Why an Alberta separation would create a pension ‘quagmire’

Alberta's October referendum on whether to explore separation from Canada continues to stir debate across the country. But for the pension industry, the implications run deep, touching everything from CPP asset negotiations to the day-to-day operations of private pension plans with members on both sides of a potential border.

After all, James Fu believes if Alberta did agree to separate, the situation would become incredibly complex, leaving there to be more questions than answers.

“Plan sponsors and administrators don’t have to do anything urgent at the moment because it's a question of a question,” said Fu, partner in Borden Ladner Gervais (BLG)'s labour and employment group and national leader of BLG's pensions and benefits group.

“Now if the answer on the referendum is affirmative, that yes, the province should look at a referendum or explore referendum or have a referendum on separation, then I think you have to turn on the car and get ready to get things moving,” he added.

Referendum would lead to uncertainty

As to how multi-jurisdictional DB and DC plans would handle members straddling both sides of a new border, Fu said it would be “very difficult.”

“It would be quite a bit of a quagmire, at least at the beginning, because there will be a lot of uncertainty and businesses do not like uncertainty,” he said, adding fiduciary obligations attached to pension plans make that uncertainty even harder to absorb.

According to Fu, the Alberta referendum is non-binding and asks only whether the province should explore a referendum on separation, not whether it should actually leave. A "no" would likely shelf the issue but a "yes" would force the provincial government's hand on next steps.

"Since we're dealing with the existential existence of Canada, I don't expect that discussion will be quick or non contentious because there will be a lot of voices if it gets to that point of a referendum on separation," said Fu.

Still, the idea of Alberta breaking away from the CPP isn't new, Fu noted, pointing to Canada's experience with Quebec's sovereignty referendums in the 1990s as a source of institutional knowledge, including the Clarity Act, which established clearer requirements for what constitutes a valid mandate for separation.

How much would Alberta get from CPP?

Fu emphasized the structures governing the CPP were built for a different era, and the architects of the system likely never anticipated a province withdrawing. As a result, that leaves real ambiguity around what Alberta would be entitled to receive, with the Alberta government’s study from LifeWorks (now TELUS Health) pegging the figure at roughly 53 per cent of CPP assets and another from C.D. Howe disputing that methodology. If those numbers can't be settled through negotiation, the courts may have to intervene, Fu said.

"It would be unprecedented in terms of withdrawal from the CPP in recent times and it would require a lot of attention and patience in terms of how that separation would take," he said.

As for what a standalone Alberta pension plan might look like, Fu sees two realistic templates. The first is the CPP itself, underscoring that policymakers would likely avoid building something from scratch when a familiar model already exists.

The second is Quebec's QPP, which carries a dual mandate - maximizing returns while also investing in the provincial economy. While that dual mandate question could become one of the most contentious policy debates if Alberta moves forward, Fu acknowledged the tension between those objectives.

"There are other instances in which it might be a little riskier. But I think that's part and parcel of the decisions that the decision makers will have to take from an investment perspective," he said.

He also flagged the Ontario Registered Pension Plan as a historical reference point, though he sees limited applicability. That proposal was designed to supplement the CPP, not replace it and it never made it past the legislative stage before CPP enhancements rendered it moot.

Building something entirely new from scratch is unlikely in Fu's view, both for cost reasons and because workers would expect a plan that feels comparable to what they had under the CPP. International models could get a look, but he expects the end product to closely resemble either the CPP or the QPP, driven as much by familiarity and efficiency as by policy design.

Even if Alberta agreed to separate, Fu expects the timeline to stretch over months or years rather than weeks, particularly if there are legal disputes over whether the mandate meets the threshold set by the Clarity Act. Additionally, each plan will face different circumstances and different action plans depending on where it's registered and where its members are located.

"It could result in many different outcomes. It could be simply status quo to the extent that every pension authority in Canada and in that circumstance where Alberta separates in Canada and Alberta agree to get continue on the status quo, which would probably require amendments to the Income Tax act as well as pension legislation in the various jurisdictions and also the multi jurisdictional agreements," said Fu.

Now’s the time for contingency planning

Between now and October, Fu recommends employers should begin contingency planning, like getting familiar with the legal frameworks, engaging advisors, and attending industry discussions to understand what separation would mean for their specific plans as well as leaning on the regular review cycles that most businesses already have in place with their investment, legal, and plan administration advisors. He sees these existing review cycles as the natural place to fold in updates on the separation file as developments warrant.

"Everyone's action plan should really boil down to keeping attuned of developments," he said.

But he also cautions against sinking significant money into this, whether the costs come from a DB plan's assets or an employer's own pocket. DC plans face the same calculus as it's a matter of prudent use of resources.

Should Alberta ultimately decide to separate, Fu warns the move would cut against the grain of what Canadian pension regulators have spent decades trying to build, noting the push toward harmonization like consistent standards, shared expectations across provinces, and instruments like the CAPSA guidelines would notably take a hit.

"It would create a fair amount of waves and probably not the most desirable waves, especially in the most efficient economic sense," he said.