Global Retirement Update April 2013 This Update summarizes recent legislative developments and trends related to retirement and financial management and highlights recently passed and pending legislation that may require employers to take action to comply with new rules or review existing plans.

Action May Be Required Norway—Finanstilsynet, the financial markets regulator, has published new mortality tables for group pension funds and insurers. The new tables are based on a dynamic mortality model, which assumes improvements in life expectancy. As a result of using the new tables, pension funds and insurers will likely have to improve their reserves and increase contributions and premiums. A five-year escalation period will begin in 2014. Companies will be permitted to use surpluses to cover the increased provision requirement. According to Finanstilsynet, pension funds will have to cover at least 20% of the increase in the reserve requirement themselves.

Also, Norway’s Ministry of Finance has asked the Banking Law Commission to design a hybrid pension plan product. The hybrid plan is expected to approximate a defined contribution (DC) plan but include a guaranteed return on investment and a minimum payout period. The introduction of a new pension product is expected to better align employer-provided pension plans with changes in the social security system; promote greater risk sharing between employers, pension providers, and employees; and improve solvency requirements. Implementation is scheduled for 2014; the government notes that this date may be delayed. Transitional provisions are expected to be established for existing defined benefit and DC plans.

Note: Aon Hewitt recently conducted a webinar on these changes. For a copy of the recording or to sign up for complimentary International Retirement webinars in the future, please contact Kim.Buttwell@aonhewitt.com.

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Recent Developments

Americas The U.S. Pension Benefit Guaranty Corporation (PBGC) issued a proposed rule on reportable events and other notification requirements. Under ERISA, pension plans and the companies that sponsor them are required to report to the PBGC a range of corporate and plan events. In 2009, the PBGC proposed to increase reporting requirements by eliminating most reporting waivers. Plan sponsors and pension practitioners objected, saying that the PBGC would have required reports where the actual risk to plans and the PBGC is minimal. In the new proposed rule, the agency states its agreement. The new proposal exempts most companies and plans from many reports, and targets requirements to the minority of companies and plans that are at substantial risk of default.

Under the new proposal, reporting would be waived for most events currently covered by funding-based waivers if a plan or its sponsor comes within a financial soundness safe harbor based on widely available measures already used in business. Waivers for small plans would be expanded and some other existing waiver provisions would be retained with modifications; other waivers would be eliminated. PBGC states that it can now reduce unnecessary reporting requirements, while at the same time target its resources to plans that are at risk. The agency states that the revised proposal will exempt more than 90% of plans and sponsors from many reporting requirements and also make them “simpler and more uniform.”

Comments on the proposed rule must be submitted by June 3, 2013. A public hearing will be held on June 18, 2013. Outlines of topics to be discussed at the hearing must be submitted on or before June 4, 2013.

Canada’s 2013 federal budget includes provisions important to pension plan sponsors. Specifically, the budget addresses over-contributions to registered pension plans (RPPs). If an over-contribution was made by a plan member or an employer as a result of a reasonable error, the plan administrator would be allowed to refund the over-contribution to the member or employer without following the current procedure of obtaining prior approval from the Canada Revenue Agency (CRA).

The refund would have to be made no later than December 31 of the year following the year in which the over-contribution was made. Otherwise, the current procedure of contacting the CRA to request authorization to make the refund would have to be followed.

A refund made to a member would be included as income in the year it was received, and the deduction claimed by the member for the year in which the over-contribution was made would not be adjusted. Further, a refund made to an employer would generally reduce the RPP contribution expense for the year to which it related.

The proposed change would be applicable to RPP contributions made on or after the later of January 1, 2014 and the day the legislation enacting the change receives Royal Assent.

Common-law spouses are not entitled to preretirement death benefits in Ontario (Canada) unless they are designated beneficiaries. On March 28, 2013, the Supreme Court of Canada denied leave to appeal in the Carrigan case. This means that the decision of the Ontario Court of Appeal dated October 31, 2012 is the final

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judgment in this matter. Unless the Pension Benefits Act (Ontario) is amended, if an Ontario member is legally married but separated (not divorced) and has a common-law spouse, any preretirement death benefit payable on the member’s death will be made to the member’s designated beneficiary(ies). If that member wants his or her common-law spouse to receive a preretirement death benefit, the common-law spouse must be designated as his or her beneficiary. The Financial Services Commission of Ontario (FSCO) has provided some initial commentary on this decision.

The FSCO had written a letter in support of the appeal by the common-law spouse in Carrigan, arguing that the decision did not reflect the historical application of the preretirement death benefit provisions of the Pension Benefits Act (Ontario). In light of the Supreme Court of Canada’s decision to deny the appeal, the FSCO may provide guidance as to the scope and application of the Carrigan case to other situations.

The Saskatchewan (Canada) government will introduce legislation for pooled registered pension plans (PRPPs) in 2013. Employers could voluntarily choose whether or not to offer a PRPP to their employees. If an employer adopted a PRPP, employees would be automatically enrolled but given the opportunity to opt out. Employees of nonparticipating employers and self-employed individuals also would be able to join a PRPP by signing up directly with a PRPP administrator.

In Uruguay, both houses of Congress have approved the marriage equality bill, which gives same-sex couples the right to marry. President Mujica is expected to sign the bill into law. Currently, same-sex couples have the right to civil unions. Same-sex marriage has already been legalized in Argentina and Mexico City. Also, the Brazilian Supreme Court has ruled in favor of allowing same-sex couples to have the same legal rights as other married couples.

Asia The Australian government has announced changes to the taxation of superannuation. Effective July 1, 2013, the concessional cap on superannuation contributions would increase from AUD 25,000 to AUD 35,000 for individuals age 60 or over. The concessional cap would be extended to individuals age 50 or over, effective July 1, 2014.

Also, individuals with an estimated AUD 2 million in superannuation assets would be subject to tax on their pension benefits. Earnings on assets supporting pensions and annuities would be tax free up to AUD 100,000 each year. Earnings over AUD 100,000 would be subject to a 15% tax. Currently, all earnings on assets supporting pensions and annuities are tax free.

China’s Ministry of Human Resources and Social Security has published two notices, which expand the scope of enterprise annuity investments. An investment portfolio may include financial products of commercial banks, trusts, infrastructure bonds, and special asset management plans. The total investment in these products cannot exceed 30% of net assets. Investments in stock index futures are permissible only for hedging purposes.

In New Zealand, the parliament passed a bill that allows same-sex marriage. Members of parliament passed the bill by 77 to 44 in its third reading. The bill received Royal Assent on April 19, 2013. The Department of Internal Affairs has been given four months to make the necessary changes for licensing and same-sex marriages will be legal as of August 19, 2013. New Zealand already has a same-sex union law that gives these couples legal rights.

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Europe As promised, the U.K. Department of Work and Pensions (DWP) has published a consultation on “Technical Changes to Automatic Enrollment.” The DWP proposes specific changes to regulations, affecting the detailed technical requirements. It also is consulting on a proposal to introduce a power to create regulations that would exclude specified groups of individuals from automatic enrollment. Individuals covered by regulations made under such a power might include those with enhanced or fixed protection.

The consultation considers two possible “easements” that might be allowed for under legislation:

■ To allow employers contractually enrolling all workers to be certified or to self-certify that they are meeting the policy objectives and to be exempt from explicit employer duties (which require the monitoring and assessment of the workforce); and

■ To simplify the process for determining whether a nonmoney purchase plan satisfies the quality requirement. The consultation also asks whether there is a need for a quality requirement for defined benefit plans.

The DWP proposes that the amending regulations should be brought into force in time for April 2014. It will consider bringing specific changes into force earlier if consultation responses show there is demand and it can be achieved without unwelcome consequences. It expects all the proposed changes to primary legislation to be included in the Pensions Bill. The consultation ends on May 7, 2013.

The U.K. DWP has published an interim response to its January 2012 consultation on the equalization of benefits to reflect unequal guaranteed minimum pensions (GMP). The DWP states that it is considering the responses in detail and looking, in particular, at proposals for how the GMP conversion process might be used to equalize plan benefits for the effect of the GMP. The government may provide statutory guidance on GMP conversion, which would incorporate advice on GMP equalization as part of the process. It confirmed that it will publish a full response to the consultation at a later date. The amending legislation that was issued in draft in January 2012 will be introduced “at a future date” although it will be delayed while guidance on GMP conversion is being considered. However, the government is still of the view that a test case is not an appropriate way forward.

Sweden’s Retirement Commission published its final report and recommendations for pension reform. The recommendations include:

■ Increase in the early retirement age from age 61 to age 62 as of 2015 and to age 63 as of 2019;

■ Increase in the age from which occupational and private pensions may be paid from age 55 to age 62 as of 2017;

■ Increase in the age for a guarantee pension from age 65 to age 66 as of 2019; and

■ Increase in the age at which government regulated termination coverage is available from age 67 to age 69.

France’s National Assembly approved the “marriage for all” bill in April 2013. The bill is expected to be approved by the Constitutional Council and signed into law by President Hollande.

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In Ukraine, the government has submitted a draft law to parliament that would improve the indexation of pensions. Pensions would increase by a coefficient corresponding to a 20% increase in the average wage in the previous year; it would not be less than the rate of inflation. The new indexation formula would apply to all pensions, regardless of the law under which they were established. Adoption of the draft law is expected to result in a substantial increase in pension income.

International The International Accounting Standards Board (IASB) published Exposure Draft (ED/2013/4), “Defined Benefit Plans: Proposed Amendments to IAS 19.” The IASB proposes to amend IAS 19 to specify that contributions from employees or a third party, as established by the terms of a defined benefit (DB) plan, be recognized as a reduction in the service cost in the same period in which they are payable, only if they are linked solely to the employee’s service in that period.

The IASB also proposes to address an inconsistency in requirements related to the attribution of contributions from employees or third parties when they are not recognized as a reduction in the service cost in the same period in which they are payable. The IASB proposes to specify that the negative benefit from such contributions be attributed to periods of service in the same way the gross benefit is attributed according to paragraph 70.

Comments on the Exposure Draft are due July 25, 2013.

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For more information on the topic and countries in this newsletter, please refer to the Aon Hewitt Country Profiles eGuide. You can learn more about the Country Profiles eGuide here.

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Copyright 2013 Aon plc This document is intended for general information purposes only and should not be construed as advice or opinions on any specific facts or circumstances. The comments in this summary are based upon Aon Hewitt's preliminary analysis of publicly available information. The content of this document is made available on an “as is” basis, without warranty of any kind. Aon Hewitt disclaims any legal liability to any person or organization for loss or damage caused by or resulting from any reliance placed on that content. Aon Hewitt reserves all rights to the content of this document.

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