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

Today, the Ontario Minister of Finance, Dwight Duncan, released a consultation paper “Securing our Retirement Future”. As reported in The Globe & Mail, the paper seeks input from Ontarians on the Ontario government’s proposals to improve the Canadian retirement income system at the macro level.

The government is advancing a three-pronged approach to the basic issues of pension plan coverage, adequacy and security. The first initiative is the reform of Ontario’s own private pension laws. In furtherance of this initiative, the government has passed one major reform bill (Bill 236) this year and recently introduced a second major set of reforms (Bill 120).

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Last week, the Ontario government moved forward with its reform of the province’s pension system with the introduction of Bill 120, the Securing Pension Benefits Now and for the Future Act, 2010. Bill 120 follows the first stage of pension reform, Bill 236, which received royal assent earlier this year. (Please see our May 20, 2010 post for a summary of Bill 236.)

This is the second in a series of posts that we will be making on the draft legislation. I will focus on the proposed changes dealing with the payment of pension administration expenses from the plan fund, as well as the ability of an employer to take contribution holidays out of available plan surplus.

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Earlier this month, the Ontario government introduced Bill 120, The Securing Pension Benefits Now and for the Future Act, 2010 for first reading. While we commend the government for pushing ahead with pension reform, we are concerned that a number of the amendments may not resolve ongoing issues as intended or may in fact have unintended consequences.

We have begun posting items on our blog expressing some of our thoughts on Bill 120 (for example, see our October 22, 2010 post on the Bill's surplus withdrawal provisions) and we have also made a submission to the Ontario government outlining our concerns in greater detail. Our submission includes the following recommendations:

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Do you ever wonder how your 401(k) plan participants select investment funds? Do they ask an adviser? Throw darts at a dart board? Compare investment returns? Last Thursday, the U.S. Department of Labor (DOL) released long-awaited final rules on required disclosures to be made to participants and beneficiaries who can direct investment of their accounts in 401(k) plans and other defined contribution plans.  The DOL used focus groups to clarify what information participants would find meaningful in making better informed decisions.

The end result of this process is significant changes in the information that must be provided as a matter of general fiduciary responsibility, although the final rules do not require that participants receive all of the information on fees that will be required to be made available to hiring fiduciaries under the disclosure regulations discussed in my September 22 blog post.  The new rules will affect most plans for the first time in 2012.

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With the introduction of Bill 120, the Securing Pension Benefits Now and for the Future Act, 2010, on October 19, 2010, the Ontario government moved forward with its stated objective to continue its reform of the province’s pension system. This second stage of pension reform follows on the heels of Bill 236, which received royal assent earlier this year. (Please see our May 20, 2010 post for a summary of Bill 236.)

This is the first of several posts we will be making on the draft legislation. I am going to start by looking at one of the most contentious issues in pension law, the withdrawal of surplus.

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On October 19, 2010, the Ontario government introduced the second stage of pension reform – Bill 120, The Securing Pension Benefits Now and for the Future Act, 2010.

A press release indicated that Bill 120 would include amendments aimed at:

• strengthening pension plan funding requirements;
• providing certain multi-employer pension plans and jointly sponsored pension plans with more flexible funding rules;
• clarifying the surplus sharing provisions by providing a "dispute resolution process" to allow members, retirees and plan sponsors to reach agreements on how surplus should be allocated on wind up; 
• making the Pension Benefits Guarantee Fund more sustainable;
• strengthening regulatory oversight; and 
• improving plan administration.

The Ontario government also expressed its continued interest in a “modest and gradual” expansion of the Canada Pension Plan and further pension innovation.

We will provide a more detailed post on these most recent legislative amendments later this week.

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On October 7, 2010, the Supreme Court of Canada released its decision in Burke v. Hudson's Bay Co., upholding the Ontario Court of Appeal’s ruling that Hudson’s Bay Co. (HBC) was permitted to charge plan administration expenses to the pension fund, and did not have a fiduciary obligation to transfer a portion of the actuarial surplus to the transferred employees’ pension plan on the sale of a part of HBC’s business.

Notwithstanding the win for HBC, the conclusion in this case does not necessarily apply to other employers who sponsor defined benefit plans. It will still be necessary to carry out a review of historical plan documents in order to confirm that any proposed action, whether it involves charging plan administration expenses to the pension assets or transferring assets and liabilities to another plan with or without related surplus, is permitted.

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On September 30, 2010, the federal government introduced Bill C-47, which makes further amendments in conjunction with this year’s budget, including another round of pension reform amendments. Among these, perhaps the most interesting are the amendments which purport to provide defined contribution (DC) plan administrators with a limited form of “safe harbour” from liability related to member directed plan investments.

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In late August of this year, the Ontario government announced the second stage of pension reform. While we were pleased to see that the government was continuing to move forward with its reforms to the Ontario pension system, we were concerned that these proposals did very little to encourage employers in the private sector to establish or maintain defined benefit pension plans. (Please see our August 25, 2010 post for a summary of the government’s announcement.)

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