CAPSA 2020 Agreement Respecting Multi-Jurisdictional Pension Plans Adopted

Special Notice – August 13, 2020

On July 1, 2020, the newly signed Canadian Association of Pension Supervisory Authorities (CAPSA)
2020 Agreement Respecting Multi-Jurisdictional Plans (2020 Agreement) was adopted. The 2020 Agreement replaces the 2016 Agreement Respecting Multi-Jurisdictional Pension Plans (2016 Agreement) and is designed to simplify and clarify the supervision of pension plans in Canada with members in more than one jurisdiction. Signatories to the 2020 Agreement include British Columbia, Nova Scotia, Ontario, Quebec, Saskatchewan as well as new signatories Alberta, New Brunswick and the Federal government. Manitoba and Newfoundland and Labrador remain the Canadian jurisdictions with pension legislation who have not signed on to the 2020 Agreement.

The 2020 Agreement is the result of public consultations held by CAPSA after the release of the
2016 Agreement on proposed changes to pension plan funding and asset allocation rules. Changes from the 2016 Agreement, and their impact on plan sponsors and members, are summarized below.

Portability

The 2020 Agreement clarifies that the portability restrictions of the major authority will apply to all members of the plan, regardless of their jurisdiction, including the initial transfer amount to the member and the deadline for paying any remainder. A member’s entitlement to benefits will continue to be determined in accordance with the legislation of the respective minor authorities.

Major authority’s funding rules

The 2020 Agreement amends the funding rules to require that only the major authority’s legislation related to pension plan funding applies on an ongoing basis. Since the release of the 2016 Agreement, several Canadian jurisdictions (including Ontario, Quebec, British Columbia and Nova Scotia) have eliminated or reduced solvency funding requirements and enhanced going concern funding requirements. Under the 2016 Agreement, additional funding was often required if the minor authority and the major authority differed in their funding requirements. The change to the major authority’s funding rules eliminates this issue.

Annuity purchase rules

The 2020 Agreement amends rules governing statutory discharges upon annuity purchases. The amendments are a response to increasing numbers of plan sponsors employing de-risking strategies such as buy-out annuities, and differences in discharge rules among jurisdictions. The 2020 Agreement provides that the rules of the minor authority for providing statutory discharges upon annuity purchase generally apply, but notes that the major authority’s rules will apply in respect of:

• Requirements for contributions to the pension fund;
• Minimum plan funding and solvency levels; and
• Other requirements related to the form and content of actuarial valuation reports, filing deadlines and actuarial standards.

Asset allocation requirements

The 2020 Agreement amends asset allocation requirements to accommodate changes in legislation governing the elimination, or reduction, of traditional solvency funding requirements for some pension plans, including the allocation of assets upon the wind-up of underfunded MJPPs. It also clarifies that no allocation of assets is required for a plan that only provides defined contribution benefits.

Major authority status

Changes to the major authority are designed to occur if the number of active members employed in the major authority’s jurisdictions fall below a prescribed threshold over a one- or three-year period, depending on the size of the plurality. This has not changed from the 2016 Agreement. However, the
2020 Agreement now permits that the change of the major authority can be cancelled, and the major authority will retain its status if the plurality of members returns to the major authority before the planned effective date of the switch.

Other amendments of interest

Other amendments of interest include:

• Shortening the waiting period for a jurisdiction to withdraw from the 2020 Agreement, from three years to eighteen months; and
• Confirming that the final location approach is used to determine a plan member’s benefits when the member has been employed in more than one jurisdiction over their career.

Impact: The 2020 Agreement expands the number of participating jurisdictions from the 2016 Agreement, which simplifies some aspects of administering pension regulation in Canada. Like its predecessor, the 2020 Agreement is intended to simplify the administration of annual statements and other documentation across jurisdictions. There remain challenges related to pension plans with members in Manitoba and Newfoundland and Labrador, the two jurisdictions who have not joined the 2020 Agreement, which remain beholden to the 1968 Memorandum of Reciprocal Agreement, which served as the first attempt to provide guidance on this issue.

CAPSA has announced it is working on a more detailed guide for the
2020 Agreement containing the text of each provision and explanatory notes, which may provide further insight into the scope and intention of the 2020 changes. This is expected to be released later this year. It remains to be seen whether CAPSA will address issues related to the non-signatories and the potential issues that may arise if they decide to join at a later date.