Mr. Speaker, I will try to wrap it up a little earlier than the full 29 minutes.
I believe when I left off I was speaking about standardizing pension plan contracts and transferring, especially for the small employer, some plan administration responsibility to financial institutions as a cost reduction measure. The details of this regime will be introduced later through regulations.
I would like to move now to speak about reducing regulatory burden.
Under Bill S-3 the Minister of Finance would be able to enter into a multilateral supervisory agreement that is currently being developed by OSFI and the provincial pension regulators through the Canadian Association of Pension Supervisory Authorities, known as CAPSA.
OSFI has been participating in this development for upwards of two years now. By reducing the number of rules to be complied with the regulatory burden facing multi-jurisdictional plans will be reduced. This goal is consistent with the government's objective of reducing overall regulatory burden.
While a number of issues remain to be worked out it makes sense to include the authority to enter into this agreement now to make way for future reductions in regulatory burden. In drafting this package I should point out that the government reviewed legislation in other jurisdictions in order to benefit from their experience and to minimize any regulatory differences.
I have highlighted the key principles underlying the proposed legislation and now I want to turn to some of the specifics of Bill S-3 itself.
I will start with OSFI's supervisory focus, wherein Bill S-3 replaces OSFI's obligation to review all plan documents and amendments with the requirement that plan administrators certify at the time of their filing that documents and amendments meet the regulatory requirements.
This change focuses the ultimate responsibility for the plan administration where it belongs, on the plan administrators. In turn, this allows OSFI to allocate resources to solvency concerns or higher risk plans. This refocusing is consistent with the government's intention to further clarify OSFI's mandate. It must also be noted that OSFI retains the right to review documents and amendments on a case by case basis and will do so as appropriate.
As I mentioned earlier, the superintendent currently has very limited powers to take remedial actions with respect to a pension plan. Bill S-3 introduces several specific new authorities and I will only describe the most important of these.
The most significant is the authority to issue directions of compliance to plans regarding conduct which is contrary to safe and sound financial or business practices and for breaches of the act. This is similar to the power in the financial institutions legislation.
Bill S-3 introduces an appropriate due process along with the authority for the superintendent to seek a court order requiring compliance with the direction. In addition, Bill S-3 gives the superintendent the authority to attend and call meetings with an administrator or to require an administrator to call a meeting with members and other professionals in attendance.
This authority could be used when OSFI believes that the pension plan members or all the members of a particular plan's board of trustees are not fully apprised of the problem. The superintendent will also have the authority to obtain independent professional advice at the expense of the plan. Some plans routinely neglect to file reports required by OSFI to adequately monitor plan solvency. This authority will help the superintendent to have these reports prepared.
Finally, the superintendent will be able to remove an administrator and appoint a replacement when a plan is being wound up and circumstances suggest that members' interests are not best served by the incumbent.
I am going to take a minute to cover the funding rules which have been advanced under this bill.
Under Bill S-3 the superintendent must approve any benefit enhancements that reduce the plan solvency ratio below the prescribed rates or levels. This reflects the government's belief that it is not appropriate for pension plans already experiencing financial difficulties to make improvements when there is no way for the employer to increase funding.
I have received some concerns, as I am sure my colleagues have, with respect to this approach. It is important for this House to understand what concerns have been voiced and to know that the government is working to address them.
First, we want the House to realize that the concerns being raised relate primarily to the solvency threshold which plans must maintain in order to improve benefits. This bill does not specify that threshold. Those details will be provided in the regulations.
Our original white paper indicated the government was looking at requiring that plans now show a solvency ratio of 105% after an amendment, with this requirement being phased in steadily over approximately a 15 year period. Subsequently a range of experts was consulted on this proposal. Professional and industry groups and unions have pointed out that this threshold may be too high and that more flexibility is desired. Consultation is continuing on the regulation that will provide the details behind this provision while recognizing that it serves pension plan members no great service to be promised benefit improvements that cannot be delivered.
Alternatives are being considered for achieving the same result. This could involve a lower threshold accompanied by realistic commitments from the plan to fund itself in an appropriate manner. There may also be other options that will emerge as this work is further fleshed out. It should be made clear that the government will undertake considerable consultation prior to the issuance of the regulations associated in particular with this provision.
I will spend a couple of moments on the arbitration process for surplus assets. In the white paper interested parties were invited to comment on proposals dealing with entitlement to pension plan surplus assets. Many comments were received but not many concrete suggestions were made. Most comments indicated that this is a difficult area to legislate and any improvement would be welcomed.
The government believes that Bill S-3 facilitates arrangements between employers and employees concerning the use of surplus assets in two ways. It provides a lower cost alternative to going to court and it promotes an environment where employers and employees work toward a mutually satisfactory compromise.
Briefly, Bill S-3 proposes that if entitlement to surplus assets is not clearly demonstrated in the pension plan documents then the employer can propose to the employees a surplus withdrawal.
If more than two thirds of the employees consent and required solvency thresholds are met, the superintendent may approve the withdrawal. For ongoing plans, if less than two thirds but more than one half of the employees consent, then the employer can opt to seek arbitration.
Originally Bill S-3 provided that for plans being wound up if less than two thirds but more than one half of the employees consented, arbitration would be mandatory. As I noted earlier, the Senate made a few amendments to the bill, all dealing with the surplus issue. The Senate was concerned about certain situations regarding plans in the wind-ups.
From the point of view of pension plan members and retirees, the timely statement, settlement and distribution of surplus assets is a priority. We agree that this is a concern. As such, the original bill had a certain no man's land. No definitive action to deal with surplus assets or surplus was required if less than one half of the employees consented to a proposal.
The Senate passed an amendment that requires arbitration within 18 months after the termination of the plan, irrespective of consent levels achieved for any proposals. The Senate also questioned the intent of the requirement for the superintendent to approve the withdrawal. Clearly the intent is there to ensure that certain minimum solvency thresholds are maintained. Obviously the superintendent is not going to consent to a surplus withdrawal that would jeopardize plan solvency.
The Senate agreed with the intent but perceived that the original drafting of Bill S-3 provided the superintendent with pervasive scope for not consenting to a surplus withdrawal, in particular if the superintendent did not think that the deal was fair.
There was a concern that if an employer went through the rather lengthy consent and arbitration process the superintendent could arbitrarily deny the withdrawal. As such, an amendment was passed by the Senate which requires that the superintendent in deciding whether to consent to a refund must recognize the claim of the employer to the surplus or part of the surplus, as arbitrated under the provisions of the act.
The government believes that the Senate amendments fill gaps in Bill S-3, and we appreciate the additions. Other more technical amendments were also passed.
The measures in this bill are the result of a broad consultation process. When drafting this legislation the comments received on the initial proposals contained in the white paper were considered and the appropriate amendments made. Provincial ministers responsible for the supervision of provincial pension acts were also invited to comment and there was ongoing consultation among pension supervisors throughout CAPSA.
Other proposals in the white paper not addressed in this legislation will be introduced later through regulation. Areas such as additional disclosure requirements and funding rules are already dealt with through regulations, and this approach will continue.
In other cases such as planned governance and investments, the government believes it is more appropriate to develop best practices. We recognize that the size and other attributes of individual pension plans will effect governance structures and investment strategies.
Considerable additional consultation will take place prior to the implementation of these regulations and any resulting guidelines.
At this time, on behalf of the government I would like to thank the Senate and the many industry participants and other stakeholders who provided constructive and insightful advice. I can assure them that the government looks forward to additional feedback on its regulations and guidelines in the future.
I have highlighted the important issues dealt with in this legislation. Bill S-3 will enhance the stability of Canada's private pension plan regime to the benefit of plan members throughout Canada. Of that we are confident.
I encourage my hon. colleagues in the House to give speedy passage to this bill and I thank them for their attention.