More Regulation: 9 Key Changes to NS Pension Regime Effective June 1, 2015
June 3, 2015
By Rhea McGarva, Litigation Director of Research at McInnes Cooper,
Hugh Wright, Managing Partner/ CEO at McInnes Cooper
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On June 1, 2015, the new Nova Scotia Pension Benefits Act (and related Regulations), on the books since 2011, at long last took effect. The new Act, principally modelled on the Ontario Pension Benefits Act (with some differences), introduces a higher level of regulation. The Act and Regulations increased from 161 to 267 pages, adding more regulatory oversight and membership disclosure requirements, and requires changes to all pension plans with NS members and to all pension plans registered in NS. Plan administrators must now administer existing plans in accordance with the new regime, and make any plan amendments required to comply with the Act by June 1, 2018. Financial institutions will also need to bring their Locked in Retirement Account (LIRA) and Life Income Fund (LIF) riders into compliance.
Here are the 9 key changes the new Act and Regulations make for all pension plans with NS members and for all NS registered pension plans effective June 1, 2015, and the 3 key changes that aren’t in effect yet.
5 Key Changes Applicable to all pension plans with NS Members. These 5 changes apply to all pension plans with NS Members and took effect on June 1, 2015:
- Immediate vesting and locking in. Benefits for all pension plan members will now vest and be locked in immediately, rather than after a period of up to two years. This change reflects a move towards immediate vesting that’s occurred Canada-wide over the last 5 to 6 years. The new Act still permits a waiting period of up to 24 months before membership.
- Expanded definition of “spouse”. The definition of “spouse” is expanded, providing greater recognition of common law relationships.
- Higher minimum death benefit. The minimum pre-retirement death benefit payable to a spouse or an estate is increased to 100% of the commuted value of the member’s pension, from 60% of the commuted value of the member’s deferred pension (or zero if there is an applicable group life insurance payment).
- Revised LIRA and LIF requirements. Locked in Retirement Account (LIRA) and Life Income Fund (LIF) requirements are revised to incorporate the expanded definition of spouse and other changes.
- Small benefit commutation. Pension plans can pay out small pensions in certain circumstances, including on termination of active membership. The amount they can pay out is increased to a commuted value of 20% of the Years Maximum Pensionable Earnings (under the Canada Pension Plan) (about $10,700 in 2015) – about two times the amount under the former regime. This change will decrease the administrative requirements associated with small benefit amounts.
4 Key Changes applicable to all Nova Scotia Registered Plans. These 4 changes apply to all pension plans registered in NS and took effect on June 1, 2015:
- Increased Information for Members. Several changes are designed to give members increased access to information:
- There are detailed provisions for the establishment of advisory committees and the election of advisory committee members; retirees can appoint two members to an advisory committee.
- Annual member statements must give information about the funded status of the plan, including transfer ratios and special payments.
- Plan administrators must give members prior notice of all plan amendments.
- Plan administrators must also make certain documents available to members for inspection either at no cost, or at the specified, capped cost.
- Some old & some new funding requirements. The new Act has a mix of new and old in the pension plan funding requirements:
- Funding requirements for Jointly Sponsored Pension Plans, Multi Employer Pension Plans, and defined benefit pension plans in the university and municipal sectors are continued; no solvency funding is required.
- Single employer defined benefit pension plan funding requirements continue, with solvency funding now required for any indexing applicable to service after May 31, 2015.
- If the solvency funding is under 85%, annual valuations are required.
- Letters of Credit can now be used.
- Valuations must now be filed with 9 months of the effective date, instead of the previous year.
- New special payment contribution requirements arising from the new valuation may be phased in up to 12 months after the valuation date, continuing the prior practice.
- Contribution holidays are permitted if certain requirements, including maintaining a 5% margin, are met.
- Audited financial statements for the pension plan must now be prepared and filed within 6 months of year end, subject to certain exceptions.
- Record keeping requirements. The new Regulations set record keeping requirements for administrators and employers that last 7 years after the occurrence of specified events.
- Increased regulatory oversight. The Superintendent of Pensions can now make an order under the Act imposing the assumptions and methods that the actuary must use in the preparation of valuation reports, and can impose more exacting requirements than those which are otherwise consistent with sound actuarial practice. The Nova Scotia Labour Board, instead of the Superintendent, will now hear appeals of orders; the Labour Board’s decision can be further reviewed by the Nova Scotia Supreme Court.
3 Key Changes Not Yet In Effect. These 3 changes to the new Act and other pension legislation still aren’t proclaimed and still aren’t in effect:
- Target Benefit Plans. The provisions in the new Act for the establishment of Target Benefit Plans. This would offer a new form of pension plan, providing greater funding certainty for employers while still offering a generous benefit to members.
- Investment Regulations. The rules governing investment of pension plan assets by NS pension plans are modelled on the investment rules under the federal Pension Benefits Standards Act, 1985. These federal investment rules were updated in late March 2015, but the regulations under the new NS Act haven’t been updated and still reflect the pre-March 2015 federal investment rules. It’s expected there will be a further update to the NS rules to harmonize them with the federal investment rules.
- Pooled Registered Pension Plans (PRPP). In December 2014, NS passed legislation that would allow Pooled Registered Pension Plans (PRPP) to be offered in NS. The intent is that the federal government will administer PRPP’s, but an agreement between the federal government and a number of provinces to provide for pan-Canadian PRPP’s and enable federal government administration for participating provinces isn’t yet finalized.
Read the new NS Pension Benefits Act here and the new NS Pension Benefits Regulations.
Please contact your McInnes Cooper lawyer or any member of our McInnes Cooper Pension & Benefits Team to discuss this topic or any other legal issue.
McInnes Cooper has prepared this document for information only; it is not intended to be legal advice. You should consult McInnes Cooper about your unique circumstances before acting on this information. McInnes Cooper excludes all liability for anything contained in this document and any use you make of it.
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