Canadian Lawyer InHouse

april 2014 22 INHOUSE large jointly sponsored plans." Nova Scotia also has a detailed funding policy, she add- ed, so if they're funding at a particular level, they reduce or increase benefi ts accordingly. Some believe the N.B. model is too rigid, says Bauslaugh. "On the other hand, at least in that risk management spectrum, it's go- ing to be a benchmark to judge fi duciary decision-making in other provinces." The other thing it provides is a clear path for converting from an existing DB plan to a shared-risk plan, he added. The province has provided rules on how to convert existing pension arrangements into these new shared-risk arrangements, whether in a single-employer or multi- employer context. And that, he says, is bril- liant. "That's where New Brunswick has re- ally moved ahead of the pack." The N.B. model is based on the Dutch model, which is based on intergenerational equity — that no one generation should pay unduly for the pension benefi ts of another generation. In other words, if there are ad- verse economic circumstances, it shouldn't be the current generation that has to pay for the presently retired generation that didn't contribute enough to their funds. The traditional Canadian model, on the other hand, is based on the protection of vested rights — that a promise is to be kept no matter what. "It's more a matter of what seems to work for a particular plan or jurisdiction — pro- tecting earned interests or intergenerational interests," says Wright. "It comes down to fi nancial mathematics. If current employ- ees have to fund retirees to the point where it takes away from the current business, is that the right thing? But should people who work their whole careers [have their pen- sions reduced]?" Many private-sector employers offer de- fi ned contribution plans (and aren't willing to undertake the risk of a defi ned benefi t plan), so employees can take their money with them if they leave and move it into an account administered by a fi nancial institu- tion; all risk is on the employee. "The reality in the private sector is most of the benefi t plans are legacy plans," says Wright. Shared risk could work in the private sec- tor but it's not common yet, says Jeremy Forgie, a partner specializing in pension and employee benefi ts law at Blakes. But, if an employer has a large enough plan, it could create effi ciencies and adjust benefi ts to be sustainable in the long run. The New Brunswick model was designed to allow members to decide if they want to stay in the plan if they leave the organiza- tion. If they stay in the plan, they reap all the benefi ts with increasing interest, but they're treated as deferred members, says Rowland. Or they can transfer the money out to an RRSP. "The beauty is they get access to sophis- ticated fi nancial planning of their pension," says Rowland. "When you've got a 2.5 per cent interest rate environment, the only per- son making money off it is the fund manager." MAKING SURE IT'S SUSTAINABLE The ultimate challenge for employers these days is offering a pension plan in a com- petitive marketplace to attract and retain employees, but also being effi cient so the dollars they're putting into these plans are translating into value for employees. "It's more a matter of trying to capture that proper value and ensure their businesses are sustainable," says Wright. While shared risk is one way of "de-risk- The idea is it does allow for adjustments and some fl exibility as you go along instead of without warning seeing a reduction [in your pension] by 40 per cent. huGh WriGhT, mcinnes cooper llp '' ''

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