Hundreds of thousands of pension plan members in Canada are considered “missing” by their pension plans and plan administrators. In Ontario alone, 200,000 plan members are considered missing, leaving behind $3.6-billion in unclaimed entitlements.
“About half of all Canadian pension plans are registered in Ontario. In total, Ontario-registered pension plans have over 4.6 million members. The issue of missing pension plan members has become a matter of significant concern for the regulator,” say authors of a new report, Missing Pension Plan Members in Canada, referring to the Financial Services Regulatory Authority of Ontario (FSRA). “They began collecting data on missing members as part of the annual information return process, with mandatory reporting by all plan administrators beginning in 2021.”
Protecting data privacy
The new and extensive report from the National Institute on Ageing (NIA) explores three policy solutions to the problem of missing plan members, assessing each option against the likelihood of the policy reuniting missing members or their estates with unclaimed assets while protecting data privacy, minimizing administration for plan administrators and minimizing the impact on government. The paper also discusses the legislative and regulatory challenges associated with each option, as well.
Missing plan members are those who cannot be contacted by their pension plan administrators due to outdated contact details or death of the plan member. “All countries with private pension systems face challenges with missing pension plan members. The report draws inspiration from international pension systems to offer a broader perspective on solving the issue. However, the focus is on Canada, where the multi-jurisdictional approach to pension regulations presents unique challenge,” NIA adds in a statement about the report’s publication. The report itself notes that replicating another country’s solution could run afoul of privacy regulations and Canada’s multi-jurisdictional approach to regulation.
Effectively describing the problem where plan administrators are unmotivated to find missing plan members and where regulatory considerations are not uniform from province to province, the report also summarizes the discussions researchers had with regulators, pension plan sponsors, financial institutions and third-party administrators.
Inadequate records
“From the administrators’ perspective, there is very little value in continuing to search for missing members once initial efforts have failed. Cold cases accumulate until the pension plan is wound up. At that point, amounts owed to lost former members need to be settled, no matter how small. Some current regulatory solutions in Canada address the plan wind-up situation but offer no relief or encouragement to ongoing plans,” the report states. At the same time, plan members have reportedly been blocked from claiming their pensions because of inadequate records.
In Canada too, each government has its own regulations governing pension plans. There is no unified national policy, the report states. “Several provinces have created protocols and databases to track unclaimed benefits. However, the lack of a standardized pan-Canadian approach presents challenges for both individuals and multi-jurisdictional pension plan administrators.”
Three policy options
The three distinct policy options the paper proposes include using the country’s unclaimed deposit program, create an industry pool, or create a Canada Revenue Agency (CRA) managed dashboard for pension members.
The unclaimed deposit program solution would expand the current program for unclaimed bank deposits in Canada. “The plan administrator would declare a member missing and provide account balance or settlement value and benefit terms to the Bank of Canada,” they write. “Members would be deemed to have received their benefits and become liable for taxes on the benefits as soon as the transfer occurs.” They note that the option imposes administration on both the CRA and on the Bank of Canada.
The industry pool plan involves creating a new industry-sponsored entity to hold funds and administer benefits for missing members. “The agency would also actively search for missing members and respond to inquires,” they write.
Finally, “the dashboard” is modeled on European and Australian examples, wherein the CRA would provide individuals with access to their personal pension accrual history. “Another agency, such as Service Canada, could be responsible for linking this data to current plan administrators,” they suggest.
The report goes on to look at each policy suggestion, discussing the outcomes for plan members, plan administrators and for governments.
“The most important and problematic aspect of any policy option is the flow of data,” they write. “All three options depend on the premise that matching missing members with their missing pensions is a data-matching exercise,” the report adds. “However, personal data is sensitive and sharing it or placing it in a database raises privacy and cybersecurity concerns.”
Current challenges and existing approaches
In Canada, they say the approach to missing plan members is also characterized by distinct frameworks developed by federal and provincial governments. Five provinces have created unique approaches. Provinces also differ in their definition of when pension benefits are considered unclaimed.
The report’s authors say the lack of a standardized approach across the provinces is an ongoing problem. They add that those employed by national employers also often have difficulty determining which regulator is responsible for helping them.
Notably, they say that under Canadian, federal tax law, pension plans must be administered “as registered.”
“Plan terms must provide for deferred pensions to commence no later than the year an individual turns 71. (The) CRA has suggested that administrators can comply with this requirement for missing members by paying the benefits into an account in trust for the member, or paying to the provincial court,” they write. “It would appear that CRA expects pension plan administrators to pay benefits and withhold and remit taxes when they are due, even if the member is missing.”
The paper concludes, saying it is clear that the problem lacks a perfect solution.
“The report does not endorse any single solution but provides a framework for decision-making,” they state. “Different experts and industry participants will undoubtedly place more emphasis on one priority than another and arrive at different conclusions as to the approach that best meets their objectives. Hopefully, they will see that the challenge for the entire industry is bigger than their primary irritant and will cooperate with solutions that serve everyone — especially the Canadians who are missing out on the pensions they were promised.”
