Pension and Benefits Law 2013: What's New & Exciting

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Dentons' Mary Picard presented "Pension and Benefits Law 2013: What's New and Exciting" at Dentons 14th Annual Employment Law Client Appreciation Seminar. The following topics are discussed in the …

Dentons' Mary Picard presented "Pension and Benefits Law 2013: What's New and Exciting" at Dentons 14th Annual Employment Law Client Appreciation Seminar. The following topics are discussed in the presentation:
- Cutting back retiree health & welfare benefits: GM case
-Will CPP benefits increase? And what’s going on with PRPPs (Pooled Registered Pension Plans)?
-Making “investment advice” available to the members of your company’s Group RRSP or DC pension plan or non-registered plan or TFSA (etc.)
-What’s my number? Will employers be required to give employees an estimate of what their Group RRSP or DC pension plan account will be worth in future?
-Hottest issue with defined benefit pension plans: “de-risking”

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  • 1. Dentons 14th Annual Employment Law Client Appreciation Seminar Pension and Benefits Law 2013: What’s New & Exciting September 17, 2013 Ottawa, Canada Mary Picard Partner Dentons Canada LLP Tel: (416) 863-4469 Email: mary.picard@dentons.com #4255338_NatDocs
  • 2. Topics to be addressed in today’s presentation: 2 • Cutting back retiree health & welfare benefits: GM case • Will CPP benefits increase? And what’s going on with PRPPs (Pooled Registered Pension Plans)? • Making “investment advice” available to the members of your company’s Group RRSP or DC pension plan or non-registered plan or TFSA (etc.) • What’s my number? Will employers be required to give employees an estimate of what their Group RRSP or DC pension plan account will be worth in future? • Hottest issue with defined benefit pension plans: “de-risking”
  • 3. Can an employer unilaterally reduce retiree health & welfare benefits, once an employee has retired? 3 Probably not. The benefit booklets, severance arrangements, and all written materials have to be reviewed to determine whether the employer clearly reserved the right to reduce benefits. Ontario Superior Court decision in July, 2013 GM case said the following wording didn’t give GM authority to reduce retiree life insurance and other retiree benefits: “GM reserves the right to amend, modify, suspend or terminate any of its programs (including benefits) and policies by action of its Board of Directors or other committee expressly authorized by the Board to take such action. The Programs, benefits and policies to which a salaried employee is entitled are determined solely by the provisions of the applicable program, benefits or policy.”
  • 4. The Ontario Court in the “GM case” said IT IS POSSIBLE for an employer to have the legal right to unilaterally reduce retiree benefits 4 Here is language that would allow an employer to unilaterally reduce retiree benefits, said the Court. This language is sufficient, but it would have to be explicit in an employee booklet, or annual member statements, etc.: “GM reserves the right to amend, modify, suspend or terminate any of its programs (including benefits) and policies covering employees and former employees, including retirees, at any time, including after employees’ retirements.” The key is to be clear & unambiguous that benefits can be changed AFTER retirement, said the Court. The GM case was a class action. Expect more.
  • 5. Big push to increase CPP benefits 5 Canada Labour Congress (association of unions) wants to DOUBLE the amount of the CPP benefit. The CLC argues that can be achieved by gradually increasing worker and employer contributions over the next 7 years. This has been the CLC’s position since 2010. Other worker lobbyists are pushing for a “10-10-10” solution. This plan would hike CPP benefits by 10 percentage points from 25% to 35% of maximum pensionable earnings (MPE), raise the MPE by $10,000 from today’s $51,100 to $61,100, and implement all of this within 10 years. Employer groups, particularly self-employed and small businesses, are resisting. Lobbying efforts are underway now: watch for provincial & federal announcements
  • 6. The “retirement gap” could be solved with PRPPs (so the argument goes…) 6 PRPP: pooled registered pension plans • massive, multi-employer pension plans • defined contribution • low fees • employers have no role, no legal responsibility; they just send $$ • Manulife is the first “provider” to be issued a licence to sell these; Sun Life and others will follow Changes to pension legislation in all provinces is required to implement this new type of retirement savings plan. AT PRESENT PRPP’s are only available to employers who have employees in:  federally-regulated business (banks, airlines, etc.)  Yukon, NWT and Nunavut
  • 7. Advising plan members on investment decisions 7 In the past year or so, activity has increased in offering/selling this service – e.g. Sun Life and Standard Life - • advice to all employees, or just employees approaching retirement • could be limited to advice about only the funds offered by the provider; or it could be broad advice on planning based on all financial resources • service providers could refer employees to life insurance, financial planning, a host of other financial products • sometimes enrolment forms expressly give permission for cross-selling • not illegal • no legislative guidance ** Employers are legally liable for any “bad advice” given by service providers **
  • 8. Is it okay to offer “investment advice”? Here’s what the regulators have said: 8 2004 CAPSA Guideline No. 3, section 6.2 (also adopted by regulators who govern Group RRSPs and other non-registered pension plans): “Where applicable, a CAP sponsor should periodically review service providers with whom the CAP sponsor has an arrangement or to whom the CAP sponsor has referred CAP members to help them make their investment decisions. As with other service providers, the CAP sponsor should establish criteria for the periodic review and use these criteria to conduct the review. Because the primary relationship of a service provider who provides investment advice is with each member, it will not be possible or practical for the CAP sponsor to directly review the quality of the advice being provided.
  • 9. The regulators have also said about investment advice: 9 “Factors for the CAP sponsor to consider when establishing criteria for the periodic review of service providers include: • criteria used to select the service provider; • any complaints arising from the members; and • any complaints arising from the CAP sponsor or other service providers Not terribly helpful? How about: o Get the service provider to commit in writing to limits of advice o Require specific training and ongoing certification of advisors o Immediate disclosure of complaints, regulatory inquiries for any other plan sponsor’s plan members o Monitor ongoing compliance with the service provider’s own internal quality control processes
  • 10. What’s my number? 10 CAPSA (Canadian Association of Pension Supervisory Authorities) issued new draft guideline for DC pension plans in July 2012 * final guideline not yet released * Section 3.3: “…plan administrators should provide members with information to help them understand and estimate their plan benefits on retirement. They should consider providing members with the following information on an annual basis: • Estimate of accumulated value of the member’s account at retirement. • Estimate of the benefit that will result from the accumulated value. Plan administrators should inform members that statements regarding future benefits are estimates. They should also include the assumptions used in estimating the future benefits.”
  • 11. (continued…) CAPSA has proposed in its draft newest guideline: 11 “Plan administrators should describe to members the purpose of the pension plan. In particular, they should disclose if the plan is expected to provide an adequate retirement income in conjunction with other government pension programs or it is expected that additional sources of retirement income will be required. This may be best achieved by disclosing the targeted pension that is expected for a member (or sample of members) with qualifications on: • Term the member would have to participate in the pension plan. • Member’s contribution rate (if optional under the pension plan). • Member’s assumed portfolio of investments.”
  • 12. And what about the U.S.? Are employers required to give DC plan members estimates as to what their DC accounts will generate in future? 12 Department of Labor (regulator under U.S. pension legislation: ERISA) released Advance Notice of Proposed Rulemaking on May 7, 2013: “First, the Department is considering a rule that would require a participant’s accrued benefits to be expressed on his pension benefit statement as an estimated lifetime stream of payments, in addition to being presented as an account balance. Second, the Department is also considering a rule that would require a participant’s accrued benefits to be projected to his retirement date and then converted to and expressed as an estimated lifetime stream of payments.”
  • 13. U.S. Department of Labor is proposing specific methodology that employers can use to forecast DC account “monthly lifetime income stream”: 13 “safe harbor” protections will apply if: The following methodology is used for projecting an account balance: contributions continue to retirement age at the current annual contribution amount, increased by 3% per year investment returns are 7 % (nominal) an inflation rate of 3% per year is used for discounting the projected account balance to today’s dollars Methodology is proposed for converting an account balance into a lifetime income stream: see: https://www.federalregister.gov/articles/2013/05/08/2013-10636/pension- benefit-statements basically, rate of interest equal to the 10-year T-bill rate
  • 14. What’s “de-risking”? 00 Month 2013 14 In Canada we’ve seen it only in the world of defined benefit registered pension plans. ** It permanently stabilizes, or removes, the deficit ** Basically, when the investment strategy of “de-risking” is applied, there will be no uncertainty about the funded status of the pension plan. It removes the risk of stock market fluctuations and interest rate fluctuations from the funded status of the pension plan. The key is that assets are “matched” to the liabilities. Assets such as fixed income/bond products, move in value on the same basis as the liabilities (that’s the theory). If the right mix of bonds (for example) is held in the plan, rather than stocks, the liabilities of the plan will “match” the assets. A sexy new product is a “buy-in annuity” which accomplishes the same goal.
  • 15. Mary Picard Partner Dentons Canada LLP 77 King Street West, Suite 400 Toronto-Dominion Centre Toronto, ON M5K 0A1 Tel: (416) 863-4469 Email: mary.picard@dentons.com © 2013 Dentons. Dentons is an international legal practice providing client services worldwide through its member firms and affiliates. This publication is not designed to provide legal or other advice and you should not take, or refrain from taking, action based on its content. Please see dentons.com for Legal Notices. #4255338_NatDocs