On May 19, the Ontario government announced that it intends to implement various changes to the funding rules for defined benefit pension plans and buy-out annuities. The government expects to introduce legislation later in 2017 to enable these changes and will consult with stakeholders on the details of the regulations.
What You Need To Know
Highlights of the new funding framework include:
- Eased Solvency Funding Rules: Solvency payments will only be required to be made with respect to a solvency deficiency if the plan's funded status falls below 85 per cent (solvency payments are currently required once a plan's funded status falls below 100 per cent).
- Enhanced Going Concern Funding Rules: The amortization period of any going concern deficiency will decrease from 15 years to 10 years, and special payment requirements will be consolidated into a single schedule. Sponsors will also be required to fund a reserve within the plan, called a Provision for Adverse Deviation (PfAD). The size of the required reserve has not yet been determined.
- Guaranteed Pension Increase: The monthly pension guarantee provided by the Pension Benefits Guarantee Fund (PBGF) will increase from $1,000 to $1,500. This increase is expected to result in increased PBGF premiums for Ontario employers.
- Discharge for Buy-out Annuities: Plan administrators who purchase buy-out annuities for retirees or deferred members will be discharged from any liability for those members. Currently, when a plan administrator purchases an annuity from an insurance company for deferred pensions and pensions in pay, the plan administrator retains responsibility under the Pension Benefits Act (Ontario) for payment to those members despite having contractually transferred the responsibility to the insurer.
- New Governance Requirements: Plan sponsors will be required to develop funding and governance policies.
- Rules for Benefit Improvements and Contribution Holidays: New rules will be implemented restricting the use of contribution holidays and specifying funding rules for benefit improvements.
- Interim Assistance: As an interim step, the government will introduce measures to assist defined benefit plans that are required to file actuarial valuation reports between December 16, 2016 and December 31, 2017.
In anticipation of these upcoming changes, plan sponsors and administrators should review their plan documentation to determine what changes may be required to their plan texts and supporting policies. These changes should also be kept in mind when entering into negotiations involving pension benefits.
To discuss these issues, please contact the author(s).
This publication is a general discussion of certain legal and related developments and should not be relied upon as legal advice. If you require legal advice, we would be pleased to discuss the issues in this publication with you, in the context of your particular circumstances.
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