Law Times

Law Times • February 27, 2012 FOCUS ON Labour & Employment Law Pooled pension plans Jury out on new employee savings vehicle BY UYEN VU For Law Times W ithin days of resum- ing a new session of Parliament, the Conservative government placed a time limit on legisla- tion related to pooled regis- tered pension plans. In doing so, the govern- ment effectively hastened the passage of bill C-25 through second reading and to the committee stage. Outside Par- liament, however, there's still plenty of debate among pen- sion experts on the advantages and disadvantages of this new pension vehicle. When asked whether they'd recommend it to employers, even for the small- and medium-sized businesses it targets, many would hesitate to do so. "I'm not in the position to offer up the opinion about whether the [pooled plan] is an attractive option and for whom because there is simply not enough information," says Oma Sharma of human re- sources consulting firm Mer- cer. "We really need detailed regulations that explain how [pooled plans] will actually work." The federal government in- troduced a bill last November to create the plans with the goal of making it easier for mil- lions of Canadians to save for retirement. It's aiming them at employees and self-employed people who aren't currently participating in an employer- sponsored pension plan. The idea is to offer a large-scale defined-contribution plan es- tablished and maintained by an institution licensed by the Office of the Superintendent of Financial Institutions (OSFI) as an administrator. The bill explicitly requires institutions to offer the plans at a low cost, although it leaves it to the regulations to define what that means. There are many questions pension experts have about this plan. One is whether the provinces, which will now have to create legislation to allow for these plans in their jurisdictions, will follow the federal law to the letter or whether they'll introduce dif- ferences that could amount to a patchwork system. An- other question is what kinds of organizations will receive licences to be administrators of these plans. Most pension experts expect the financial institutions will get licences, but some wonder whether large pension funds such as the Ontario Municipal Em- ployees Retirement System would receive them as well. The low-cost aspect of the plans raises quite a few ques- tions as well. "What will low cost mean? Relative to what?" asks Ian McSweeney, a partner at Osler Hoskin & Harcourt LLP. He points out that a low- cost savings option already ex- ists in group RRSPs. Linked to the issue of costs are questions about gover- nance. If the administrators of the plan are the same parties offering the investment prod- ucts, what mechanism will there be to make sure that they don't engage in self-dealing? "The administrators are not necessarily indifferent because many of them have their own in-house funds on their plat- forms as well as external funds that are managed by external investment managers. The quality of those things will be different," says Sharma. "There's information asym- metry between the [pooled plan] administrator and mem- bers. If an administrator is going to make more profit by offering their own fund over an external fund, that's what they're going to do if they wear their profit-making hat. But that may not be beneficial to employees." The governance issue is pertinent because bill C-25 envisions a much smaller role Kuretzky_LT_July11_11.indd 1 www.lawtimesnews.com for employers than the one they've had with traditional defined-contribution and sav- ings plans. "The employer acts in a protective capacity in rela- tion to members," says Sharma PAGE 9 The governance questions around pooled plans could have ripple effects on other pension vehicles, says Simon Archer. in reference to traditional de- fined-contribution plans. "They would look at the in- vestment options that might be available to the members, look at the quality of those options, Let us open right door for you the We specialize in Employment and Labour Law in Canada Kuretzky Vassos Henderson is a leading employment and labour law fi rm situated in the heart of Toronto. We are comprised of eleven lawyers, all of whom specialize in the area of employment and labour law. We act for many prominent public and private sector employers as well as for individuals. Kuretzky Vassos Henderson LLP Our work includes extensive experience in the areas of: Wrongful dismissal • Human rights • Labour relations/Labour law/Collective barganing • Workplace health and safety • Sexual harassment • Employment standards • Employment contracts • Canada Labour Code • Class actions • Mediation/arbitration/ADR www.kuretzkyvassos.com • 416.865.0504 7/5/11 3:32:01 PM look at the cost of those op- tions, look at whether those options would meet mem- bers' needs in the long term. And they would select those See Pooled, page 10

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