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.

Court Cannot Order Employer to Wind Up Pension Plan.
Godkewitsch, Clio; Canadian Benefits & Compensation Digest; v28 no4 pp 4-5 Aug 2010; journal article

Availability : International Foundation of Employee Benefit Plans
Abstract : In Lomas v. Rio Algom Ltd., plan member questions about the allegedly improper plan amendments were secondary to the question of whether a court has jurisdiction to require an employer to wind up a pension plan. Two lower courts ruled the court is entitled to take such action when plan member rights are breached. The Ontario Court of Appeal relied on Canada's Supreme Court ruling in Buschau v. Rogers Communications Inc. It determined the windup scheme of the plan must be followed without court circumvention. A plan termination can be initiated only by an employer or the superintendent, and plan members can only rely on the superintendent to start an investigation. Changing that arrangement would undermine the authority of the superintendent and the freedom of the plan sponsor. The main question in the case remained to be decided.
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Pension Fund Trustees Guilty of Exceeding Investment Limits, Acquitted of Imprudent Investments.
Landy-Shavim, Michelle; Canadian Benefits & Compensation Digest; v28 no4 pp 6-7 Aug 2010; journal article

Availability : International Foundation of Employee Benefit Plans
Abstract : The Ontario Provincial Court heard the case of R. v. Christophe and ruled the trustees of the Canadian Commercial Workers Industry Pension Plan Fund failed to properly supervise the investment committee by allowing them to exceed the 10 Percent Rule. This rule limits the assets that can be invested in a single person or two or more companies or affiliates. However, the court ruled the Crown failed to convincingly prove that the trustees permitted imprudent investments, poor plan administration and improper investment committee supervision. Trustees received individual fines plus victim surcharges for violating Section 22(7) of the Ontario Pension Benefits Act.
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Re Indalex Ltd.
McKinnon, Andrea; Canadian Benefits & Compensation Digest; v28 no4 pp 2-3, 5 Aug 2010; journal article

Availability : International Foundation of Employee Benefit Plans
Abstract : The Companies' Creditors Arrangement Act (CCAA), a Canadian federal statute, provides some protections to companies undergoing financial restructuring. It can prevent actions against the company from the date of the initial order and can protect pension fund assets. Indalex Ltd. had a severely underfunded executive pension plan and a salaried workers' plan in deficit and being wound up, with a final payment yet to be made when the company was granted protection from creditors. When the company was sold, the purchaser did not assume obligations to the pension fund, prompting the employees in the two plans to assert a deemed trust. The Ontario Supreme Court of Justice ruled the two plans were not wound up by the company sale date and there were no outstanding payments due, therefore no basis for a deemed trust. Questions remain and appeals are likely.
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Foreign Plans: Official Says Final Rules Enhance Protection of Canadian Private Pension Plan Members.
Menyasz, Peter; BNA's Pension & Benefits Reporter; v37 p 1464 Jun 29, 2010; journal article

Availability : International Foundation of Employee Benefit Plans
Abstract : Canadian Finance Minister Jim Flaherty said that amendments to the rules for federally regulated defined benefit pension plans will improve protection for participants, reduce funding volatility and modernize investment rules. The amendments base solvency funding on a three year average of solvency ratios rather than the old single year measurement, but keep the five year target for solving deficiencies. They also make 1.05 the solvency ratio necessary for plan sponsors to take a contribution holiday and eliminate existing limits on plan investments in real estate and resource property. Additionally, several technical changes were made in response to comments made during the public comment period.
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Employer Pension Plans (Trusteed Pension Funds): Fourth Quarter 2009.
pp 8-9 Jun 10, 2010; misc. publication

Availability : International Foundation of Employee Benefit Plans
Abstract : During the fourth quarter of 2009, defined benefit pension plan funds grew to $920.4 billion, up 2.5 percent from the previous quarter and 10.9 percent over the fourth quarter of 2008. That value was still 5.2 percent lower than the high point of $970.8 billion reached in the second quarter of 2008. In the last quarter, asset allocation to bonds slightly exceeded that to stocks. Investment income pushed pension fund income up 8.8 percent to $30.7 billion, while securities sales brought in $8.1 billion. Expenses also increased, but net income continued to rise to $16 billion. Of slightly more than 6.0 million Canadians in employer pension plans, 4.9 million are in trusteed plans.
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Actuaries Propose Decision-Making Framework.
Brown, Robert; Benefits and Pensions Monitor; v20 no4 pp 16-17 Jun 2010; journal article

Availability : International Foundation of Employee Benefit Plans
Abstract : The Canadian Institute of Actuaries published a white paper addressing consultations at the federal and provincial levels on improving retirement income. A task force analyzed the pros and cons of Smart Defined Contribution Plans, plans to expand the Canada/Quebec Pension Plan and Target Benefit Plans. In the various plans the analysis found potential problems with plan administration, pay-as-you-go funding for new benefits and unrestricted freedom to opt in and out of a plan. It favored plans with a minimum earnings threshold for eligibility and having employee contributions vary by age. Overall it found the Smart DC Plans to be most attractive.
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Baby Boomer Steps.
Vanasse, Richard; Morris, Iain; Benefits Canada; v34 no6 pp 29-31 Jun 2010; journal article

Availability : International Foundation of Employee Benefit Plans
Abstract : The Income Tax Act (ITA), enacted January 2008, has allowed pension plans to pay out to a worker who is still accruing benefits through work. These measures have proved of little interest to plan sponsors, partly due to difficulties in creating an ITA compliant plan and partly due to poor economic conditions. Instead, employers are using a variety of tools to implement phased retirement and retain older workers, including reemployment of retirees as contractors and allowing workers nearing retirement to work reduced hours. In order to ensure that phased retirement offerings are appropriate to the organization's needs, employers should have a deep understanding of the organization's workforce dynamics.
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CAPSA Consultation Paper on Plan Funding and Investment.
Guindon, Anthony; Canadian Benefits & Compensation Digest; v28 no3 pp 2, 4 Jun 2010; journal article

Availability : International Foundation of Employee Benefit Plans
Abstract : The consultation paper by the Canadian Association of Pension Supervisory Authorities (CAPSA) provides a set of principles for pension plan sponsors and administrators. These best practices address plan administration, funding and investment. CAPSA urges good plan governance practices including prudent action, loyalty to the fund and members, fairness with competing interests, investment portfolio diversification and avoiding unnecessary investment risk. CAPSA recommends establishing policies for plan funding, specifying objectives, recognizing risks and identifying how to manage risks such as performance volatility. The paper also encourages setting funding target ranges, considering how to handle excess funds, detailing actuarial methods and assumptions and establishing a communications policy. Prudence should be the focus in plan investments.
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Financial Services Tribunal: Trust Agreements Subject to Registration Regime Under PBA.
Godkewitsch, Clio; Canadian Benefits & Compensation Digest; v28 no3 pp 7, 10 Jun 2010; journal article

Availability : International Foundation of Employee Benefit Plans
Abstract : A provision of the Ontario Pension Benefits Act (PBA) requires a multiemployer pension plan's board of trustees have at least half its trustees be plan member representatives. When the superintendent of financial services warned the International Union of Painters and Allied Trades, Province of Ontario Pension Plan of proposed deregistration, the plan administrator amended the trust agreement to comply. The change did not specify representation of the Residential Painting Contractors Association (RPCA), prompting a grievance over the amendment. The plan administrator asserted that the tribunal did not have authority to hear the matter since the question pertained to a trust agreement rather than to a pension plan. The RPCA and the superintendent argued for a broader, functional definition of the term pension plan to include a trust agreement supporting the multiemployer pension plan. The tribunal ruled the amendment was a modification of the pension plan as defined by the PBA.
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Northward Bound.
Scott-Clarke, April; Benefits Canada; v34 no6 pp 15-17, 19, 21 Jun 2010; journal article

Availability : International Foundation of Employee Benefit Plans
Abstract : Total pension assets for Benefits Canada's 2010 Top 100 Pension Funds were up 10.4 percent, compared to a 16.8 percent decrease the previous year. Calendar year 2009 saw significant rallies in equities and other risky investments. While this is positive news, sponsors should be aware that this is unlikely to be the start of a year-to-year trend. With a financial crisis ongoing, plans should ensure they have sufficient liquidity. Sponsors appear split on whether to remain conservative in the expectation of further troubles or to take more risks in an effort to take advantage of emerging opportunities. Ranks the top 100 pension funds and their 2008 and 2009 assets.
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Nothing Really New Under the Sun.
Harrietha, Paul; Benefits and Pensions Monitor; v20 no4 pp 23, 26-31, 33, 36-41 Jun 2010; journal article

Availability : International Foundation of Employee Benefit Plans
Abstract : Regulations and client needs evolve, but the means of addressing changing needs remain remarkably stable. Pension and benefits consultants' strategies have gained from the expanding use of technology transforming raw data to useful information. For pension plan sponsors focused on investment and longevity risk, technology tools enable differentiation between risks, which may prompt use of longevity swaps and annuities. Automated systems can evaluate defined contribution plan member savings, contributions and investment patterns. In group health plans, technology can help address financial risk, possibly leading to risk sharing arrangements with drug vendors. Value-based design also depends on strategic data collection and analysis. Includes a directory with details on 146 consultants.
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Smooth Move: Recent Investment Experience Reinforces Value of Asset Smoothing.
Hunter, D. Cameron; Canadian Benefits & Compensation Digest; v28 no3 pp 11-13 Jun 2010; journal article

Availability : International Foundation of Employee Benefit Plans
Abstract : Smoothing assets over time provides a way to manage pension plan funding with flexibility to cope with short term market volatility in uncertain economic conditions. The strategy enables plan trustees to bring into alignment expectations for investment performance and the reality of returns, absorbing temporary fluctuations to present a more valid view of funding over the long term. Smoothing applies to a typical business cycle. A five year smoothing period provides plan trustees time to respond in a deliberate manner to significant market cycles. About a third of Ontario's going concern plans use asset smoothing techniques. Various jurisdictions have different rules regarding smoothing, but the Canadian government intends to ban it for federally regulated plans. Plans using asset smoothing should let their members know about the valuation strategy and educate them on the advantages.
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The Decision in Imperial Oil Limited: Implications for Partial Wind-Ups.
Deokiesingh, Alana; Canadian Benefits & Compensation Digest; v28 no3 pp 5-6 Jun 2010; journal article

Availability : International Foundation of Employee Benefit Plans
Abstract : Imperial Oil terminated about 2,600 workers over eight years in three partial windups. About one in three employees chose to keep their benefits within the company plans, rather than annuitize the benefits. The superintendent of financial services required the company to purchase annuities for all. In Re Imperial Oil Limited and the Superintendent of Financial Services, the company pointed out employee rights to transfer options under the Ontario Pension Benefits Act Section 42. The superintendent contended a plan windup is not consistent with members' keeping benefits within the plan, and that a partial windup requires asset distribution. The Ontario Financial Services Tribunal ruled that maintaining assets within the ongoing plans, rather than necessarily annuitizing, is an acceptable solution and meets fiduciary responsibility requirements. The point may become moot after 2009 since the Ontario government proposes to eliminate partial windups.
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Pension Plans in Canada.
pp 6-7 May 25, 2010; misc. publication

Availability : International Foundation of Employee Benefit Plans
Abstract : Registered pension plan (RPP) membership in Canada rose to over 6.0 million in 2008, though the number of plans stagnated. Rising participation by women represented 83 percent of the membership growth. Membership increased 4.3 percent in the public sector, mostly from women's participation, but it dropped 0.7 percent in the private sector. Private sector plans account for just over half of all RPPs. Defined contribution plans remain at about 16 percent of all pension plans, while hybrid plans in the private sector show the strongest increase at 29.9 percent. As of the end of 2008, approximately 75 percent of RPPs were underfunded.
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Foreign Plans: Proposed Federal Regulatory Amendments to Better Protect Plan Members, Official Says.
Menyasz, Peter; BNA's Pension & Benefits Reporter; v37 p 1097 May 11, 2010; journal article

Availability : International Foundation of Employee Benefit Plans
Abstract : Canada's Finance Minister Jim Flaherty announced proposed amendments to the 1985 Pension Benefits Standards Regulations. The amendments would decrease volatility in pension plan funding and update plan investment rules while adding protection for plan members. Minimum funding would be based on a three-year average of solvency ratios, smoothing out short-term fluctuations, and plans would need a five percent solvency margin in order to take a contribution holiday. The amendments would also remove the limits on plans investing in Canadian resource properties and real estate. A proposal to lift other restrictive investment rules is expected to be forthcoming.
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Regulatory Impact Analysis Statement.
6 pp May 3, 2010; misc. publication

Availability : International Foundation of Employee Benefit Plans
Abstract : Canada's Department of Finance has proposed amendments to the Pension Benefits Standards Regulations, 1985. The amendments would revise minimum funding requirements to be based on a three-year average of solvency ratios. They would also require a solvency margin of five percent of liabilities for employers to suspend normal cost contributions and delete the five, 15 and 25 percent quantitative investment limits for real estate and resource property. The changes will allow greater flexibility in investment allocation, enabling sponsors to handle their funding obligations better. The solvency margin will create a cushion to better cope with volatility. The amendment will involve extra employer contributions to cover the solvency margin and costs for report filing and compliance.
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A Compliance Guide for Small to Medium Businesses.
Charbonneau, David; Benefits and Pensions Monitor; v20 no3 pp 34-35 May 2010; journal article

Availability : International Foundation of Employee Benefit Plans
Abstract : Small and mid-sized firms interested in setting up a retirement benefit plan must consider choices and numbers of investment funds, asset classes, fund managers and decision oversight. The CAP Guidelines are the best source of direction, and following them demonstrates regulatory compliance. Setting up a CAP should be based on understanding the sponsor's goals, which can include talent management, competitiveness, employee savings and tax considerations. The plan should use a fund with a strong performance record and an experienced management team. Once established, the plan must provide investor decision making tools and communications including periodic fund reviews and performance statements.
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A Not-So-Simple Solution.
Fraser, J. Lynn; Benefits Canada; v34 no5 pp 47-49 May 2010; journal article

Availability : International Foundation of Employee Benefit Plans
Abstract : Target date funds (TDFs), established in the U.S. but relatively new in Canada, generally serve well as a professionally managed savings vehicle with a diversified portfolio and generic glide path, though for best results they need more active investor involvement. But TDFs' one-size-fits-all approach may be too simplistic and their layered fees high and nontransparent. The design of glide paths is debatable and the underlying composition is largely unknown. Plan sponsors' responsibility for understanding and benchmarking them is no less than for other investments. As more older employees delay retirement, TDFs may have to focus on longer asset growth and broaden the investment mix. Plan sponsors will face more work and more risk than they expected from an off-the-shelf retirement strategy.
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Back to Black.
Cakebread, Caroline; Benefits Canada; v34 no5 pp 21-31 May 2010; journal article

Availability : International Foundation of Employee Benefit Plans
Abstract : As of May 2009, Benefits Canada's top 40 money managers had lost $300 billion in assets under management, but most were in the black a year later with 10.7 percent asset value growth. The focus has moved to managing risk, increasingly through liability driven investment and especially as interest rates rise. The effect of policy changes and the massive infusion of liquidity remain unknown. It may prolong volatility and low interest rates and suppress stock market returns. Plan sponsors are showing more interest in hedge funds and pushing for lower hedge fund fees, while also looking to lower investment performance correlation with equities through infrastructure, real estate and private equity. Canadian institutional investors also must factor in risky exposure to foreign exchange rates. A directory lists the top 40 and top fastest growing money managers.
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Changing the Rules.
Villiard, Luc; Benefits Canada; v34 no5 pp 10, 12-13 May 2010; journal article

Availability : International Foundation of Employee Benefit Plans
Abstract : Three products of legislative activity affect funding of Quebec pension plans in general and municipal and university plans in particular. Bill 30 substantially changes funding rules for plans registered under the Supplemental Pension Plans Act, applying to actuarial valuations carried out after December 14, 2009. The bill provides for adverse deviation and for plan sponsors to use a letter of credit in place of amortization payments to ensure plan solvency. Bill 1 offers supplemental but temporary relief measures including asset smoothing, debt consolidation, extension of the amortization period and use of updated actuarial standards. An additional regulation applies to municipalities and universities complementing the relief of Bill 1 with a provision for adverse deviation pertaining to surplus assets and restricting funding on a going-concern basis.
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Do You Need Investment Choice in DC Plans?
Campbell, Murray T.A.; Kaneen, Megan S.; Benefits and Pensions Monitor; v20 no3 pp 32-33 May 2010; journal article

Availability : International Foundation of Employee Benefit Plans
Abstract : Defined contribution pension plans in Canada are either a single fund and directed by the sponsor or, more commonly, multifund and directed by members. In both cases, the plan sponsor must have a written investment policy statement and recognize fiduciary responsibilities. CAP Guidelines apply to plans based on the multifund approach but not single fund plans. Multifund plans face more legal responsibilities, risk from investment losses, disclosure issues and the requirement for member education and timely choice. While multifund plans provide member choice and impose individual responsibility, they can be complicated and more expensive to administer. A hybrid approach mixing the two designs may be the best arrangement, providing the single fund as the default but multifund opportunity for those who actively choose it.
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Hands On.
Smith, Brooke; Benefits Canada; v34 no5 pp 41, 43, 45 May 2010; journal article

Availability : International Foundation of Employee Benefit Plans
Abstract : Since defined contribution retirement plan members are notoriously passive about their investments, they generally end up in a default fund. These are often geared toward asset preservation rather than growth, leaving a good number of participants with inadequate funds for retirement. The major available default options include money market funds, balanced funds, target date funds and target risk funds. Though a single approach is unlikely to provide a complete solution, a combination of strategies is likely to fare better. Target risk funds combined with target date funds may provide the best balance of timed asset growth and risk management.
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Hedge Fund Investing Using Managed Accounts (MACs).
Miedzinski, Bernice; Benefits and Pensions Monitor; v20 no3 pp 22-23 May 2010; journal article

Availability : International Foundation of Employee Benefit Plans
Abstract : The traditional asset mix of 60 percent stocks and 40 percent bonds is losing favor as many Canadian pension plans seek higher performance through hedging. Managed accounts (MACs) can provide the opportunity for hedging. A hedge fund MAC offers the benefits of transparency, liquidity and asset control, as well as structural governance and independence. MACs also have drawbacks which include the need to monitor the tracking error between the MAC and manager's pooled hedge funds, higher cost from additional services and some operational challenges.
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Long Duration Corporate Strategy.
Corneil, Bruce; Gregoris, David; McNamara, Sue; Benefits and Pensions Monitor; v20 no3 p 17 May 2010; journal article

Availability : International Foundation of Employee Benefit Plans
Abstract : Liability driven investing (LDI) takes a long term approach to funding pension plans by tracking liabilities instead of aiming for an investment return target. Typically considered a passive strategy, it should instead take an active management approach that can increase value. A common investment strategy is the dollar duration approach, matching asset values with liabilities, adjusting over time for interest rate changes. A better approach considers asset and liability performance relative to multiple yield curve scenarios. Pitfalls include the sharp devaluation or a default of a bond, forcing the fund to make up for the loss and adjust long term planning. Long dated bonds from entities with predictable stability and longevity helps avoid such problems.
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Show Them the Money.
Duxbury, Kim; Benefits Canada; v34 no5 p 55 May 2010; journal article

Availability : International Foundation of Employee Benefit Plans
Abstract : Matching employer contributions for deferrals to retirement savings programs are a strong component in employee recruitment and retention strategies. Over 30 years, the matching contributions can add up to more than $300,000 compared to unmatched employee savings. Yet many employees in Canada fail to take advantage of employer contributions. The absence of automatic enrollment and other automatic features are a major regulatory obstacle to participation in a retirement savings program and maximizing its value, together with ineffective consumer education and lack of extra funds to set aside. Even without automatic features, plan sponsors can target communications to nonparticipants and those not making the most of matching contributions and push the benefit in recruitment efforts.
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