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

As indicated in a previous post, most of the provisions of Bill 236, Pension Benefits Amendment Act, 2010, which recently received Royal Assent, have not yet come into force, but there is one important exception - the new surplus withdrawal regime for full and partial wind ups.

Under the old plan wind up surplus withdrawal rules, an employer had to obtain both the necessary number of member consents and establish its surplus ownership rights at common law. Historically, FSCO took a strict approach to the latter requirement and refused to approve a surplus withdrawal application unless the employer was clearly entitled to the surplus. In most cases employers could not meet this high bar and it was necessary to obtain court approval before applying to FSCO. This added to the cost and complexity of the application and created additional delays.

As of May 18, 2010 the old regime is gone and a new one is in place. Under Sections 63(1) to (3.2) of Bill 236, on full or partial wind up of its pension plan the employer has the option of establishing legal ownership of any surplus at common law or obtaining the required level of agreement from affected members to a surplus sharing arrangement. It is no longer necessary for the employer to satisfy both requirements.

It is too early to predict the full impact of the new regime as the amendment contemplates the enactment of regulations which have not yet been passed. Technically, however, the new regime is now in force.

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As we mentioned in an earlier blog post, Bill 236, the Pension Benefits Amendment Act, 2010, received Royal Assent on May 18, 2010.

While not yet in force, sections 23 and 24 of the Bill provide for immediate vesting of pension benefits, as compared to the current 2-year vesting period for post-reform benefits (post-1986 service), and “45 and 10” vesting for pre-reform benefits (pre-1987 service). With immediate vesting, all plan members will be entitled to a deferred pension upon termination of their plan membership.

Plan sponsors should begin considering now how to react to this change.

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Bill 236, Pension Benefits Amendment Act, 2010, received royal assent on May 18, 2010. As discussed in previous posts (from April 21, 2010 and December 10, 2009) Bill 236 makes a number of significant changes to the Ontario Pension Benefits Act, including:

• eliminating partial wind-ups;
• introducing immediate vesting; 
• extending “Rule of 55” grow-in benefits to all plan members whose employment is involuntarily terminated (other than where there is wilful misconduct, disobedience or wilful neglect);
• enabling plan sponsors to access surplus on the full or partial wind-up of a plan by entering into a surplus sharing agreement; 
• taking steps to facilitate asset transfers and plan mergers;
• increasing plan transparency, and plan members’ and retirees’ access to information; and
• permitting plans to offer phased retirement.

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IRS has announced that it will be sending, at the end of this month, a seemingly innocuous compliance questionnaire to twelve hundred 401(k) plan sponsors who filed 2007 Forms 5500. While the questionnaire seems on its face to be a survey of plan practices, the wrong answers to the questions or simply failing to respond to the questionnaire could result in a real plan audit.

If you are on the receiving end of one of these questionnaires, suppress the urge to toss it or rush through it, and make every effort to answer the questions carefully and accurately. IRS recently announced that it will be auditing some colleges and universities that sent in questionnaires under a prior compliance program, presumably because of their answers. This gives a further indication of where the new program is heading, but these audits won’t happen immediately. 

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Recently, much of the debate on Canada’s retirement system has focused on ensuring that as many Canadians as possible have access to some form of pension plan through increased retirement savings coverage. Proposals ranging from government led initiatives such as expanding the Canada Pension Plan (CPP) or creating a supplemental CPP (PDF) to taking steps to promote new pension plan designs in the private sector, such as industry-wide plans, have all been put on the table.

Ontario Bill 54, An Act respecting retirement savings plans for employees and for self-employed persons, (PDF) a private member’s bill introduced earlier this month, attempts to move this discussion forward by proposing amendments to the Ontario Pension Benefits Act to enable insurers and financial institutions to establish defined contribution pension plans for one or more unrelated employers or classes of employers. (Sole proprietorships and partnerships could also register as participating employers in such a plan.) While members would be required to make contributions, employer contributions would be voluntary. Income Tax Act changes would also be required.

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Following up on its previously announced intention to modernize the rules governing investments by pension funds, on May 3, 2010, the federal government released draft regulations that will, among other things, eliminate the existing quantitative limits on pension plan investments in real estate and Canadian resource properties.

Specifically, the current provisions to be eliminated are those which prevent plan sponsors from investing more than: 

• 5% of the book value of plan assets in any one parcel of real property or Canadian resource property;
• 15% of the book value of plan assets in Canadian resource properties; or 
• 25% of the book value of plan assets in real property and Canadian resource properties.

Under the existing rules, real property generally refers to real estate holdings (and includes leasehold interests), and Canadian resource properties are rights with respect to petroleum or natural gas.

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On May 3, 2010, the federal government released draft regulations, which propose changes to the defined benefit plan funding provisions and the federal investment rules. The proposed changes will directly affect pension plans that are registered under the Pension Benefits Standards Act, 1985 (PBSA) with the Office of the Superintendent of Financial Institutions (OSFI). But don’t stop reading if your plan is not registered with OSFI - the proposed changes to the investment rules will likely impact most pension plans in Canada.

The draft regulations implement a portion of the changes announced by the federal government on October 27, 2009. Other changes to the PBSA announced in the fall were made in Bill C-9, the Budget Bill, which was introduced by the federal government on March 29, 2010. Among other things, Bill C-9 amends the PBSA to require employers to fully fund pension benefits on plan termination, a change which brings the federal pension statute in line with most pension standards legislation in Canada. More amendments will be required to implement the package of proposals announced in 2009.

The draft regulations propose three key changes.

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