Pensions & Benefits Law : Canada Pension & Benefits Lawyers & Attorneys : Osler Hoskin & Harcourt Law Firm: Post-Employment Benefits & Defined Benefit Plans : Toronto, New York

Bill 236, the first stage of pension reform in Ontario, included amendments to the advisory committee provisions in the Pension Benefits Act. The amendments appear to be aimed at increasing the involvement of pension plan members in plan administration and are directed primarily at single employer plans. Although these provisions are not yet in force, plan administrators should begin considering how they may affect their workplaces.

The pre-reform PBA allows a majority of current and former members to vote to establish an advisory committee comprised solely of member representatives. The purpose of such a committee is to monitor plan administration, make recommendations to the administrator regarding administration and promote awareness of the plan. To date, advisory committees have not been very common – Bill 236 seems to be aimed at changing that.

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As noted in prior blog posts (June 4, 2010 and January 7, 2010) the recent expansion of “grow-in” benefits to all involuntarily terminated employees (except for those who were dismissed for "wilful misconduct")  will have significant implications for employers who sponsor a defined benefit pension plan. Previously, grow-in benefits applied only when a pension plan was being either fully or partially wound up. These amendments will make grow-in benefits applicable to all employees terminated after July 1, 2012, but as discussed in a recent Osler Update: Ontario Employment Terminations: Implications of New Pension “Grow-in” Rules by Jason Hanson, severance packages negotiated now may have to take these amendments into account.

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In prior posts (June 15, 2010 and December 17, 2009), I pointed out that even though plaintiffs were losing their lawsuits challenging 401(k) plan fees, the legal issues were still far from settled. The Court of Appeals for the Eighth Circuit reinstated claims against the huge WAL-MART 401(k) Plan, challenging the use of retail instead of comparable institutional class mutual funds for the plan, and new law and regulations could be forthcoming.

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As described in a recent Osler Update, on July 21, 2010, sweeping financial reform was signed into U.S. law by President Obama. The new law affects more than just Wall Street financial institutions and contains new requirements on corporate governance, federal securities law and executive compensation provisions.

In the Dodd-Frank Wall Street Reform and Consumer Protection Act, there are lots of new goodies on the executive compensation front. While most of the new compensation rules would not seem to apply to Canadian issuers (unless they are voluntarily complying with U.S. compensation disclosure rules instead of Canadian rules), they may indeed set a new standard for best practices because U.S. institutional investors will become accustomed to these requirements:

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Earlier this year, we did a post on the Financial Services Commission of Ontario’s (FSCO) consultation policy on pension record-keeping . FSCO has recently released the final version of this policy, “Management and Retention of Pension Plan Records by the Administrator” (the Policy).

The Policy is important reading for pension plan administrators as it imposes a new requirement to create a document management and retention policy. It also contains requirements impacting other documents such as pension plan services agreements and even purchase and sale agreements. The Policy applies to all plans, big and small, defined benefit and defined contribution, single employer and multi-employer, etc.

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The Pension Protection Act of 2006 required faster funding of defined benefit plans, generally funding shortfalls over 7 years. These new requirements began to phase in just as asset values plunged and employers became strapped for cash in the recession. Employer groups have been pressing Congress to provide relief since the new rules became effective.

The Preservation of Access to Care for Medicare Beneficiaries and Pension Relief Act of 2010 (the Act) was finally signed by President Obama on June 25, with a significant catch that ties funding relief to expenditures for taxable executive compensation over $1 million and payments to shareholders. In general, to use the funding relief, extra pension contributions will be required equal to the amount of these payments.

Canadian companies with U.S. subsidiaries need to know that the Act does not look only at compensation and shareholder payments of the U.S. entities, but also at all affiliated entities – generally, the parent and all subsidiaries, which are at least 80% owned. For example, taxable compensation paid to U.S. citizens outside the U.S. may trigger additional contribution requirements in the Act.

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On December 2, 2009, the Ontario Financial Services Tribunal released its decision in Imperial Oil which held that pension administrators are not required to purchase annuities in respect of partial wind up benefits remaining in the plan following member portability elections. On June 30, 2010, FSCO posted a new policy (effective March 10, 2010) confirming the result in Imperial Oil, and outlining the procedure to be followed regarding the “distribution” of such benefits by transfer to the ongoing portion of the plan when the administrator chooses not to distribute by way of annuity purchase.

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On June 25, 2010 the federal government announced that it finalized the amendments to the defined benefit funding provisions and the federal investment rules, which it had released in draft form for comment earlier this year. Most of these amendments to the Pension Benefits Standards Regulations, 1985 come into force on July 1, 2010.

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As indicated in a previous post, among the very few aspects of Bill 236, the Pension Benefits Amendment Act, 2010 to come into force on royal assent were the provisions addressing surplus withdrawal on full or partial wind-up. Some issues of concern regarding these provisions have already arisen, as they have been subject to competing interpretations.

Under the old Ontario Pension Benefits Act rules for employer surplus withdrawals on plan wind-up, even if an employer obtained the necessary number of affected plan member consents, it nevertheless had to demonstrate legal entitlement to surplus in order for a surplus sharing arrangement to receive regulatory approval and proceed to distribution. Under Ontario’s new wind-up surplus rules, the employer has the option of sharing surplus with members after obtaining the necessary number of affected member consents, or demonstrating legal entitlement to surplus without member consent and potentially withdrawing all of the surplus for itself. Employers no longer have to do both (that is, prove entitlement and obtain member consents). On full wind-up, for example, section 79(3) of the PBA is the applicable provision:

(3) Subject to section 89, the Superintendent shall not consent to payment of surplus to an employer out of a pension plan that is being wound up in whole unless all of the criteria set out in subsection (3.2) are satisfied and,
(a) the pension plan provides for payment of surplus to the employer on the wind up of the pension plan; or
(b) a written agreement of the employer and the members, former members and other persons entitled to payments on the date of the wind up is made in accordance with such conditions as may be prescribed and authorizes payment of surplus to the employer.

As is often the case in the midst of pension reform, however, the path ahead is not yet clear. Two potential issues have arisen that may delay full realization of the intended results of the legislation.

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