Canada/Nova Scotia: New novel pension option for private-sector employers

Employer Action Code: Monitor

New legislation in Nova Scotia will allow private-sector employers to participate in the province’s defined benefit (DB) Public Service Superannuation Plan (PSSP), including the option to transfer past service DB pension liabilities and assets under an employer plan to the PSSP. The PSSP — currently open only to public employers and universities in Nova Scotia — provides pay- and service-related DB lifetime pensions to members and is funded by equal employer and employee contributions (currently 10.9% of pensionable earnings up to the YMPE^[1] and 8.4% of pensionable earnings above the YMPE). The Private Sector Pension Plan Transfer Act (PSPPTA) received Royal Assent in November 2023, but proclamation of its coming into force date is still pending.

Key details

• Once in force, the PSPPTA will allow the PSSP to enter into a transfer agreement with a private-sector employer to:
• Transfer all or some of the assets and liabilities of the private-sector (transferring) employer’s pension plan to the PSSP.
• Allow transferring members, post-transfer employees of the transferring employer and their survivors to participate in the PSSP.
• Set out the terms and conditions for suspending, reinstating or terminating a transferring employer’s participation in the PSSP.
• The PSPPTA sets out the requirements for a transfer agreement, including how pre-transfer accrued pensionable service and eligible service are determined, as well as other employer obligations and liabilities. Additional obligations or liabilities may be imposed on a transferring employer through a “group agreement” negotiated with a trade union or other association that represents employees or transferring retired members. A proposed transfer can only go forward if no more than one-third of active members and one-third of former members, retired members and beneficiaries vote against the transfer. If approved, the rights and entitlements of active members would be determined under the PSSP, the transfer agreement and any group agreement.
• Under the PSPPTA, if an employer ceases participation in the PSSP less than 10 years after such a transfer, it must pay a pro rata share of any funding shortfall attributable to its employees in the PSSP.
• Employers will also have the option to join the PSSP on a prospective basis, without transferring past service pension liabilities or assets.

Employer implications

The new law gives employers a new option for providing, or continuing to provide, DB pensions to employees, with employer financial obligations limited to contributions required by the PSSP (including a potential shortfall payment), and administration responsibility borne by the PSSP. Employers should explore the option, including potential accounting treatment.

The number of DB Registered pension plans (RPPs) in Nova Scotia sharply declined from 96 in 2020 to 43 in 2022, even as the number of active members rose from approximately 55,200 to 66,250 (Statistics Canada data). The drop in the number of DB plans reflects, in part, the efforts of the PSSP’s Trustee Board to enhance the plan’s appeal to a wider range of employers and employees. According to the board, since 2015, 20 public-sector employers, roughly 3,700 members and CAD 500 million in assets have been added to the PSSP. While Nova Scotia is one of the smallest markets for DB plans in Canada, the development is certainly novel and bears watching as the market for retirement solutions continues to evolve.

Footnote

1. The Year’s Maximum Pensionable Earnings (YMPE) is a figure established annually by the Canada Revenue Agency. Return to article undo