The Pension Benefits Amendment Act, (“Bill 10”) proposes to significantly alter the Manitoba Pension Benefits Act (“Act”). The proposed changes are largely based on the earlier Pension Commission report and recommendations for reforms and subsequent consultations with plan sponsors, consultants and other interested parties.

This Communiqué highlights proposed changes to the Act and will be of interest to pension plan sponsors with Manitoba employees.

Pension committees

Bill 10 requires the administration of most employer sponsored pension plans with over 25 members by pension committees. This has been a contentious issue with a number of plan sponsors in Manitoba. The pension plan must provide for the appointment or election of committee members in accordance with the regulations, and must ensure that:

• at least one voting active member is appointed or elected by the active members,

• at least one voting non-active member is appointed or elected by the non-active members, and

• one additional non-voting member may be appointed or elected by the active and non-active members.

The member appointment and election process is unclear and will likely be addressed in Regulations which have yet to be released. In our communication with the Manitoba Pension Commission, we have been advised that employers will have the right to appoint as many other committee members as they wish.

As a result, the pension committee could have a majority of employer representatives or member representatives. However, this is effectively at the discretion of the plan sponsor.

Flexible pension plans

Bill 10 permits the provision of ancillary benefits for members who make optional ancillary contributions (“OAC”). Pension plans may permit the forfeiture of any OAC in excess of the maximums subject to conversion under the Income Tax Act. OACs are exempt from the 50 per cent of pension test and lock-in rules.

Surplus – Total Plan Wind Up

The conditions for payment of surplus to employers under a total plan wind up have been expanded.  Employers must satisfy one of the following conditions:

• demonstrate entitlement to surplus under the terms governing the plan, or

• apply to the courts for determination of surplus entitlement, or

• enter into surplus sharing agreements with plan members and beneficiaries and obtain written consent of:
  – every bargaining agent,
  – 2/3 of the active members not represented by a bargaining agent,
  – 2/3 of the non-active members not represented by a bargaining agent,
  – a specified number or a proportion of other beneficiaries who have entitlement to pension or benefits under the plan as determined by the Superintendent.

If the surplus sharing agreement approach is adopted, plan members would not have

access to the courts through the Trustee Act.

Vesting

Pensions will be immediately and fully vested retroactively to July 1, 1976. However, while the CAPSA Model Pension Law provides for accelerated vesting in the context of the elimination of partial plan wind ups, Bill 10 does not propose to eliminate partial plan wind ups.

One-time transfer to a RRIF

The Bill proposes increased flexibility for LIFs/LRIFs by permitting a one-time transfer of up to 50 per cent of the amount in the annuitant’s LIF/LRIF account to a creditor-proof Registered Retirement Income Fund. The transfer is subject to spousal consent and the attainment of age 55. This transfer option will also be available to persons currently participating in a LIF or LRIF.

Other changes

Discretionary Benefit – Benefits provided on a discretionary basis will not be permitted.

Phased Retirement – Active members entitled to an immediate pension under the plan, may receive benefits from the plan if the member’s working hours and remuneration are reduced by agreement with the employer.

Joint & Survivor Pension – Post retirement survivor benefits payable to spouses or common-law partners can not be less than 60 per cent of the pension payable to the member, unless the spouse waives this benefit. Currently the joint and survivor requirement is 66 2/3 per cent.

Contribution Tests - The 50 per cent of pension test applies to post-1984 required contributions and pension accruals for periods the member is required to contribute. The minimum pre-1985 commuted value can not be less than the member’s contributions with interest for that period.

Unlocking – Plans may unlock benefits for certain non-resident members or members with a terminal illness or disability resulting in a shortened life expectancy.

Waiver of Pre-Retirement Death Benefit – Spouses and common-law partners may waive their entitlement to pre-retirement death benefits. This waiver is revocable with the agreement of the member and the spouse.

Multi-Unit Plan – A multi-unit pension plan may reduce benefits if required to meet prescribed solvency requirements. This reduction must be supported under the terms of the plan and must be approved by the Superintendent of Pensions.

Impact

Bill 10 has only had first reading. It will still be debated in second reading and referred to a Standing or Special Committee where there may be public input.

There is no indication on when Bill 10 will pass third reading and be proclaimed. While some of the proposed changes will generally be well received by employers (flexible pension plans, provincial provisions providing uniformity with other provinces, and clarification of provisions), some other proposed changes will not be well received (pension committees and plan wind up surplus procedures).

Comment

Public consultation is necessary to ensure the health of pension plans in Manitoba. Some of the changes proposed were a direct result of lobbying by plan sponsors.

One major omission in the proposed legislation is a failure to deal with the Monsanto issue. Bill 10 does not propose to eliminate partial plan wind ups. The Monsanto issue and the issues still surrounding surplus ownership on plan wind up remain a major impediment to the Manitoba Pension Commission achieving its legislated mandate to “actively promote the establishment, extension and improvement of pension plans throughout Manitoba…”. It is hoped that changes will be made to the next version of Bill 10 to reflect these matters.

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