On October 4, 2023, the Government of B.C. introduced Bill 33: Pension Benefits Standards Amendment Act, 2023.
The proposed amendments set the table for defined contribution plans in B.C. to offer a new option for the payment of benefits, variable life benefits (also known as variable payment life annuities). This bill represents one of the final steps in a journey that started when the federal government introduced variable payment life annuities in the 2019 federal budget.
The bill also proposes additional changes to simplify administration, including a welcome update for collectively bargained multi-employer plans, as well as updates to address housekeeping items.
Given the bill has passed first reading, there are still several stages before the amendments are finalized. Furthermore, the effective dates of the proposed amendments vary, with a majority of the changes coming into force once the bill receives Royal Assent, or after the regulations for the applicable provisions are subsequently updated.
A summary of the proposed changes can be found in the BC Financial Services Authority’s advisory: https://www.bcfsa.ca/media/3469/download
The Progression of Variable Life Benefits Legislation
The decumulation landscape for defined contribution plans continues to evolve as B.C. plans take one step closer to offering Variable Life Benefits. For those unfamiliar with Variable Life Benefits, they are a lifetime pension paid from a defined contribution plan. But given the nature of defined contribution plans, and similar to target benefit plans, the lifetime pension paid is variable, depending significantly on the performance of the underlying investments.
With the introduction of this bill, it appears it is now only a matter of time before Variable Life Benefits become available to plan sponsors in B.C. However, we expect it will still be several years before legislation allowing Variable Life Benefits is finalized.
With the changes to legislation on the horizon, plan sponsors interested in adopting Variable Life Benefits will need to consider whether their plans can realistically support offering these benefits. The cost of administration, additional communication requirements, as well as the requirement to maintain a sufficient population base will rule out this option for many smaller plans. The incorporation of Variable Life Benefits will still be a complex exercise for larger plans as there are many considerations that will need to be addressed (for example, administrative processes, coordination with third party service providers, communications with members, updates to plan documents, potential shifts in investment policies…).
While pooling opportunities may eventually open the door for smaller plans to offer Variable Life Benefits, it will likely take the coordination of the industry or the buy-in from larger pension plans to get to this stage.
Update to Enrollment Criteria for Collectively Bargained Multi-Employer Plans (“CBMEPs”)
Currently, the minimum legislative requirement for enrollment for CBMEPs is based on employment earnings. This was not always the case; prior to 2015, the old rules allowed a different threshold based on hours worked. So, this has been a challenge to administer for many of CBMEPs as earnings information is often not even collected.
This was an issue we had identified eight years ago and, after several years of advocating for change, we are happy to report that the proposed amendment has addressed our concerns. The amendment to legislation would now allow CBMEPs to specify an alternate minimum requirement for enrollment using hours worked (i.e., 350 hours over a two plan year period, which was the rule that was in place before the earnings-based requirement). Further, there is flexibility to offer a different rule that is substantially similar, customized to the unique circumstances of the plan (e.g., a plan which is neither hours nor earnings-based, such as a contribution-based formula).
Once this bill has come into effect, CBMEPs should review their eligibility rules currently in effect and assess whether an amendment would be beneficial.
In addition to the above changes, the proposed amendments also include:
- Updating the exemption criteria to exclude certain registered pension plans for specified individuals from various provisions of provincial pension legislation. Previously, the exemption only covered certain plans where all members were “connected” (i.e., effectively owners or related to owners) with the employer.
- Permitting auto-escalation of member contributions for members of defined contribution plans that are automatically enrolled (with members retaining the right to opt out of these increases)
- Amending the rules for non-locked in transfers such that transfers to retirement income funds must be provided as an option
- Amending the rules for commuted value transfers such that transfers to a personal retirement income arrangement, or to an insurance company to purchase an annuity must both be provided as options. This is effectively going back to what was required before the 2015 amendments and will increase administration requirements for plan sponsors.
- Requiring plans to provide surviving spouses of members who died prior to pension commencement the option to elect a pension (instead of requiring a transfer)
- Clarifying the discharge rules related to annuity contracts purchased by plan administrators
Should you have any questions on the above, please feel free to contact us; we are here to help.