In a perfect world, Canadian pension laws would be uniform across all provinces, making it easy for national employers to manage plans regardless of where their employees live.

In reality, pension laws vary greatly from province to province, creating an administrative nightmare for Canadian employers and unequal benefits for employees.

In an attempt to harmonize Canadian pension legislation, an association of pension regulators has developed a proposal for a model pension law that would simplify regulation of plans, making it easier for employers with employees in multiple provinces to administer their plans.

Most observers, though, are skeptical that the model pension law will ever become a reality because of strong disagreements over its most controversial provisions and because of political difficulties.

In Canada, each province has the right to regulate pensions within its borders, resulting in vast differences in pension legislation. Employers with operations in multiple provinces must comply with the legislative requirements of each province, which is difficult and costly, observers say.

The model pension law proposal, developed by the Toronto-based Canadian Association of Pension Supervisory Authorities, would address these issues by streamlining the regulatory framework for multi-provincial pension plans. "If we eliminate, over time, differences in pension legislation, it makes the administration of the plans simpler and hopefully less costly," said Nurez Jiwani, director, regulatory coordination, for Toronto-based Financial Services Commission of Ontario, which regulates pensions in that province. Mr. Jiwani is chair of the CAPSA Task Force on Common Pension Standards.

A model pension law "will save plan sponsors a lot of headaches, a lot of time, effort and money in managing plans when they have employees in a lot of different provinces," said Scott Perkin, president of the Toronto-based Association of Canadian Pension Management, which represents plan sponsors in Canada.

The principles have been divided into three categories based on the level of consensus each has in the industry (see box). There are several principles that Canadian employers are very much in favor of, the main one being the elimination of partial wind-ups of pension plans. A partial wind-up refers to the termination of part of a pension plan and the distribution of the assets of the pension fund related to that part of the plan. A Supreme Court of Canada decision in the Monsanto pension case last year required distribution of surpluses for partially wound-up pension plans (BI, Aug. 9, 2004).

The ACPM supports the elimination of partial wind-ups partly due to an expected increase in litigation arising from the Supreme Court's Monsanto decision. "We're getting court decisions which the industry is sometimes finding hard to live with, like Monsanto," Mr. Perkin said.

The elimination of partial wind-ups "would alleviate a lot of confusion because that would eliminate all the issues of the Monsanto decision," said Mariette Matos, director, tax and legal, for Mellon Human Resources and Investor Solutions in Canada, based in Toronto.

Meanwhile, a principle that specifies that pension benefits be calculated based on the laws of the jurisdiction where a member last accrued benefits has been roundly applauded by employers, because it resolves problems that arise when a plan member has worked in multiple provinces.

However, several aspects of the proposal trouble observers, namely the lack of clarity on surplus issues.

"A clarification on the treatment of surplus, and access to surplus, was badly needed, and the principles didn't provide enough of a clarification," said Paul Purcell, retirement leader for Mercer Human Resource Consulting in Toronto.

The key issue for employers is that the principles did not definitively give plan sponsors control over pension surpluses. In fact, the principles state that in certain situations, plan members are deemed to own surpluses. Calgary, Alberta-based ATCO Group, which sponsors defined benefit and defined contribution pension plans, "does not believe that members should be deemed to own the surplus as a default in any event," the company said in a letter to CAPSA regarding the proposal.

Citing the experience of its employer members in Quebec, the ACPM has also objected to a principle that would require most plans to be administered by a pension committee with at least two representatives designated by plan members. The ACPM said this type of structure creates a disconnect between the responsibility to fund the plan, which is the employer's, and the responsibility and power to invest its assets, which is the administrator's.

Some employers are also concerned about a principle that would require immediate vesting of pension benefits for all plan members upon entering a plan. This would address an issue that results in uneven benefits provided to employees when provinces have different vesting rules. For example, Quebec mandates immediate vesting upon entering a plan, but Ontario does not, meaning Quebec employees have their benefits vest immediately, while employees of the same company in Ontario must endure a waiting period unless the company chooses to have a uniform vesting policy in all provinces. While an employer could always institute uniform immediate vesting, "many will go with the minimum standards," Ms. Matos said.

In its letter, ATCO Group suggested that immediate vesting not be adopted as a minimum standard. "Immediate vesting of pension benefits could significantly increase employer costs, especially for small employers," the company said. "This could contribute to underfunding in defined benefit pension plans as their liability would increase as a result of this provision. Immediate vesting could deter employers from implementing new pension plans."

Ms. Matos noted, though, that employers can simply adjust the eligibility period for pension benefits-usually about two years before the member is eligible to enter the plan-to minimize any costs issues.

In addition, CAPSA says immediate vesting would make partial wind-ups unnecessary. Post-Monsanto, most employers would gladly trade any increased costs related to immediate vesting for the risk mitigation of eliminating partial wind-ups, said David Burke, retirement practice director for Watson Wyatt Canada in Montreal. "More plan sponsors would take that quid pro quo," he said.

CAPSA has decided to take a phased approach toward implementing these principles, Mr. Jiwani said. The organization is creating a task force to examine comments on Category 1 principles and develop a final set of principles for CAPSA approval, which will take about a year, he said. CAPSA will then tackle the Category 2 principles, which will be considered over the next two or three years. Because of the contentious nature of the Category 3 principles, there is no timeframe for approving them.

Once CAPSA completes its work, it will submit the proposals to the provincial legislatures and ask them to adopt the principles. Mr. Jiwani said CAPSA is quite optimistic that the principles will be adopted, citing the fact that recent pension legislation in Manitoba adopted a number of the CAPSA principles, including immediate vesting.

Independent observers, though, are extremely skeptical that the model pension law will ever be adopted. "The game plan here is very unlikely to work," Mr. Purcell said. "It's frankly a pipe dream."

The main obstacle is that the principles would need to be adopted by 10 provincial legislatures, which legal and industry observers say is unlikely because the provinces can be quite territorial about their authority and may be unwilling to adopt any principles at odds with their own legislation. "We still have to find the political will across the country to adopt these model law principles," Mr. Perkin said.

The less contentious Category 1 principles are the most likely to be adopted, and observers are in favor of adopting them even if this neglects some of the most important pension issues, such as the elimination of partial wind-ups, which falls into Category 3.

"Anything that the government can do to simplify the pension environment in Canada is a good thing," Mr. Burke said.

It is unlikely that the more contentious principles will be adopted, observers say. "The expression 'snowball's chance in hell' comes to mind," said Karen DeBortoli, acting director of Watson Wyatt's Canadian Research and Information Center in Toronto.