HANSARD

Printed and Published by Nova Scotia Hansard Reporting Services

Ms. Maureen MacDonald (Chair)

Mr.Chuck Porter (Vice-Chairman)

Mr. James Muir

Mr. Keith Bain

Mr. Graham Steele

Mr. David Wilson (Sackville-Cobequid)

Mr. Keith Colwell

Mr. Leo Glavine

Ms. Diana Whalen

WITNESSES

Department of Labour and Workforce Development

Ms. Nancy MacNeill Smith, Superintendent of Pensions

In Attendance:

Ms. Darlene Henry

Legislative Committee Clerk

Ms. Sherri Mitchell

Committees Office

Mr. Alan Horgan

Deputy Auditor General

Mr. Terry Spicer

Assistant Auditor General

Mr. Gordon Hebb

Chief Legislative Counsel

HALIFAX, WEDNESDAY, FEBRUARY 11, 2009

STANDING COMMITTEE ON PUBLIC ACCOUNTS

9:00 A.M.

CHAIR

Ms. Maureen MacDonald

VICE-CHAIRMAN

Mr. Chuck Porter

MR. CHUCK PORTER (Chairman): Order, please. Good morning everyone and welcome here to the Chamber for Public Accounts. We'll start with introductions as always - we'll just take a second to get seated - and we'll start with Ms. MacDonald.

[The committee members introduced themselves.]

MR. CHAIRMAN: We'll start with some opening remarks, as usual. We welcome our guest this morning from the Department of Labour and Workforce Development, Ms. Nancy MacNeill Smith. The floor is yours.

MS. NANCY MACNEILL SMITH: Thank you. I appreciate the opportunity you've given me to come to you to speak about the Report of the Auditor General, on the operation of the Pension Regulation Division. The audit started in January 2007, so it covered a long period of time and I do appreciate the opportunity given to me to respond to your questions regarding the Auditor General's recommendations.

I do want to reassure you that the Pension Regulation Division, myself and my staff are doing our utmost to ensure that the pension plans in Nova Scotia are properly managed and we are ensuring that we are performing the same oversight that is done by other jurisdictions in Canada to make sure Nova Scotia is current with all regulatory practices in Nova Scotia and in Canada. Thank you.

MR. CHAIRMAN: Thank you very much for the opening comments. We'll start with the NDP caucus. Ms. MacDonald, you have 20 minutes.

MS. MAUREEN MACDONALD: Thank you very much and it's nice to have you back again with us. I know it hasn't been that long ago since you were here but the purpose - as you indicated in your opening comments - of us having you back today, is primarily to discuss with you the chapter in the Auditor General's Report from November 2008, with respect to your office.

That report made a number of recommendations and we will have an opportunity, I hope, to explore with you these recommendations and the implementation of the recommendations and also, the fact that one of the recommendations from the Auditor General wasn't a recommendation that your office supported, so an opportunity to discuss that. I think if we have time, it would be useful to have some discussion about the current status of pensions. I think it's fairly safe to say that this is a topic that's on the minds of many, many Nova Scotians, given what's happening in the financial markets and the concerns people have about the economy and security.

Let me start with the Auditor General looking at the issue of your office being able to effectively safeguard pensioners' benefit entitlements with respect to the Pension Benefits Act and regulations. I quote from the Auditor General's Report, in Section 5.13 - the Auditor General said, "We concluded that the current systems and processes were not adequate to effectively safeguard pensioners' benefit entitlements." As you read through how they reached that conclusion, the Auditor General, as I understand it, is saying that there is a reliance on information that is provided by plan administrators of the pensions that you oversee, but there isn't third-party validation. There isn't enough of an independent third-party validation to establish the question of the security of those pensions. So, I want to ask you about this.

The Auditor General's first recommendation is, in fact, that your division should periodically validate information that you receive by attaining external documentation to support what pension plan administrators are telling you in their reporting. As I understand it, you've accepted that recommendation. What I'd like to know is, since this report, what if anything has been done to then implement that recommendation?

MS. MACNEILL SMITH: Under the Pension Benefits Act, there are specific duties stated for the administrator of a pension plan. They're quite extensive and one of those duties requires the administrator to report annually to my office relating to the membership of the pension plan, the contributions that had been remitted to the pension fund and the values of the plan assets, both at the beginning of the year and at the end of the year. So the legislative requirement is that the administrator send this into us. The administrator, under the legislation, may be the employer, that is certainly permitted under the Act.

The annual information returns are reviewed by my staff for reasonableness - to determine whether the information reported appears reasonable and whether or not there are any problems identified in that reporting. If, in our review, we have questions regarding the data that was submitted, we go back to the administrator and ask for additional information. We may also go directly to the fund holder of the plan assets and ask for copies of the annual financial statements of the pension plan. So that is done on a periodic basis as the need arises. We don't require all pension plans to file financial statements, that is not a requirement of the Act or the regulations. They are only required to provide the annual information return.

In moving forward with the Auditor General's recommendation on this point, I'm going to refer to the Canadian Association of Pension Supervisory Authorities or CAPSA. I'm a member of CAPSA - all superintendents across the country are members of CAPSA and we work to try to develop the best system of pension regulation in the country. The major project we've been working on is model pension law. So we will develop a law that contains all the best practices and principles for pension regulation in the country and when any government is going to amend its legislation, the expectation is that the governments will look to the model law and adopt those best practices and principles.

One of the recommendations in model law is the requirement for filing audited financial statements for specific types of plans. The model law does not recommend filing audited financial statements for each and every pension plan. That is, in some cases, just red tape and additional information - it doesn't provide any greater information than can be provided by the plan administrator.

Many pension plans we have in Nova Scotia are small pension plans and they're defined contribution pension plans. The funds are held by an insurance company, so there would be no requirement to file audited financial statements for those plans, unless they reached a certain size of assets. So I have provided to you a copy of the model pension law - just the one page relating to the provision of information on Page 19 and that is, "The administrator will be required to file financial information, including audited financial statements of the pension fund, as prescribed in the regulations." Then on Page 40, which was attached, are the principles relating the audited financial statements and the details there that CAPSA recommends for filing financial statements.

What will be required for us in order to make this change is that the regulations and the Act must be changed to bring in this new requirement.

MS. MAUREEN MACDONALD: The legislation as well as the regulation? It can't be done just by regulation?

MS. MACNEILL SMITH: The Act itself, because the Act requires certain specific information to be filed - that details an annual information return, valuation reports - it does not refer to financial information, so we're going to move on that. The anticipation is because

of the pension review that has occurred with respect to the pension legislation, that we would make not only this change but other changes with respect to the model law and bring them in all at once, rather than piecemeal.

MS. MAUREEN MACDONALD: I'm sure you will appreciate that one of the concerns this committee has is the fact that the Auditor General looks at a variety of departments and has been reporting for some time, and makes recommendations. We've seen a failure of departments really to implement many of the recommendations, so one of the things this committee is attempting to grapple with is, how we can be more effective in asking for action plans and timetables from witnesses in various departments audited by the Auditor General with respect to his recommendations? So I'm wondering if you can give me an idea of what your timetable is? When we might anticipate, for example, that this recommendation, as well as you've made reference to the panel report, when we will see legislation that will allow these changes to be made?

MS. MACNEILL SMITH: The minister has indicated his intent to bring legislation forward in the Fall session of the House - that was the commitment made by the government when the review panel was appointed. In fact, I have worked on drafting changes to the legislation and the regulations. It's already done and it's just waiting for inclusion in an entire package. So I would say we're well on the way to proceeding with that recommendation.

MS. MAUREEN MACDONALD: So why the Fall, then, if it's already done?

MS. MACNEILL SMITH: No, no, this is one piece of many. The changes for model law are very extensive. This is just my initial drafting. It has to then go through all the processes at the Department of Justice before it can be introduced as a bill. So it is certainly not ready, in any sense, but I'm saying we're working on it. The first steps have been taken.

MS. MAUREEN MACDONALD: Okay, thank you. Just for a bit of clarification, as I read the Auditor General's Report, it struck me that what was being said was, in particular, that there was a particular lack of regulatory oversight around defined contribution plans, that this was an area of concern.

[9:15 a.m.]

Now I don't know if I read more into the Auditor General's Report than I should have but that certainly is how it appeared to me. What you're saying is that the model pension law will, if we adopt these changes, make changes around defined benefit plans but not necessarily around defined contribution plans. I'm wondering if that will fulfill the concerns that were raised by the Auditor General.

MS. MACNEILL SMITH: In the Auditor General's Report, particularly at the top of Page 90, the Auditor General says, "The Division receives triennial actuarial valuation

reports prepared by independent actuaries for all defined benefit plans. These reports verify the sufficiency of plan assets and annual contributions required to fund pension obligations. There was no similar check for defined contribution plans." The Auditor General says, "We believe this is not sufficient."

A defined contribution plan is really an RRSP. It operates like an RRSP with restrictions on how those funds can be used but the investment portfolio for RRSPs that are marketed by insurance companies - and which most employers utilize - are exactly the same investments as are offered under group RRSPs, there's no distinction.

So there's nothing to provide a benefit under defined contribution plan, other than the contributions and the investment earnings. So there's no way of determining sufficiency of plan assets. The assets are what they are, right? There's no benefit promise so there is no ability to determine sufficiency.

There are modules provided to plan members by the industry, relating to projections and how do you - if you are saving 5 per cent of your earnings and your employer is contributing 5 per cent to your defined contribution pension plan, what is the expectation of that amount at various retirement ages? Then, given current conditions, what likely benefit can that provide to you? But it's all based on projections and what is really unknown is the amount of contributions that you will have and what that will provide. So there's no security in the same sense that there is for a defined benefit plan.

We do check defined contribution plans, just to make sure that the contributions are going in because again, it's the contributions that are most important. The CAPSA has established a guideline for capital accumulation plans, which includes group RRSPs as well as defined contribution pension plans. Under those guidelines, there are areas set out for a plan administrator to look at when it is establishing a pension plan. For example, in the selection of what investment options are provided to the members, you can have an array of 50 different investment vehicles for a pension plan but it wouldn't be prudent for the employer to offer those to all of the employees because with the retirement savings, there's a requirement to be more prudent in the investment of those than there are with your own savings.

So the administrator would select funds that are probably more stable, a bit more conservative. For example, they would not invest in South American gold companies. That would not be a prudent investment. The guidelines that were developed by CAPSA were done in conjunction with the industry and with plan sponsors and members, to make sure that it captured all the concerns relating to those particular types of plans.

Now with respect to the future for defined contribution plans, you're quite correct in that the model law primarily addresses defined benefit plans and that was done consciously. It was a huge piece of work but we did identify in the process that we needed to look more

specifically at defined contribution plans and determine what, if any, changes should be made with respect to those plans.

So CAPSA has established a subcommittee of CAPSA members who will look at any issues relating to defined contribution plans and will develop recommendations for governments to consider with respect to those plans. I don't know whether the recommendations will be legislative, regulatory or whether it will be guidelines for industry but it is something that CAPSA will be working on in the future.

MS. MAUREEN MACDONALD: Thank you. I appreciate that it's a really complex subject and it's not one that you can sum up in simple explanations. It requires long, lengthier explanations.

I think your point is a good segue into the second recommendation of the Auditor General. The report said that, "The Pension Regulation Division should implement a process to periodically verify that pension plan assets are prudently invested. The Division should also verify assets are invested in accordance with legislation and the plan statement of investment policies and procedures."

Here it is that you and the Auditor General, I believe, differ in terms of this recommendation. I note that your response was that the division is not able to adopt these recommendations.

There are several things around this. First of all, it's very possible that your office misunderstood that recommendation. Have you had an opportunity to reflect on that with respect to not making a judgment yourself about whether funds are prudently invested but, in fact, ensuring that the procedures of the pension administrator are clear and being followed in a prudent manner?

MS. MACNEILL SMITH: The Act and the regulations have quite specific delineation of roles with respect to pension plans. The responsibility for investments rests with the plan administrator, in the same way that the responsibility for calculating pension benefits rests with the administrator. It's not the role of the superintendent to go out and determine whether or not each and every member of a pension plan's benefit has been calculated correctly, based on his or her earnings and credited service. We rely on the administrator for that.

MS. MAUREEN MACDONALD: I appreciate that . . .

MR. CHAIRMAN; Order, please. The time for the NDP caucus has expired for the first round. I will now recognize for the Liberal caucus Ms. Whalen, you have 20 minutes.

MS. DIANA WHALEN: Thank you very much and welcome this morning. As was said, you were here in 2007, I believe, so it hasn't been that long ago. Today, of course, the environment has changed and the markets have been very volatile. We know there has been a lot more attention on pensions than perhaps in years gone by. I think that a number of the factors have been really clear, the downturn in the markets, the very low interest rates over a period of time and people living longer are putting a lot of stress on pension plans.

I know part of your job is to ensure that we maintain the plans we have and to hopefully create an environment where more plans will be established and more people will be covered. So I think it's timely that we're having the discussion today and also that not only our province but many other provinces in Canada are reviewing pension legislation and I believe that CAPSA, that you sit on as well, is doing a review on - you gave us some of the information on what model pension legislation would look like.

So would you agree with me, I guess just to start, that it's a time or an opportunity for governments to make those changes that are being recommended?

MS. MACNEILL SMITH: Yes, what we're seeing in Canada today is the maturation of pension plans. Twenty years ago, the work force was young and pension plans were young. There were a few plans that had been around for a long time but generally probably the 1950s or the 1960s was when most pension plans were established.

So now we have pension plans that have, in a sense - some are very mature, they have as many liabilities related to the retired members as they do to the active members. So you're right with respect to the longevity of retirees - that increases the liability for the pensions that are being paid, and the fact that the work force is getting older means that pension plans themselves are becoming more expensive. So we do want to ensure that those plans are well maintained and we don't want to do anything that is going to discourage their continuation or the creation of new plans.

MS. WHALEN: Have you got any idea, and I'm not sure if you would but I know that you're so active in this, but just any idea what the decline in the assets that are under management in Nova Scotia would be for these private pension plans, say for the last year, the beginning of 2008 to the end of 2008?

MS. MACNEILL SMITH: We don't have any specifics because the reporting on that period will not come until June of this year, 2009. The administrators have six months to file the reports that would highlight the changes in the valuations. Based on information provided by industry, the plan assets have declined by maybe 20 per cent, to 30 per cent, depending upon their investment mix.

MS. WHALEN: So a 20 to 30 per cent drop in this single period and much of that over the last few months, isn't it?

MS. MACNEILL SMITH: Yes.

MS. WHALEN: What I'd like to know is if you have any tools that are available to you to intervene in the management of those plans now, in some way that would alleviate their difficulties, or some of their difficulties? Are there any tools?

MS. MACNEILL SMITH: The requirement right now is if there are any deficiencies identified, an employer has to fund the deficiency over a five-year period, that's the solvency deficiency. There are some exemptions given to universities, municipalities and the building trades' pension plans. But for the general employer out there with a defined benefit plan, there would need to be some regulatory changes made to provide them perhaps a longer period for making up that shortfall, or perhaps giving a longer period in the anticipation that markets will recover eventually.

The anticipation for market recovery is not great in the short term, so we may be looking at a five to 10-year period before the markets will get back to the heights they were previously.

MS. WHALEN: Have we made any overtures at this point to make changes like that here in Nova Scotia, so that we would be responding now, when the need is greatest?

MS. MACNEILL SMITH: I surveyed the pension plan administrators who were required to prepare a valuation report as of December 2008. There weren't that many, because of the changes we made to the legislation. Previously a lot of valuations were done as of December 31, 2007, so they're not required to do another assessment until December 2010. So the majority of plans are not immediately captured by the 2008 decline in the assets. Of those plans that did have recording required as of December of 2008, I contacted either the administrator or the plan consultants and said okay, do we have a crisis here? What are your concerns with respect to these particular pension plans?

A lot of the plans were able to do a valuation over a two-year period rather than the three-year period, so they were able to file the December 2007 valuation by the end of December 2008 and then that gives them some breathing time. They don't actually have to deal with the December 2008 valuation figures for another three years.

So we were in a better position in Nova Scotia than in other jurisdictions and that was due to a couple of things. First of all, because as I've mentioned, a lot of valuations were done as of December 2007, so they didn't have to do a valuation as of December 2008. Also, we permit a year for an administrator to file a valuation report.

Other jurisdictions require filing after nine months, so if they had done a December 2007 valuation, it would have had to be filed by September 2008, whereas we would give them until December 2008.

MS. WHALEN: Can I ask, though, are we not just burying our heads in the sand a little bit by allowing this three-year lag to 2010, understanding that the markets have gone down, the assets are significantly diminished and yet we're not going to sort of face that head-on until they do their next filing, three years hence?

MS. MACNEILL SMITH: Pension plan funding is always long-term. We do have the solvency requirements to bring it back up to full funding within five years but the valuation is done just at a particular point of time, so there's no requirement for an employer to do a valuation as of December 2008 because of the market fall.

[9:30 a.m.]

MS. WHALEN: If we were willing to extend their amortization of their deficiencies in the plan - their shortfalls and so on - wouldn't that give them more of an incentive to open it now, look at it and start making changes, because funding changes may be required from both parties that are . . .

MS. MACNEILL SMITH: Yes, I have heard that if they did a valuation as of December 2008, their costs would double. So it's quite . . .

MS. WHALEN: Without intervention from the government, though, if there was a longer period of time to deal with the shortfall.

MS. MACNEILL SMITH: The government would have to change the regulations to give a longer period to deal with the funding and other jurisdictions have done that. As I said, they had a more immediate need to act quickly, because of the nature of the timing of the valuations. So we needed something that we have discussed and we are looking at in Nova Scotia.

MS. WHALEN: It's my understanding that every province in the country has done some sort of exceptional measures or measures to provide relief to pension plans, except for New Brunswick and Nova Scotia. Would that be true?

MS. MACNEILL SMITH: No. We do have some existing funding relief but are you talking primarily just about the fall of the markets in the Fall of 2008?

MS. WHALEN: I'm talking about the current - what I would call a crisis in the diminished plans.

MS. MACNEILL SMITH: The fall in 2008. There are some proposals but there have not been changes made to the legislation in each of the jurisdictions as of yet. There are proposals out there.

MS. WHALEN: Does it have to be through legislation? Again, the same question, could we not do a lot . . .

MS. MACNEILL SMITH: Through regulation.

MS. WHALEN: So regulation could be done without the House sitting and without a change to the Act.

MS. MACNEILL SMITH: Yes.

MS. WHALEN: So would it be fair to say that you are examining that right now?

MS. MACNEILL SMITH: Yes.

MS. WHALEN: Is it a priority?

MS. MACNEILL SMITH: Yes.

MS. WHALEN: You know it's a great concern, I know, to so many people that we don't have anything in place to look at that and I think there's an incentive, as I say, to turn away and not want to face it right now because they don't have to make any changes. But the sooner you act, then you have those extra years to be accommodating and to start making changes that won't have as dramatic an impact on the employer and the employees, so I think that's very important.

I wanted to ask you just a comparison of your resources here in Nova Scotia to what might be available elsewhere. I understand there are four people - the last time you were here we got your job descriptions afterwards, thank you. So there are four people - one administrative, two pension and yourself. How does that compare in terms of other provinces in Canada, your counterparts elsewhere? Perhaps in light of the number of plans you have, I think it is important to look at the fact that we're a smaller province.

MS. MACNEILL SMITH: Newfoundland and Labrador currently just has one staff member and one assistant; they don't have as many plans. New Brunswick probably has one or two more staff, and Manitoba is about the same. Compared to the smaller jurisdictions, we're about the same. Ontario, I believe, has something like 60 staff, but they oversee something like 10,000 pension plans. Compared to the smaller or similar jurisdictions, we might be a little shy or maybe not - you can't really have half a person - but we certainly have been able to do all of the current requirements of our legislation.

If you look at the Auditor General's Report, there were no concerns with respect to the existing requirements of the legislation and it was more a focus on what additional things could be done, most of them requiring regulatory changes.

MS. WHALEN: Yes, so in terms of adequacy, certainly the Auditor General's Report didn't point to that and you're saying, you're comfortable.

MS. MACNEILL SMITH: Yes.

MS. WHALEN: I sort of expected you might be. With regard to the turnaround times, in Ontario's report recently, they said that it's taking them up to three years to do things like transfer of pension assets if there's a merger or change in plans like that. How would we be looking in terms of some of the turnaround times for the more major things that happen, like plan amendments that are submitted or if there are mergers or changes in the companies' structures?

MS. MACNEILL SMITH: With the additional staff member that I have, we're able to meet the government's requirements with respect to what they call permanence and approvals - the 10-day-turnaround time - so we are implementing that for plan amendments. Plan terminations - because of the extensive review required, we do have a longer period to deal with those; we turn that around within a month. We've been working to these new standards over the last year.

Having said that, if the legislation is changed and every pension plan would require an amendment to that plan, we would have difficulty reviewing 500 plan amendments all at once. But in the current operation of things, everything is done according to government standards.

MS. WHALEN: For something like companies that might be merging or changing, if we can't transfer their assets in a reasonable time, then there's a disincentive again to continue the plan or to carry it forward. I wonder if you feel that's there now, if there's a concern, because we are in a time now when there will be a lot more business changes?

MS. MACNEILL SMITH: No, we review those within 30 days.

MS. WHALEN: Within 30 days, so there's no concern about that at all?

MS. MACNEILL SMITH: No.

MS. WHALEN: I thought some of the other provinces are flagging that as a problem.

MS. MACNEILL SMITH: Some of the other jurisdictions operate on a different basis of review - they don't review all documents, whereas we do.

MS. WHALEN: Just because we're talking today about the public pension plans, can you give me an idea how many of those plans under your review are defined benefit?

MS. MACNEILL SMITH: We've got about 140 out of 500 for defined benefit.

MS. WHALEN: How many of those - did you say 140?

MS. MACNEILL SMITH: Yes.

MS. WHALEN: How many of those would be outside of the sort of quasi-public sector?

MS. MACNEILL SMITH: The private sector?

MS. WHALEN: Yes, private sector.

MS. MACNEILL SMITH: I don't have the breakdown off the top of my head, I would have to look at that for you.

MS. WHALEN: Would you say it's quite a small number?

MS. MACNEILL SMITH: The larger employers that have been established for quite some time have defined benefit plans. Smaller employers - it's not really cost efficient to have a defined pension plan for 20 staff because the expenses relating to the preparation of valuation report, the consulting fees, all of that gets very expensive to provide that same benefit. So given the nature of the industry in Nova Scotia, the tendency is toward more defined contribution pension plans, but the larger employers generally have defined benefit plans.

MS. WHALEN: You were answering the question around the defined contribution plans and performance measures - that was brought up in the Auditor General's Report. It is difficult, I understand, but we have to be able to measure how things are being managed. If your report has only one measure and it relates only to the defined benefit plans - and I think you touched on some that CAPSA are looking at, but have you got some measures ready that we could include in this year's annual report to the minister and the House?

MS. MACNEILL SMITH: We have not developed them internally. I have some ideas, but I haven't developed them for the department's consideration yet.

MS. WHALEN: Given the Auditor General's Report, do you feel that there's a commitment to do so by the next reporting period?

MS. MACNEILL SMITH: Most certainly, yes.

MS. WHALEN: So we can be assured that there will be other measures in place by then?

MS. MACNEILL SMITH: Yes.

MS. WHALEN: What would that time be that you'd be making your next report to the minister?

MS. MACNEILL SMITH: The report for 2008 is going to the minister now so the report for the year ending 2009, we've committed to get that to the minister within six months. So that would the end of September of this year, I believe.

MS. WHALEN: In 2009, so that's not so far away, we will be seeing it this year. I just think it is very important, again, to measure and to know whether or not things are being properly managed as much as we can. I understand defined contribution - you have no benefit commitment or promise. I thought the title of the review report was pretty good, Promises To Keep and that linking between the expectations that we're creating with people as they commit to a pension plan.

Defined contribution, I think in the long run, is going to become a real problem for us where there is a preference for it in most plans and it has more ease in administering, yet it is unlikely - particularly with the bad markets - to be able to actually give people the kind of retirement income they have come to expect or believing that it's going to be there. I think that we're going to be heading into another type of crisis - as you mentioned, the plans are maturing and more people are hitting retirement age. So having a pension administrator who can look at it and even flag those difficulties, I think, is very important so that there can be better planning done.

One of the statements I read in preparing for today was just that the people who are most at risk in the Province of Nova Scotia - our workers - are least aware of perhaps the shortfalls and the lack of funding that's going to be available for them in retirement. It's really our job, I think, to try to strengthen and improve the plans and really raise the alarm if, in fact, people are not setting aside enough through their employer and employee contributions. I think that's important.

I wanted to ask you about one of your roles which I found in reading your job description and that is the role of promotion of pension plans. I don't know, with all the other responsibilities you have on the regulatory side, what has been done in the way of promoting and ensuring that we expand the number of people who have access to pensions? Here in Nova Scotia, two-thirds of private sector workers don't have a pension plan - they're left on their own to make their own planning. So it is a big problem and with an aging population, more of us will be retiring and many people without a pension. On a public policy side, it's a big concern too. Can you talk to me about your pension promotion role?

MS. MACNEILL SMITH: As a regulator, we work with industry and work to develop policy recommendations as well for government. Am I actively out there going

around to different employers who don't have a pension plan and encourage them to establish a pension plan? I'm not. I do speak to different groups, anyone who approaches my office and wants me to speak relating to pension plans. I've gone out to particular union groups and to employers to discuss the pension legislation and their own particular pension plan as to how it stands.

At CAPSA, we've discussed the same duty that is in the legislation all across the country of superintendents. What we have done is, any time we look at a particular issue that comes up with respect to pension plans, we look not only from a regulatory aspect what does it accomplish but also, on the other hand, is it a disincentive for the establishment of a pension plan? So we put that focus on reviewing everything that comes across, is it going to discourage plans, or is it going to encourage them?

With respect to Nova Scotia, we do have a significant number of working people who don't make very much money and it really is an inefficient use of their resources to actually save for retirement. With the public benefits available under Canada Pension and Old Age Security and Guaranteed Income Supplement, they actually will be as well off during retirement as they would be when they were working.

MR. CHAIRMAN: Order, please. The time has expired for the Liberal caucus. We'll move to the Tory caucus and recognize Mr. Muir.

MR. JAMES MUIR: Thank you very much. Being somewhat moving toward the age category when I might have a direct interest in this, at least the time, how much of the plans for which your division is responsible - what would be the total amount of money in those plans?

MS. MACNEILL SMITH: I don't have that number off the top of my head. We do have some figures that I have developed for the annual report for 2007. We just started collecting the information last year, so I can provide that to you, but I don't have it here.

MR. MUIR: In response to one of the questions that Ms. Whalen asked, you said something like 500 plans. How many plans would your office be responsible for, individual plans?

MS. MACNEILL SMITH: That is the 500 that we're responsible for.

MR. MUIR: What would be the largest of those? Is it the Teachers Union or the government . . .

MS. MACNEILL SMITH: The public sector plan, the provincial government employees plan, is exempted from the Pension Benefits Act as are the teachers, the MLAs,

the judges and Sydney Steel. Those plans are exempted from the Nova Scotia legislation, so the biggest plan is the Nova Scotia Association of Health Organizations Pension Plan.

MR. MUIR: NSAHO. How big would the smallest one be?

MS. MACNEILL SMITH: A one-member plan.

[9:45 a.m.]

MR. MUIR: Interesting. Some number of years ago, I always figured pensions when you look at - I think you said this when you began, that pension plans were - normally people worked till they were 65 and I think the average lifespan was about 70, so there was probably five years and maybe, because women live longer than men and in those days, of course, the men made up the bulk of the workforce. With the numbers now where people can retire at 50 or 55 and live to be 90 or something like that, have we made that adjustment in our regulations to take care of that - really a different set of working conditions - and also the fact that people live longer, or is there more that we need to do?

MS. MACNEILL SMITH: The legislation requires in the assessment of pension plans that the standards be current. The Canadian Institute of Actuaries establishes requirements for its members when they're valuing a pension plan as to what mortality tables must be used, the expectations of how long people are going to live. Those tables - we used to use an annuity 1949 table which, sad to say, was appropriate for valuing the Sydney Steel workers because they didn't really live very long after retirement. So the tables get updated periodically.

Right now, the requirement is to use a mortality assumption that has projections for improved mortality into the future, but the Institute of Actuaries is looking at another review of mortality in the country to determine what a new standard should be. With those changes in mortality assumptions come big changes in the liability for a member where, as you say, if someone retired at 65, they only were expected to live until 60. Well now they're expected to live until 85, so you have to have a lot more money set aside for that individual now than you did 20 years ago.

MR. MUIR: I agree with that. I guess one of the things that follows from that is that the average plan, do people and employers make a big enough contribution? Just in light of the fact that more people are going to draw longer, that we've got to get away from - I mean, I can remember a couple of cases here in the province, I guess the Teachers Union was one, where that plan certainly wasn't funded the way it should be and there were two reasons for it. First of all, the management committee consisted of the employers and the teachers and neither wanted to contribute any more than they were. So you ended up with, if I'm not mistaken, a really significant deficit in that plan and I do believe that some number of years ago there was a requirement on the government that they had to make up that deficit.

Do people pay enough into pension plans, these plans, or should they be paying more?

MS. MACNEILL SMITH: Some pension plans, with the changes in the interest rates that came in during the late 1990s - I mean, money was just rolling around everywhere and plans became very rich with surplus. A lot of plans did make some benefit improvements that, I think in hindsight, would have been too expensive. So they introduced very generous, early retirement provisions - you can retire after 30 years of service, regardless of your age, on a full pension. So some people could retire at 50 and could live to 85 so, in fact, they're retired longer than they ever worked.

So plans do have to take a look at the cost of their benefits. The requirement of the legislation is quite clear; you have to assess them in a certain way, you have to pay for the liabilities within a five-year period. So I guess going back to the plan sponsors and the employees, you have to go back to them and say listen, the requirement is if you have a benefit, you have to fund it. If it's getting too expensive, the problem is not with our funding requirements. The problem may be with your plan design, you've got too rich a plan.

I've seen that, there are some plans there, their benefits are reaching the stage where they are really not affordable. Once you get up to 10 per cent of payroll, that's a huge cost to employees - 10 per cent for employees and 10 per cent for employers, that's a lot of money to be putting aside.

If the funding requirements now, with the drop in the markets would require that to go even further, even higher, then I would really want to look at what benefits are we promising and can we afford them.

MR. MUIR: I guess one of the things - I spent some time in St. Francis Xavier University and they had a pretty good drug plan down there but each year they reassessed the drug plan. I guess it was really a self-funded thing in many ways, that if the costs went up - in that case it would have been 1994, whenever it was - your benefit was defined in 1995, based on the amount of money that was left in that plan or whatever happened. I tend to think that maybe, although it's a lot of work, pensions maybe have to work that way, too. Because this whole demographic thing and the length of time that people are drawing pensions - and I'm still not convinced many of our plans have addressed that and thus there is difficulty.

Another question I had, and this is a plan not under your administration - I can remember when we first came into government 10 years ago, as you were talking, there was lots of money rolling around in these plans and there was legislation that capped at 110 per cent. Thus, in that particular plan, if I'm not mistaken, there was a pension holiday for both the employees and the government.

Now the government at that time didn't have much money so this was a very welcome thing, you know the legislation was great. I could never figure out, because markets go up and markets go down, why - where did this 110 per cent come from, and is it a good thing?

MS. MACNEILL SMITH: That is a requirement under the Income Tax Act. The Income Tax Act is structured so that they don't want too much tax sheltering of funds. So the requirement under the Income Tax Act is if you reached that 110 per cent limit, then the employer was not permitted to make any additional contributions.

There were other ways of dealing with it, other than taking a contribution holiday. If you were assessing your expectation for interest rates in the long term is 7.5 per cent, if you lowered that to 7 per cent, then all of a sudden your surplus is reduced and you don't have the issue with respect to reaching that upper limit under the Income Tax Act.

There were different ways of dealing with it and a lot of employers did choose to take a contribution holiday. Some did make changes to their valuation of their liabilities and increase the liabilities and thus used up the surplus. But it is the problem under the Income Tax Act and a large number of pension plan employers and industry are lobbying the federal government to raise that limit, that the 10 per cent is not appropriate and it should be a much higher limit.

MR. MUIR: I can remember that rather well because the employees' association at that time wanted to enrich the benefits, use that surplus to enrich the benefits. It just seems to me that because it does go up and it does go down that maybe 10 per cent is not great because I think right now we're around 80 per cent, or whatever the number funded is. I hope it's at least 80 per cent - they did a little bit better than I did.

MS. MACNEILL SMITH: We are hoping that the federal government will change that limit. That will provide additional security for members in the pension plans.

MR. MUIR: One of the words that we hear a lot when we're talking about pensions is the word prudence. What does prudent mean, in the context of pensions and pension plans?

MS. MACNEILL SMITH: Prudence is defined in Canada under the law, it's the care and the skill that you use in dealing with the property of another person. Now it's a higher standard than is used in the United States. In the United States, prudence is the care you would use in the management of your own affairs but in Canada it is the management of the property of another person, so you have to be even more careful.

Prudence in the pension world is intended to lead to wise decision-making, or prudent decision-making. So the prudent person rule is all of the duties and obligations a trustee may

have with respect to a pension plan or a pension fund. You have to be wise in how you perform your duties.

Prudence is behaviour-oriented. Prudence is what behaviours do you do or what measure do you take to reach your decision. It's not the decision itself that's prudent, it's not the investment that's prudent, it's the process you use to get there.

I did as much research as I could on prudence in Canada and with respect to pension funds, and I provided you with some outdated information - one from the Office of the Superintendent of Financial Institutions and one from the Financial Services Commission of Ontario - with respect to prudent investment of pension funds.

This is a topic that actually once again CAPSA - Canadian Association of Pension Supervisory Authorities - was looking at to determine okay, we had this requirement for prudence, we've had it here in Nova Scotia since 1988. Before that, we had specific lists of investments that you could have so a pension plan could invest 10 per cent of its money in this, it could invest 20 per cent in this - it was all very much outlined. But even if an investment met that requirement under those specific limits, it might not be a wise investment or it might not be a prudent investment. So the reliance on prudence is that in making an investment choice, the plan administrator must be giving proper consideration to all of the factors leading up to a good decision.

Right now, there are actually no standards in Canada for valuing prudence. There's no best practices even for the administrators to follow in determining whether or not they are prudent. So now CAPSA is looking at this whole issue of prudence. There is a subcommittee of CAPSA that started work in December - after the Auditor General's Report was released - on this issue and the plan is to develop some guidelines for industry and for government on this whole area of prudence. So the expectation is that CAPSA will come out with some recommendations for governments to consider in looking at how do we tackle this issue of prudence of pension plan investments.

MR. MUIR: I know that if somebody goes into an investment firm and wants to do some investing, they have a four or five point scale, I think, and they say to you, is this the grocery money you're playing with and therefore, if it is, you try and figure out what a safe investment is. If you were trying to define prudence on a five-point scale, with one being the most prudent, is that what investment funds mainly - a safe investment - I don't know what safe is any more but what was typically thought to be safe, I suppose like utilities and oil stocks and probably banks but they had some difficulty in a couple of those categories this past year.

MS. MACNEILL SMITH: That's the issue bringing back - you can't actually determine if a particular investment is prudent, it's whether or not the whole portfolio of the investment is prudent. If you have a very large fund and you take a tiny portion of that and

invest it in something that's high risk, that may still be prudent because if the investment tanks, if it doesn't provide anything, you still haven't affected the outcome for the pension fund overall. So you have to look at a lot of factors, including the ability of the plan sponsor to fund any shortfalls that may arise through investment considerations.

[10:00 a.m.]

You may have an employer that has no difficulties with respect to operating capital, so that if they need to take more out of their operating capital to fund the pension plan, then that's not an issue. You may have another employer who has very tight limitations with respect to its operating capital so it can't afford any fluctuation in the pension cost. So their investment is going to look a whole lot different from the first employer. All of those things have to be considered in determining what is a prudent investment or what is prudence with respect to the investment of pension funds.

MR. MUIR: You've indicated there is a national group going to try and give a common definition of that throughout the country.

MS. MACNEILL SMITH: Yes, we're looking at this whole issue as to okay, if we asking administrators to be prudent in their investments then first of all, how can they demonstrate that they've been prudent? Then, how do governments assess whether they've been prudent? Right now there's nothing out there.

As I say, this prudent person rule has been in place for 20 years but now the issues are more focused on providing guidance, I guess, to plan administrators on what they should consider. It is not that here in Canada we are concerned about the investments being imprudent, that's not the issue at all. It's more, how do we assist the plan administrators in being prudent?

MR. MUIR: When do you expect that particular report or those recommendations will be available?

MS. MACNEILL SMITH: The expectation I think is for delivery in the Spring of 2010.

MR. MUIR: The Spring of 2010. Are we, as a province, represented in that group? Do you sit on that?

MS. MACNEILL SMITH: I'm not on that particular subcommittee, I'm on a different subcommittee. Because there are different projects that we're working on at the same time, it's more efficient to split the provinces up and work on it. For this one, Ontario is the lead and the federal government is sitting on it, Ontario, Quebec, Alberta, British Columbia, Manitoba and Saskatchewan.

MR. MUIR: Thank you.

MR. CHAIRMAN: Order, please. The time has expired for the Tory caucus. I'll now recognize the NDP caucus for round two which will be 15 minutes. Ms. MacDonald.

MS. MAUREEN MACDONALD: Thank you very much, Mr. Chairman. I'd like to return to the question I was asking around the second recommendation in the Auditor General's Report which is this question of oversight around prudent investment. I know you've indicated that this national body is now looking at some standards or ways to measure this, which I think is a tribute to our Auditor General for having recognized the deficiency in our system.

The Act is very clear - there is an obligation, there is a duty on the administrator of plans to exercise their investment judgment in terms of prudence. Our Act, it seems to me, already has some requirements that the Auditor General has indicated are not being followed, and this I want to ask you about. The administrator of the plans are supposed to have a statement of investment policies and procedures and not only must they have that statement, but they are to assess it annually and they do that in light of the economic climate. If they make adjustments in it, all of these things need to be reported to your office. It seems to me that this was what the Auditor General was pointing out was deficient in terms of the office. I'm wondering if you can speak to that?

MS. MACNEILL SMITH: There is no requirement to file either the statement of investment policies and goals with my office or to file any changes to that with my office. The requirement is that if there is a change to the statement of investment policies and goals, it must be given to the pension committee, if the pension committee exists, or to the actuary who is valuing the pension plan. So none of that comes through to my office.

MS. MAUREEN MACDONALD: Would it not make sense that it would go to your office? And if that were the case, would that not be able to happen with a simple regulatory change?

MS. MACNEILL SMITH: It could happen. There's no requirement in Canada under any of the regulators for the statement of investment policies and goals to be filed. Initially, when we introduced the requirement for the statement of investment policies and goals, regulations should be looked at to determine whether it should be required or not and if it's filed, then what do we do with it? Do we review it and if we review it, what are we going to do with it, or is it just more red tape on behalf of government to file documents that aren't necessary for the oversight of the pension plans?

The decision was made that we would not require filing, that the requirement is for preparation of the document and confirmation that it has been prepared. Then if we have concerns about the investments of the plan, we can request for filing of the statement of

investment policies and goals at that point. I have done that in the past. If I have a particular concern about a pension plan and its investments, I do ask for the statement of investment policies and goals to be filed.

MS. MAUREEN MACDONALD: I know that as a layperson, when I think about the role of the regulator, it strikes me that the role of the regulator is, in fact, to regulate and have the oversight. I know that many, many people in the public are nervous about watching what's happening in the U.S. - the collapse of the banking industry and how this has filtered out into the markets and on to main street. People are asking, where were the regulators? How did this happen? There seems to be in the public more of an appetite to see regulators, government regulators be very vigilant, have the tools at their disposal to protect the public interest. I would say that with respect to the prudent investments in our pension system, it would be very important that you have those tools - legislatively and otherwise - in your office.

Many people in this province, thousands of working people and working families in this province are relying on your office and they're trusting your office, as a regulator, to ensure that the promises that have been made - I guess if you want to use the terms that Mr. Black and his committee use - will be fulfilled. I think it's incumbent on all of us to ensure that we're able to see that you have those tools, legislatively and otherwise.

Given what you've said, can we safely assume that this national group now will be moving in the direction of providing recommendations to government, to ensure that there will be more regulatory oversight with respect to this idea of prudent investment on the part of administrators of pension funds?

MS. MACNEILL SMITH: I can't prejudge what the conclusions of the subcommittee are going to be. They've just begun work on it and they're going to be working with industry on it.

With respect to prudence of investment though, I'd like to kind of step back a bit. The legislative requirements are on the administrator to be prudent, and it's not just the regulatory oversight, which we do have with respect to investments when there are concerns raised, we do look at the investments, but there's also a requirement on the administrator. If the investments don't perform, then the pension plan sponsor must contribute additional money to fully fund the benefits.

So in the actual investment of the pension funds, the administrator is going to be quite careful because if the investments fall, then the contributions have to go up. So there's a really strong financial incentive on the administrator to be prudent in the investment of the plan assets because if they're not, then they're on the hook.

That is, to my mind, a very strong incentive for administrators to be prudent in the investment of the pension plans. In fact, in my experience in the investment of plans in Nova Scotia over the past 22 years, it has been working very effectively.

MS. MAUREEN MACDONALD: And that's really good to know. I think most of us would agree that most administrators are just very responsible, they have expertise in this area and they demonstrate that in how they approach their work.

I guess the concern is that from to time you get that rogue trader or that Ponzi scheme that is out there that results in the devastation of a plan, let's say, for all of those people. So checks and balances, hopefully, are there to really catch and prevent that kind of situation from happening. That would be a concern that I would have from our Auditor General's Report, that maybe we don't have the adequate checks and balances in our regulatory body, by legislation or by resources or by culture.

The whole concept, as you say, it has been in our legislation for 20 years but it's not something that we've required administrators of these plans to demonstrate to the regulator and the regulator has no tools to actually evaluate even if they were providing some information.

It seems to me to be quite a significant hole in our current system and one that if we had a kind of rogue situation, we wouldn't be catching the problems perhaps.

MS. MACNEILL SMITH: I find that there is no hole, as such. The pension requirements under the legislation currently are that the assets of the pension plan must be held separate and apart from the assets of the employer. So right from the beginning, you have the assets separated.

There are restrictions in the legislation with respect to investment in related persons with the employer. There are restrictions with respect to how much may be invested in a particular company. All of the professionals relating to the investments of that particular plan are limited to those requirements and they have certainly liability if they fail to meet those. In all of Canada, it has been a very rare occurrence that there has been an issue with respect to pension investments.

MS. MAUREEN MACDONALD: I notice that the head of the Caisse populaire in Quebec was in front of a legislative committee earlier this year, with respect to investment decisions that had been made there and the significant loss of assets of that plan that has very much upset not just the legislators but the population in Quebec - the people of Quebec.

We're seeing this happen in some, in an organization that's very credible. The Caisse in Quebec has been a very, very credible organization so I think we have to be vigilant. That's my own thinking on that.

MS. MACNEILL SMITH: That's a banking institution, subject to federal laws.

[10:15 a.m.]

MS. MAUREEN MACDONALD: Yes. I wanted to ask you, you have other duties or other functions, in terms of your office and one of those is the business of taking complaints, investigating complaints from plan members and providing information and support to pensioners. This is an issue that sometimes is brought to the attention of MLAs from folks who are looking for information but unable to get information around plans and support to the pensioners of some of the plans and I'm wondering if you would comment on that. What steps does your office take to investigate complaints from plan members and to provide information and support to pensioners who are contacting you?

MS. MACNEILL SMITH: If it's an issue relating to payment of a particular benefit, we would get the facts from the person making the complaint and contact the plan administrator. We would review the pension plan documentation to determine what the plan said, we look at what the legislative requirements are and we can usually resolve it quite quickly.

Any concerns with respect to a member not getting the information they are required to get under the legislation from the administrator, we contact the administrator to make sure that that information is provided as soon as possible.

MS. MAUREEN MACDONALD: Could you tell us approximately how many complaints you might receive in a month?

MS. MACNEILL SMITH: With respect to general pension matters, not a lot. Maybe at most 15 I would think.

MS. MAUREEN MACDONALD: Are you seeing any change in that? Are there more complaints now, in this climate, and more requests for information?

MS. MACNEILL SMITH: No, actually there is very little change at all in those types of requests. We do have another program that we implemented in July 2007 which is the Unlocking For Financial Hardships. We do have a large number of calls related to that particular aspect of our regulatory duties but with respect to the other types of enquiries in general on pension plan matters, there has been no spike in those.

MS. MAUREEN MACDONALD: So you are seeing more calls from people who have locked in RRSPs?

MS. MACNEILL SMITH: The new program that came out in July 2007, we're administering that, so a lot of calls relate to applications under that program.

MR. CHAIRMAN: Order please. The time has expired. I will now recognize from the Liberal caucus, Ms. Whalen.

MS. WHALEN: Thank you very much. Just wanting to pick up as well from where we left off. I think it's worth commenting on the final statement that you made about the fact that many people in Nova Scotia really are better off just to keep their earned income today, not save for the future because they really don't earn enough to compensate for what they would get under the public plans of OAS and GIS that are available. I just think that's a very sad comment on the state of our economy and perhaps the large number of people that are working in low income jobs. It's certainly not the situation that we want to perpetuate - we want to be able to have people in a position where they can save for their future. I just thought that was quite a comment. Have you any idea what number of people would fall into that category?

MS. MACNEILL SMITH: It has been a while since I've looked at the statistics, Stats Canada produces the reports. Generally their feeling - and this was probably four years ago - was that anyone earning $20,000 or less should not be saving for retirement. You look at the replacement ratios of retirement savings versus using those funds now and as I say, a few years ago $20,000 was considered the cutoff, I'm not sure what it would be in 2009.

MS. WHALEN: It may have gone up a little bit there. I'd like to go back to the sort of current urgency around the under-funding, the deficits we know are existing in so many of the plans and probably almost all of the plans will be in that position, so there is a real sense of urgency. I'm going back to what plans we have in place now and what steps we can take here in Nova Scotia to respond to that.

You told me that we had been looking at perhaps extending the period to amortize those shortfalls, we did discuss that. I would like to know specifically if you have made any recommendations to the minister?

MS. MACNEILL SMITH: We are preparing material for the minister, but we haven't had specific discussions with the minister in detail. We've had preliminary discussions.

MS. WHALEN: Do you have a timeline to make official recommendations to the minister?

MS. MACNEILL SMITH: Yes we do. We will be making recommendations before the Spring session of the House. The changes are not legislative though, they are only regulatory, so it doesn't require a sitting of the House.

MS. WHALEN: No, I understand that and I just feel that the urgency is there now. Other provinces, maybe because of their reporting schedules, have recognized it sooner but

they seem to be getting on with it. I feel that we're, in a sense, ignoring the urgency because the reporting hasn't had to happen.

MS. MACNEILL SMITH: No, we haven't ignored it. What we've done is, we wanted to wait until the report of the review panel was presented to the minister so that we could look at the recommendations of the review panel and determine whether or not there was anything in there that might be different. We wanted to consider their recommendations in light of the current situation. So it would have been premature to jump out with those changes before that report was released to the minister.

MS. WHALEN: That is a good segue into the review panel's report that has just come out very recently. I'd like to ask you first about the fact that we mentioned in the earlier round of questioning about two-thirds of our workers not being covered by any plan. I still think that what we'd like to see is our workforce earning higher incomes and being in a position to benefit from saving for pensions. One of the recommendations in the report is that there be a province-wide plan and that was also a private member's bill that was introduced in November of last year by the Liberal Party, suggesting that we create a province-wide plan that all the small employers, or employers who can't afford the cost of managing their own plans could then opt in to. It would provide a mobile vehicle that people, as they changed jobs and moved around in different sectors, would be able to continue to save without interruption. Can I ask if that is one of the areas that you'd be exploring first?

MS. MACNEILL SMITH: I'm working with other departmental staff on reviewing the recommendations of the review pane, so we're just in the middle of that.

MS. WHALEN: Well there are multiple recommendations, but I think this particular one is one of the few bright spots that would help you address your promotion of pension plans as well.

MS. MACNEILL SMITH: It's also one of the proposals in the model pension law, what we call the simplified pension plan. That is where unrelated employers can participate in a defined contribution plan that's basically administered by an insurance company. There is no requirement that an employee take their money out if their job changes or they go off somewhere else. A large number of employers can participate.

MS. WHALEN: Good. Can I ask you with your CAPSA draft report that you've got out on the model pension legislation, will that be your guiding principle as you look at the other recommendations in our Nova Scotia review panel?

MS. MACNEILL SMITH: We will certainly be considering model law when we look at the other review panel recommendations.

MS. WHALEN: How do your recommendations in the CAPSA report compare to the report of the pension review panel, just in general because I know there's multiple ones, but are there some major deviations or differences?

MS. MACNEILL SMITH: Differences more maybe in details, but the philosophy is the same. As I indicated, the model law does recommend the simplified pension plan and that is consistent with a proposal for a province-wide plan. Model law does recommend permitting phased retirement and that is in the review panel's report.

MS. WHALEN: As you mentioned, the phased retirement is another bright spot as well, if we can arrange that people can be drawing pension and still continuing to work, or have an incentive to stay in the workforce, that's very important too and mention that and say that there are two bright spots. I think we need to move quickly on them, is really my feeling, that we can't delay a long time because the need is there and it is acute.

I wanted to ask specifically about the idea of uniform legislation across the provinces, right across Canada. That seems to be something that CAPSA would be seeking - I gather that from looking at it - and yet what Nova Scotia has recommended, or what our review panel has before them, would create a system that is quite different here in Nova Scotia. Would you comment on that please?

MS. MACNEILL SMITH: That is something that the department will be looking at in its review of the review panel's report.

MS. WHALEN: How important is the idea of a harmonized system across Canada? Is that very important to the work you do?

MS. MACNEILL SMITH: Well, there are large number of Nova Scotians who participate in pension plans that are registered elsewhere, such as Ontario, for example. If you have a major company operating out of Ontario and they have a particular plant in Nova Scotia, the employees may be participating in the plan registered in Ontario because that's where the majority of the members are working. Harmonization is important in that sense, otherwise the plan administrator must administer particular laws for the Nova Scotia employees and different laws for the Ontario employees.

MS. WHALEN: So it certainly complicates it for ones that have members in different provinces?

MS. MACNEILL SMITH: Yes and that's why we worked on the model law to try to eliminate those differences.

MS. WHALEN: I think in some ways, there are a lot of areas where I'd like to see Nova Scotia step out and do something different, but in something as basic as your pension

plans where the same rationale is in place everywhere, security and protection of assets is so important, I think having a uniform approach is a good idea.

What the actuaries are saying is they still have to do going concern valuations and the solvency calculations even if we set up a third or a new way in Nova Scotia, so it will complicate their lives as well and make more work and be more onerous for them, that's how I interpreted it anyway. Will it make it more onerous for you as well in your office if we have a third valuation method?

MS. MACNEILL SMITH: Well, of course, it just extends the review.

MS. WHALEN: You might need that extra person then, I think it's important we look at that. One of my concerns and I know the time is moving quickly, but a major concern for all of us is the economic crisis that we're in right now and I alluded it to it earlier, but the fact that we're going to see more mergers, more change in corporate structures and possibly companies consolidating and even closing as a result of the worldwide crisis that we're in.

For that reason, the under-funding of the plans is a major concern to all sectors really and particularly those that have defined benefit plans because their expectations may not be met if any companies are going to fold during a period of time when they're under-funded and they might be between the reporting cycle and it hasn't even been recognized what level their funding is at. So in that regard, I'm wondering if there are any legislative changes that could be made now that would protect workers better in the event of closures?

MS. MACNEILL SMITH: That's a particular challenge for government in regulating pension plans, to establish what level of security should be provided to plan members and at what particular cost. There could be a requirement that plans had to be funded immediately after a valuation, but the governments have recognized that is too onerous a requirement and, in fact, it could cause employers to go out of business. That is certainly not the intent of pension legislation and yet, as you indicated, you don't want too long a time frame because then there's less security for the member's benefits. It's really a balancing act to determine what is an appropriate time period and, again, without jeopardizing the security of the member's benefits.

Of course the limitation - if a company closes up a plan, there's a requirement under the legislation that the employer fully fund the benefits. However, that's limited to the assets of that particular employer and if the employer has no assets, then there is no money to fund the benefits.

MS. WHALEN: I'm not sure where I read this, but I think it might be one of the recommendations in the review panel about if a plan is under-funded lower than 95 per cent, that there be an annual valuation done. Is that one of the recommendations in there?

MS. MACNEILL SMITH: Yes.

MS. WHALEN: Would that help us to at least keep more current? Would it be a better mechanism - and again, that the employees would know because the requirement is that employees be notified when these valuations are done, that there be complete transparency? So would that not be a good step to take right away, that we ask for the yearly valuation?

MS. MACNEILL SMITH: There are concerns about the requirement for a yearly valuation that were raised by the consultations, so the government will consider that.

MS. WHALEN: Again, we go back to the word prudent, but it would be the most prudent way to protect our employees, at least giving them better information and an opportunity, even as a group, for them to step in and say they're willing to do more to help fund it, if it is a crisis in their plan.

MS. MACNEILL SMITH: Yes, I talked to one particular employer yesterday who says that they really have a challenge to try to get the employees to start contributing more with respect to their benefit, because the employer contributions are already double what the employees contribute, yet the employees are refusing to accept any increase in their own contribution levels.

[10:30 a.m.]

MS. WHALEN: I agree there are a lot of those problems because people don't perhaps feel they have the money to contribute and we come back to their incomes, but at the same time at least they would be better informed and they would be very well aware of what situation their plan was in and you could engage them more in what's the go-forward plan. I think that's also stressed in the report, that employees need better and more frequent information.

MS. MACNEILL SMITH: The employer already has that option. The requirement to do a valuation every three years is a governmental requirement. Many pension plans actually do annual valuations, they're just not required to file them. So the tools are available to the employer already.

MS. WHALEN: We made some changes in the Fall sitting in 2007 - it was in response, I believe, to the TrentonWorks closure. Has that provided greater protection for workers? Do you think that has been effective or will help in the future?

MS. MACNEILL SMITH: I have seen it where it has resulted in the employers winding up a pension plan and putting additional monies in, so yes, it has been useful.

MS. WHALEN: So it's one step. I understand that what you're talking about is a bigger package of changes to come in hopefully for the Fall of this year, 2009, in the way of changes to the Act. I know we want to be comprehensive, but at the same time I'd want a signal that there's an urgency to deal with the tools that we have at hand that can make the most difference to employees and employers right now, to help sustain their companies and not push them to the point where it becomes too much of a financial burden and they drop pension plans - that's definitely in no one's interest. That is why I go back to the idea of the province-wide plan which would be a good help to the many people who just don't have access to it.

On this pension review panel, I'd like to ask you what your role was, whether you had any consultation with the members of that panel in the preparation of the report?

MS. MACNEILL SMITH: The review panel was an independent panel. They did ask for information from me, but I was not involved in the determination what the recommendations were.

MS. WHALEN: So it would be fair to say you were following the feedback and comments that they posted, but you weren't directly involved?

MS. MACNEILL SMITH: That's right.

MS. WHALEN: Now that it's in place can you explain your role as the government's supervisor of pensions?

MS. MACNEILL SMITH: The minister has asked the department to review the recommendations of the panel and go over that with him, so we are currently in the middle of that review.

MS. WHALEN: It says in your job description and I think in the Act as well, that you do advise when it comes to legislative changes, it's quite clear that you have an advisory role. Could you elaborate on that role? I think this is an almost unprecedented time of pension legislation change right across Canada.

MS. MACNEILL SMITH: Yes, all of the . . .

MR. CHAIRMAN: Order, order please. Sorry, the time has expired for the Liberal caucus but perhaps you still wish to answer on Mr. Muir's time, that's fine.

Mr. Muir.

MR. MUIR: Thank you very much. Ms. Whalen just asked you about your role, I would appreciate if you would continue with your answer on that one. Do you want to rephrase the question?

MR. CHAIRMAN: Ms. Whalen, did you want to rephrase that question, just where we were a bit confused at the elapsed time there?

MS. WHALEN: All right, I will indeed. I was saying that in your job description and in the Act it says you have an advisory role, so I wanted to know exactly how you would be advising the minister as you go forward with this report because you said you were in the midst of it but I want to know what kind of changes. The real preamble to it was this is the period of time when across Canada, all pension legislation is being looked at and people in the industry are saying this is an unprecedented opportunity to strengthen and improve pensions going forward.

MS. MACNEILL SMITH: Yes, with all of the superintendents across the country, we are involved with the operation of pension plans, we are basically on the ground dealing with pension plan matters on a daily basis. So we bring that knowledge to our governments with respect to pension plan matters. With the CAPSA group, we meet semi-annually, we have subcommittees that meet, we also have conference call meetings to keep in touch with what's happening and to make recommendations and have discussions among our own group on pension issues. I bring that expertise to government in any recommendations for changes.

MR. CHAIRMAN: Thank you. Mr. Muir, you're on.

MR. MUIR: When do you think you will have that report sufficiently analyzed so that you will be able to give some advice to the minister?

MS. MACNEILL SMITH: We had a meeting this week and we have a bit more work to do but I assume we'll be able to brief the minister in a couple of weeks.

MR. MUIR: I must tell you I didn't read that report. Are there some things in there that are going to require legislative changes or are most of the changes - do you have the ability, if you're going to effect them, to do it through regulation or simply by policy?

MS. MACNEILL SMITH: Some require legislative changes and some are regulatory.

MR. MUIR: Have you had any feedback from the unions about that particular report? How do they view the pension review panel report?

MS. MACNEILL SMITH: I haven't had any direct feedback from the unions at all but what we are looking at in the review panel's report, we're also looking at the comments that were provided by the unions, as well as employers, to the review panel. So we would

have the recommendations and the review panel and then we would also have right beside that the comments by the stakeholders as to what they thought of the proposals.

MR. MUIR: I want to switch direction here for a minute. One of the things that we periodically get asked to do as MLAs - and I assume everybody else who is here - is, when people who have paid into a registered fund of some type and then they get into financial difficulty because they are not at an age where they are able to access that thing and they apply to you and sometimes you say okay, you can have access to a certain portion of this money - sometimes you deny it. Can you tell the committee a little bit about that process?

MS. MACNEILL SMITH: The Financial Hardship Program that was implemented in July 2007 permitted people who have left their employment and transferred their money out into a locked-in RRSP to apply to have some of those funds unlocked, who meet specific criteria for financial hardship. There are only three criteria - one is for mortgage arrears when the individual is facing foreclosure and the individual is only allowed to apply for that once in a lifetime. The other is for medical expenses that aren't paid for under another program and the third is for low income, where the individual's income is below, this year, $18,520.

In developing those criteria, we worked with the other departments in government - specifically Community Services, Residential Tenancies Board people, and we worked with the debtor assistance - to determine what already existed to assist people in financial hardship. We wanted to make sure that we weren't being counterproductive in our unlocking of the pension funds.

For example, debtor assistance - there is unfortunately a large portion of the population that have a large amount of creditor debt. Unlocking pension funds to address that creditor debt for consumer goods doesn't really accomplish any societal goals that we have. We do want to ensure that people have pensions, income in retirement, because in retirement they are most often unable to actually work and have employment income. So protecting that pension income is really important to the province overall but we do recognize that for some people the amount of pension they may have locked away and the circumstances they are in currently, it doesn't accomplish anything by keeping that money for retirement purposes.

We do have a lot of people who are in low income. We have the people at TrentonWorks who have been out of work for, in some cases, some of them two years. They've used up all of their assets, they have little expectation of income in the next year and so funds are unlocked for them.

MR. MUIR: An interesting process and I just want to compliment your staff because the three or four times that I've had occasion to work with people on those particular matters, the turnaround time has been just great and whether or not they got it, most people are happy with the way the process was handled so it makes it a lot easier on MLAs, so thank you for that.

The other thing with that, how many of those requests would you get in the course of a year? Are they picking up now?

MS. MACNEILL SMITH: It fluctuates - we've done some analysis. Generally between Christmas and March it slows down but because of the TrentonWorks funds that weren't released until December, we had a spike in applications but now they're down to about maybe two a day, whereas previously it could be up to six or eight applications a day.

MR. MUIR: All right, I didn't realize it would be that much. In the recent federal budget, as I understand it, some of the pension plans that are in difficulty are going to get a break because they are going to have a longer period to smooth out. How does that compare to what we do here in Nova Scotia?

MS. MACNEILL SMITH: That is something that we're considering doing here. There was not the same urgency here to make changes to the regulations. Under the federal government requirements, administrators were required to file a December 2007 valuation report by September so they could not decide to do a valuation report as of December 2007 instead of December 2008. So for the federal government plans, the government had to act quite quickly to provide them with the option of giving them some funding relief.

It's not that we don't have the same problem to address in Nova Scotia, it's just that we're fortunate enough to have more time to deal with it. As I say, we wanted to look at the recommendations of the review panel as well, to see what they said. So now we're in a position that we can now make some recommendations to government.

MR. MUIR: Will this be standardized? I mean as far as the federal government, I understand there will be a Canadian standard, but does this - you and your provincial, territorial colleagues - are you going to have sort of a Canadian-wide thing, or do you intend that?

MS. MACNEILL SMITH: I think the intent on the part of the regulator is to have consistent standards. That may be lost a bit when it comes to actual implementation by the governments but the general move has been to allow the deficit that arose from the fall in the markets in 2008 to be amortized - to be paid for over a 10-year period rather than a five-year period, so that is the general move that has been made.

MR. MUIR: I was at a meeting of Finance Ministers, I guess in the first part of December or in November and that was one of the items that was on the agenda of the provincial and territorial Finance Ministers.

One of the notes that I have here - and I'm going to ask something I don't know anything about, it just happens to be on this piece of paper - there is something that is called the wage earner protection plan. In this particular day and age where unfortunately there are

some people losing their jobs, if a company does disappear and they don't have the assets to pay the workers for the final pay cheques, let's say, will this wage earner protection plan cover their pension contributions?

MS. MACNEILL SMITH: It will cover up to a certain amount of pension contributions and earnings, so it is the combined amount.

There is, under the Bankruptcy Act as well, there is some protection for contributions that have been deducted from an employee's pay and not remitted to the pension plan, so there is protection there.

MR. MUIR: Thank you.

MR. CHAIRMAN: Thank you, Mr. Muir. That concludes our time, it's just about 10:45 a.m. We'll give the witness, Ms. MacNeill Smith, an opportunity for some closing comments.

MS. MACNEILL SMITH: I guess I would just like to reassure the committee that we are working to do the best regulation of pension plans. We are keeping current with Canadian standards and there's certainly no deficiencies in respect to the existing standards that we have. So we are participating in the development of new standards, to make sure that things continue to be good for pension plans in Nova Scotia. Thank you.

MR. CHAIRMAN: Thank you very much and I just wanted to, if I could, remind you, I believe there was only one item that was owing, we'll say, that was asked for that you didn't have the information for and that was the question by Mr. Muir of the total number of dollars in the plan overall. If you could provide that, at your convenience, that would be great - actually send it maybe to the clerk of the committee.

MS. MACNEILL SMITH: Thank you, I'll do that.

MR. CHAIRMAN: Thank you very much. We stand adjourned.

We'll take maybe a five minute recess and the subcommittee will reconvene for a few minutes. Thank you.

[The committee adjourned at 10:45 a.m.]