3 Important pension plan changes for BC members
Similar to Alberta and Nova Scotia, B.C. is modernizing its outdated pension legislation. B.C. pension plan members will see a number of improvements, including immediate vesting and unlocking of small pensions. The new rules come into effect September 30, 2015. These new rules are for pension plans registered in B.C., as well as provincially-regulated pension plans with B.C. members. Here are three pension plan changes B.C. plan sponsors need to be aware of.
Joining a growing list of provinces, effective September 30, 2015, B.C. members are immediately vested for all services. What is vesting? It means members are entitled to their full pension benefits when they leave an employer. Before the new rules, B.C. members were required to wait two years to become vested. If a member terminates employment on or after September 30, 2015, he or she will be entitled to a pension payout. The new rules mean an added cost for plan sponsors – members previously considered non-vested are entitled to a payout.
To mitigate this change, plan sponsors may consider extending membership eligibility to two years. If this is done, a member will be required to accrue service for two years before joining the pension plan and being entitled to a payout.
Related article: The trend towards immediate vesting of pension plans
Unlocking: Small pensions
The small benefit test has been changed in B.C. Members who are vested and terminate their employment before their earliest retirement date have the choice of a deferred pension or the commuted value. Typically, a member’s pension benefit is locked-in until retirement, unless it meets the small pensions test.
Before the new rules, there were two tests to see if a pension is a small benefit. The test that looks at the current year’s YMPE (Years Maximum Pensionable Earnings) and compares it to the annual pension at normal retirement date (NRD) is no more.
Related article: Unlocking pension money
The only test to see if a pension is considered a small benefit is if the commuted value is 20% or less of the YMPE in the year the commuted value is determined or re-determined (typically the year of termination). For example, if the annual pension at NRD is less than $10,720 (2015 YMPE: $53,600 X 20% = $10,720), then it’s considered a small benefit and the member is entitled to receive is as a cash lump sum or transfer their pension to a non-locked in savings vehicle like their RRSP. Under the new rules, plan sponsors can expect less small pensions, which means a greater number of plan members on the books.
Following in the footsteps of Alberta, starting in 2016, plan sponsors with B.C. members will be required to issue inactive statements for retirees. The content is mostly general information (the content requirements is set out in the PBSR). Annual statements for deferred members are not required at this time.