : International Foundation of Employee Benefit Plans
Abstract : In Sutherland v. Hudson's Bay Company, a case started in 2005, the plaintiff pension plan members claimed the defendant company used surplus funds improperly. Though the initial ruling largely favored the defendant, the company appealed the ruling for the plan members on ownership of surplus funds on plan termination. In its appeal, the company drew parallels to other cases including Burke v. Hudson's Bay Co. and Schmidt v. Air Products of Canada Ltd., but the Ontario Court of Appeal rejected them. The court noted the defendant did not reserve for itself the authority to revoke the plan trust when the trust was established, and that the trust does not specifically limit plan member interest in any surplus. The court ruled the trust agreement superseded the plan text and found the trust language demonstrated the company's intent to establish an irrevocable trust for plan members and beneficiaries.
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Court Orders Air Canada to Pay Supplemental Pension to Former Spouse.
Guindon, Anthony; Plans & Trusts; v30 no2 p 19 Mar-Apr 2012; journal article

Availability : International Foundation of Employee Benefit Plans
Abstract : Air Canada became entangled in a divorce settlement due to its corporate policy stating its pilots' supplemental retirement plan (SRP) will not make direct payments to an employee's former spouse. Air Canada maintained that, since the SRP is not registered, it was not governed by the Pension Benefits Standards Act (PBSA). In Jarman v. Jarman the British Columbia Supreme Court noted Section 4 of the PBSA which specifically includes supplemental pension plans in its coverage. Section 25(1) also specifies the applicability of provincial property law, and British Columbia's Family Relations Act Section 77(1) states that members are entitled to proportionate benefit shares from a pension. The court concluded Air Canada must make direct payments to the former spouse from the SRP monthly.
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Employee Elected Early Retirement, Labour Arbitrator Finds.
Godkewitsch, Clio M.; Plans & Trusts; v30 no2 p 17 Mar-Apr 2012; journal article

Availability : International Foundation of Employee Benefit Plans
Abstract : A city employee claims he was misled by information given him by a city representative about eligibility for early retirement. To transfer the commuted value of his pension rather than take an immediate or deferred pension, the employee had to end employment before he reached age 55 and did so. He was then told that by making this election, he did not qualify for early retirement. In Toronto (City) v. Toronto Civic Employees' Union, Local 416, the parties disagreed on the meaning of electing early retirement. The employee clearly intended to retire early and relied on the employer's advice to terminate before reaching age 55. The arbitrator in the case concluded the meaning of electing early retirement does not refer to the pension plan, that the employee elected early retirement and was entitled to benefits under the collective bargaining agreement.
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It's All in the Planning.
Shlesinger, Idan; Benefits Canada; v36 no3 pp 49, 51-52 Mar 2012; journal article

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Abstract : Defined contribution plans are intended to help participants save enough to have sufficient retirement income. However, they are much better at asset accumulation than income generation, and many participants do not have the math skills or financial knowledge to build an effective retirement plan. Employers can help by offering a planning model that is engaging and informative, presents complex results simply and accurately, encourages frequent review and revision and mitigates employer risk. Planning tools should address desired income level, income sources and unforeseen circumstances. Disclosure of unbiased information and retirement tools that do not mislead participants are the best defenses against the possibility of future complaints.
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Members' Bid for Surplus Ownership on Partial Wind-Up Denied.
Harnum, James; Plans & Trusts; v30 no2 pp 10-12 Mar-Apr 2012; journal article

Availability : International Foundation of Employee Benefit Plans
Abstract : London Life Insurance Co. established an employee pension plan in 1916, but a 1996 reorganization, 500 member layoff and partial windup led to a dispute over $16 million in surplus assets. Since the plan's establishment, it went through numerous bylaw changes and only earmarked pension plan assets starting in 1986. In McGee v. London Life Insurance Co., the plaintiffs sought resolution of the surplus assets, which the Office of the Superintendent of Financial Institutions had failed to address. Reviewing the plan's long history, the Ontario Superior Court ruled that a trust never existed and that the company preserved the right to terminate the plan in the original 1916 bylaws. That right was retained through successive plan terms and, in 1973, included the right to receive excess contributions upon termination. The court found the plaintiffs were not entitled to plan assets or damages and ruled in favor of the defendant plan on all counts.
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New Balance.
Burnett-Nichols, Helen; Benefits Canada; v36 no3 pp 21-22, 24 Mar 2012; journal article

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Abstract : Many midsized plan sponsors find it challenging to keep employees engaged in retirement saving. Consultants have a number of suggestions, including creating a culture of savings within the organization and linking retirement and benefits programs. All plan sizes need to ensure members are paying attention to communications and not making panicked decisions. Plans of different sizes have similar challenges, but they rely on different solutions. Larger plans can take on longevity risks that midsized and small plans must divert, and small plans cannot offer as many benefits customization options as larger plans.
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Weighing the Assets.
Faba, Neil; Benefits Canada; v36 no3 pp 27-28 Mar 2012; journal article

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Abstract : According to the Pension Investment Association of Canada the average Canadian pension plan had invested 7.5 percent of its assets in alternatives in 2000, mostly real estate and private equity, compared to allocations in 2010 of 8.9 percent in real estate, 7.2 percent in private equity and venture capital and 4.2 percent in infrastructure. Alternatives can replace the returns once reliably gained from domestic equities, but investment committees and financial advisors must be educated on alternative investment options. Small plans tend to favor real estate, but the costs of infrastructure funds are dropping into the range where they are attractive to small and midsized plans. Small plans wanting to invest in alternatives can take advantage of pooled funds or coinvesting.
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Are Hybrid Pension Plans the Answer?
Vettese, Fred; Canadian HR Reporter; v25 no3 pp 15, 17 Feb 13, 2012; journal article

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Abstract : Private sector defined benefit (DB) plans are fading fast, and defined contribution (DC) plans leave much to be desired. Hybrid plans with features drawn from DB and DC plans may be a good compromise. Two tiered plans, target benefit plans, cash balance plans and modified DB plans are variations on hybrids, each presenting positives and negatives. The modified DB plan may be the most acceptable, acting like a traditional DB plan except in paying out a lump sum rather than an annuity and determining the lump-sum value on prevailing corporate bonds rather than government bonds. Depending on economic conditions, the payout could be lower in value than with a conventional DB plan. Less plan member education about investments is required, funding shocks are averted and volatility of plan liabilities is held down.
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Brave New Virtual World of Group Benefits Business.
Twomey, Sarah; Benefits and Pensions Monitor; v22 no3 pp 14-20 Feb 2012; journal article

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Abstract : As in other industries, technology is dramatically changing the way group insurance and group retirement savings providers serve their customers. It simplifies processes and makes information readily accessible, enabling customers to feel in control and confident in making well-informed decisions. A Mercer survey of Canadian insurance companies found current and planned developments for mobile applications, self-service options, automated services and fraud prevention, as well as real time online claims access and reporting capability. Paperless online claim submissions are a significant advancement for group and business insurance, and expanded communication modalities are building engagement among retirement plan participants. Directories provide details on 20 group benefits providers and 13 group retirement providers.
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Is Language Too Complicated?
Craig, Neil T.; Benefits and Pensions Monitor; v22 no3 pp 40-41 Feb 2012; journal article

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Abstract : In spite of widespread use, the language of defined contribution pension plans may be too obscure for many to really understand. The author's informal poll of financial services workers showed many common terms such as stock, equity and index were understood by only half the respondents, and only three in ten grasped the concept of no-load. Comprehension does not come automatically with exposure. High school graduates should be able to demonstrate financial literacy. Employers and investment advisors can work with education specialists to devise literacy training on basic concepts, using understandable language reinforced with visual images. This will help comply with the Department of Finance's mandate for plain language disclosure for Pooled Registered Pension Plans.
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Managing Pension Investment Risk: A Business Imperative.
Ault, Tom; Choquet, Andre; Benefits and Pensions Monitor; v22 no3 pp 36-38 Feb 2012; journal article

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Abstract : Defined benefit pension plan sponsors who meet minimum funding rules have probably already taken steps toward limiting plan risk exposure. This can be done by modifying plan design, investment policy or contribution strategy. Sponsors who acted in 2011 to reduce equity risk, better match bond and liability duration or both would have significantly improved their solvency ratio in just one year. Adopting a dynamic investment policy is strongly recommended. This uses an emotion-free, decision-making framework to adjust asset allocation to lower equity market risk as funding improves. It also involves lowering interest rate risk by increasing assets to hedge the interest rate risk in the liabilities. To avoid repeating the perfect financial storm of 2011, financial officers should understand the risks inherent in their plans and develop strategies to minimize them.
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The Negative Impact of Low Interest Rates on Pension Funds.
Senecal, Denis; Basque, Louis; Benefits and Pensions Monitor; v22 no3 pp 26-35 Feb 2012; journal article

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Abstract : It is likely that low interest rates will continue for a long period of time, leading to deterioration of defined benefit pension plan funding. The possible effects on funding in economic conditions of stagflation, deflation or a typical recovery are described. The main driver of deterioration in stagflation is underperforming stocks, while deflation presents a perfect storm of negative equity market returns and rising liabilities. A standard recovery is the most favorable, with negative returns for a fairly low allocation of relatively short duration bonds. Moves to extend bond duration and thus lower the impact of the misaligned assets and liabilities are recommended. With stagflation or deflation, keeping bond asset allocation under 40 percent leads to slight improvement, but somewhat better progress can be gained by a higher bond allocation over a longer term. Includes a directory of 57 investment managers in Canada.
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Foreign Plans: Canada Updates Fee Structure for Assessments on Pension Plans.
Menyasz, Peter; BNA's Pension & Benefits Reporter; v9 p 100 Jan 17, 2012; journal article

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Abstract : The Canadian federal pension regulator released final regulations that updated the fee structure on January 4, 2012. Effective April 1, 2012, the pension plan assessment formula will apply to more plans and the fee base cap will be higher. The Office of the Superintendent of Financial Institutions said the higher cap will shift costs to larger defined benefit pension plans, which take up more agency resources, and help recover the full costs of administering federally regulated plans. Most defined contribution plans will see decreased fees, but the smallest plans will pay slightly more under the updated fee structure.
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Foreign Plans: Canadian Pensions Regulator Issues Draft on Plan Amendments to Reduce Benefits.
Menyasz, Peter; BNA's Pension & Benefits Reporter; v39 p 101 Jan 17, 2012; journal article

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Abstract : On January 4, 2012 the Canadian federal pension regulator issued draft instructions for defined benefit plan sponsors applying for amendments to reduce pension benefits or credits. The guide outlines factors the Canada Office of the Superintendent of Financial Institutions (OSFI) will consider in assessing an application, including whether it meets plan terms, the reason for the reduction, notice provided to plan members and beneficiaries and whether the change was supported by affected plan members. It also specifies the minimum information that must be provided to affected individuals and to the OSFI. An authorization request form to be submitted with an application has also been developed.
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Age-Based Limits on Pension Contributions Upheld by Quebec Court of Appeal.
Giroux, Mireille; Plans & Trusts; v30 no1 pp 10-11 Jan-Feb 2012; journal article

Availability : International Foundation of Employee Benefit Plans
Abstract : The Quebec Court of Appeal ruled in Velk c. Universite McGill/McGill University that distinctions based on age are acceptable when they are provided by law. Based on federal law amendments in 2007, the McGill University Pension Plan moved the required start of pension distributions to age 71, though employee and plan contributions stop at age 69. The plaintiff employees sought to extend the contribution age cap to 71, asserting age discrimination. The Quebec Superior Court has held that Section 10 of the Quebec Charter of Human Rights and Freedoms, and Quebec's Supplemental Pension Plans Act Section 78 makes employer contributions optional for employees after age 65, regardless of whether the employee continues to work. The court ruled the university exceeded the legal mandate and was not obligated to continue employer contributions or allow ongoing employee contributions beyond age 69.
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Funding Policy: A Compass for Multi-Employer Pension Plans.
Sorhaitz, Kevin; Heise, Greg; Plans & Trusts; v30 no1 pp 6-9 Jan-Feb 2012; journal article

Availability : International Foundation of Employee Benefit Plans
Abstract : For specified multiemployer pension plans (SMEPPs) it is especially important to have a well-thought-out plan funding policy. Though officially defined benefit plans, SMEPPs have target benefits rather than defined benefits and share features of both defined benefit (DB) and defined contribution (DC) plans. With similarities to and differences from the dominant plan designs, trustees must carefully chart a course that considers and balances the disparate philosophies, needs and implications of DB and DC plans, considering the investment strategy, benefit cuts and increases, level of margin and benefit volatility. The resulting plan policy will lead to a funding policy which should then be formally documented in writing to guide plan's governance.
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In Transition.
Peirce, Stephen; Benefits Canada; v36 no1 pp 42-43 Jan 2012; journal article

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Abstract : For defined benefit (DB) plan sponsors anticipating moving to a defined contribution (DC) arrangement, carefully following an action plan will ease the transition. Sponsors must start by establishing the details of the DC plan design and analyzing costs and funding vehicle options. They must select a recordkeeper, consider a lineup of investment options and prepare a range of legal documents. The importance of developing a communication strategy must not be underestimated to inform and engage participants in the changeover. CAP Guidelines for DC plans recommend continual monitoring of investments, investment education, monitoring of risks unrelated to investments and ensuring the value and regulatory compliance of investment advice. An effective governance structure should be in place to oversee operations.
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Interpreting Supplemental Pension Plans.
Godkewitsch, Clio; Plans & Trusts; v30 no1 pp 12, 14 Jan-Feb 2012; journal article

Availability : International Foundation of Employee Benefit Plans
Abstract : In Revios Canada Ltd. v. Creber, the Ontario Court of Appeal was asked to sort out provisions of the plaintiff's registered pension plan and an executive supplementary pension agreement (ESPA) to determine eligibility for unreduced pension benefits at age 62. Both provided for full benefits for those retiring after reaching age 62 with reductions for earlier retirement, though the ESPA lessened the early retirement benefit reduction by the benefit payable from the pension plan. The linking of the plans and absence of definition of early retirement in both presented problems. The court considered the plans in conjunction and found the defendant, leaving work at age 52, did not qualify for early retirement but for a full deferred pension to start at age 65 or actuarially reduced benefits starting at age 55. The court stressed that receiving benefits with the actuarial reduction is not the same as full benefits upon early retirement from either the pension plan or the ESPA.
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Shake Down.
Palermo, Tony; Benefits Canada; v36 no1 pp 32-25 Jan 2012; journal article

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Abstract : Extreme market volatility continues to leave investors anxiously wondering how to protect their assets. Many investment management professionals are focusing on derisking portfolios more than on maximizing returns, though low volatility solutions take many forms. Some value investors are focusing on high quality but inexpensive stocks and dividend yield. There are several approaches to building a low volatility portfolio, including mixing assets with low correlations such as low volatility stocks and low beta stock, or boosting allocations to alternatives. Regardless of the details, diversification is key, so Canadians should look beyond domestic stock investments to lower volatility risk.
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Changes to CPP Part of Changing Mindset.
Leesman, Bill; Canadian HR Reporter; v24 no21 pp 14, 20 Dec 5, 2011; journal article

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Abstract : Annual changes to the Canada Pension Plan (CPP) Act for 2012 include boosting the income basis for contributions to $50,100 and mandatory employee contributions up to age 65. But a more significant change is in mindset. Since 1966 when the CPP was established, many Canadians adopted the idea of retiring at age 55. But this idea is not financially sustainable for the pay-as-you-go program with a declining contribution base and increasing numbers of current and prospective retirees in the wider context of a weak economy. Without a change in Canadians' attitude toward retirement age, the CPP will not be able to provide expected benefits for the long term. Decreasing the benefit amount for those retiring before age 65 should encourage delayed retirement but has implications for employers who may benefit in succession planning but face longer periods for employer contributions.
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A Recipe for Healthy Target Date Portfolios.
Saulnier, Todd; Benefits and Pensions Monitor; v21 no8 pp 76-77 Dec 2011; journal article

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Abstract : Putting together a defined contribution pension portfolio can follow a standardized approach or create an individualized recipe. Custom target date portfolios offer advantages for passive and active investors. Top investment managers chosen by plan sponsors select asset class options available to active investors and put together custom target portfolios. A glidepath is selected along with a target mix of fixed and nonfixed income classes. The custom strategy typically involves lower recordkeeping and management fees and governance responsibilities. The result empowers passive investors through access to specially constructed portfolios with higher than average growth potential, otherwise only accessible to active investors. Changes in funds can be made seamlessly for both investor groups, and innovative investment products can be easily adapted.
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Are We There Yet?
Benefits Canada; v35 no12 pp 76-77 Dec 2011; journal article

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Abstract : Many near retirees are wondering if they can ever retire, considering the loss in value of their assets. Plan sponsors looking for ways to help are considering target date solutions but must also look into the underlying philosophies and investment processes to understand how the various plans address risk. Longevity, inflation and market volatility contribute to undermine invested assets. One design for target date funds uses the 80/10/5 philosophy, aiming for an 80 percent salary replacement ratio, savings of ten times the final salary and a five percent withdrawal rate during retirement. Those under age 62 should focus on asset accumulation, those between 62 and 72 should sustain funds through modest withdrawals, and those over age 72 should concentrate on preserving capital. Sponsors must help plan participants understand the philosophy, with the knowledge that it is a general guideline, not personal financial advice.
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Live Long and Prosper.
Graziani, George; Benefits Canada; v35 no12 pp 64-65 Dec 2011; journal article

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Abstract : Longevity is growing and presenting an ever greater risk to defined benefit (DB) pension plans. A one percent annual improvement in mortality translates to $40 billion in higher costs for Canadian DB plans. Plan sponsors can mitigate this risk through risk transfer, primarily using buyout, buyin, indemnity longevity insurance and index longevity swaps. Risk transfer has traditionally relied on reinsurance, but reinsurers' capacity is rapidly diminishing, making consideration of longevity insurance a good idea. Capital market solutions for longevity risk transfer are developing. Derisking with longevity insurance increases risk-adjusted investment returns and enables greater focus on core investment management.
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