It's finally come . . . Alberta's new pension legislation will be effective September 1, 2014
The Alberta Employment Pension Plans Act received Royal Assent in December 2012. The proclamation was delayed pending the drafting and approval of the accompanying Employment Pension Plans Regulation. The Regulation was passed on July 22, 2014 and becomes effective (unless otherwise noted) on September 1, 2014.
These legislative changes will affect any member of a pension plan who is considered to be employed in Alberta under the Alberta Employment Pension Plans Act and Regulation. Members who are not considered to be employed in Alberta are not affected.
This communication summarizes key changes which may impact your defined contribution pension plans (DCPPs). More information is available from the Alberta Treasury Board and Finance webpage.
Vesting and locking-in
- applies only to members who terminate, retire or die on or after September 1, 2014
- All contributions made by the member and the employer are immediately vested in the member.
- All member and employer-required contributions made on and after January 1, 1967 are immediately locked-in. Any required contributions made by the member and the employer prior to January 1, 1967 remain non-locked-in.
Locked-in status is now based only on asset size and not based on tenure in the plan.
We have communicated this message to our clients so it should be no surprise to existing pension plans. The only way to vest contributions in Alberta is through Deferred Profit Sharing Plans (DPSP)
Related article: The Group RRSP/DPSP combo plan
Pension partner definition
A member is considered to have a pension partner if they are married to each other and have not been living separate and apart from each other for a continuous period longer than three years. Previously, the period for living separate and apart was for three or more consecutive years.
Change to member contributions notice
If there is a plan amendment to change the contribution rate that the member is required to make to the DCPP, the plan administrator must now provide a notice to the member prior to the effective date of the amendment.
Change to member benefits
If there is a plan amendment to reduce benefits, the benefits cannot be reduced before the amendment is filed with Alberta Finance or the effective date of the reduction, whichever is later. The plan administrator must now provide a notice of the reduction to the member within 30 days after receiving the notice of the registration of the amendment.
Suspension of plan membership
The ability for members who were vested and locked-in to suspend membership and transfer their accounts to a locked-in retirement account if permitted under the DCPP has been eliminated.
Shortened life expectancy
A DCPP must now provide for the right of a member with a shortened life to withdraw all or a portion of the funds.
All requests for financial hardship withdrawals from locked-in retirement accounts and life income funds must now be submitted to the financial institution, rather than Alberta Finance, for review and approval. This is an interesting change and it will be interesting to see how the approval and administrative process will work. Right now the easiest means test is that the members income needs to be less than two-thirds of the YMPE (Currently $35,000 in 2014).
Related article: Unlocking pension due to financial hardship
Mandatory transfer out of plan members
A DCPP can now provide that on a member’s termination, the member must transfer the assets out of the DCPP. The restriction that it could only be applied to members who joined the DCPP on or after August 10, 2006 has been removed. Employers can still allow terminated members to stay on the plan if they choose.
This is an appealing change. Many pensions have a significant number of terminated members because the plan could not remove the assets.
If a member has the option to provide direction regarding investments, but fails to do so, a plan administrator must invest the member’s contributions in either a balanced fund or a portfolio of investments appropriate to the member’s age. This must be implemented on or before December 31, 2014.
This is an interesting change. Plans will not longer be allowed to have money market funds, daily interest accounts, Guaranteed investments or bond funds as default investments. Many of our clients have already made the shift to Target Date Funds or Asset Allocation Funds for the defaults.
Related article: Target date funds are low maintenance
Review of plan
The plan administrator must, on an annual basis, assess the administration of the DCPP. This assessment must be in writing and must be retained and made available to Alberta Finance when requested. The first assessment is not required to be completed until the second plan year after September 1, 2014 (i.e. if the plan year ends on December 31, 2014, the first assessment must be completed in 2016). We do this for all our clients already so this change will not affect our pension clients.
For existing DCPPs already registered with Alberta Finance, a governance policy must be put in place by August 31, 2015. If a new DCPP is established, the governance policy must be in place before the plan will be registered. The list of the items the governance policy must cover (although not all of the requirements) includes: the structure/processes for overseeing, managing and administering the plan; identifying all participants who have the authority to make decisions (as well as describe the roles, responsibilities and accountabilities of those participants); and establishing a code of conduct for the administrator including a procedure to disclose and address conflicts of interest.
We will be proactive on this matter to determined the detailed requirements of a governance policy for all our clients and not just our pension clients.
Information to fundholders
All pension plans must provide the fundholder with an updated Schedule of Expected Contributions (formerly Form 7) by October 1, 2014. This is required even if the plan administrator had previously provided a Form 7 for the plan year.
Employers will be permitted to auto-enrol their employees. Employees will automatically become members of the DCPP if they have received a prescribed notice and do not opt-out within the prescribed period after receiving the notice.