As of July 1, 2012, a number of amendments to the Ontario Pension Benefits Act (PBA) and related amendments to the general regulation under the PBA were proclaimed in force. Employers and plan administrators should carefully review their plans and their administrative practices to ensure that they continue to be compliant with the PBA, and to assess whether any changes are warranted in view of these pension reforms that are now in force.
The amendments to the PBA that were proclaimed in force were included in the following pension reform Bills:
- Bill 16: permitting benefits under a “designated multi-jurisdictional pension plan” to be determined in accordance with the requirements of any agreement entered into by Ontario and other Canadian jurisdictions with respect to such plans;
- Bill 236: amendments related to “former members”, disclosure obligations, immediate vesting, lump sum payments of “small benefits”, spouses’ entitlement to transfer joint and survivor and death benefits, elimination of partial wind-ups and expansion of grow-in benefits;
- Bill 120: amendments related to surplus withdrawals, and multi-employer pension plan (MEPP) and jointly sponsored pension plan (JSPP) document requirements; and
- Bill 173: additional amendments to pre-retirement death benefits and grow-in benefits.
Not all of the sections in these Bills were proclaimed in force. In particular, there are a number of outstanding amendments in Bill 236 and Bill 120 (e.g., restrictions on benefit improvements, changes to advisory committees, plan amendment notice requirements, phased retirement, payment of defined contribution benefits, contribution holidays, letters of credit, surplus arbitrations and asset transfers) which are yet to be proclaimed in force.
The amendments to the PBA regulations are contained in Ontario Regulation 178/12. The final regulations differ somewhat from the draft regulations released for comment earlier this year — the most significant differences are noted below.
The key amendments to the PBA and regulations that were proclaimed in force on July 1, 2012 are as follows:
Grow-in benefits are a statutorily mandated form of enhanced (early retirement) benefit for qualifying plan members (i.e., members whose age plus service is 55 or more). Prior to the recently announced reforms, grow-in benefits were applicable to qualifying plan members only on a plan wind up.
Under the new PBA provisions, grow-in benefits are no longer strictly tied to plan wind ups, and must be provided where any of the following “activating events” have occurred:
- a plan member’s employment has been terminated by the employer, except where the employee has been dismissed for wilful misconduct, disobedience or wilful neglect of duty that is not trivial and has not been condoned by the employer; or
- upon the occurrence of other events as prescribed.
The new regulations indicate that a prescribed “activating event” includes circumstances where “an employee resigns before the termination date specified in a written notice of termination of employment given to him or her”. [Note: The stipulation in the draft regulations that such resignation occur within 60 days of the termination date was removed.] The regulations go on to specify that the following circumstances would not qualify as activating events: (i) the employee is a construction worker within the meaning of the Ontario Employment Standards Act (the ESA); or (ii) the employee is only on temporary lay-off within the meaning of s. 56(2) of the ESA. [Note: The proposed exclusion of plan members hired on the basis that his/her employment would end on the expiry of a fixed term contract or on the completion of a specific task, which appeared in the draft regulations, was deleted.]
The regulations also outline the requirements that apply to JSPPs and MEPPs that elect to opt out of the grow-in regime (or rescind an earlier opt out), including: deadlines for making the election; information to be included in the election form; and notice requirements. [Note: The time period for providing certain notices (i.e., to the union, advisory committee (if any)) was extended from 30 days to 90 days.] The opting-out has to be done by employers and members in a JSPP, and not by the administrator. (As discussed in a prior post, the Financial Services Commission of Ontario (FSCO)has also provided guidance on the requirements to opt out.)
Partial wind-ups are no longer permitted under the PBA, where the effective date would fall on or after July 1, 2012. For effective dates prior to July 1, 2012, the partial wind-up transition provisions apply. Under these transition provisions, the Superintendent may order the partial wind-up of a plan upon the occurrence of the same events that triggered a wind-up pre-reform, provided that such events occurred before July 1, 2012. Many of the transition requirements are similar to those that existed pre-reform (e.g., a wind-up report must be filed, notices must be given to each person affected, grow-in benefits will be triggered), although administrators are no longer required to purchase life annuities. It would appear that these transition provisions are not intended to apply indefinitely, as the PBA indicates that they are to be repealed on a date to be proclaimed.
Pursuant to s. 69(1)(i) of the PBA, the regulations add the following prescribed circumstances when the regulator may order a plan wind-up:
- the plan has no (active) members (i.e., it has only former members, retired members and beneficiaries who are not members); or
- the members of the pension plan no longer accrue pension benefits or ancillary benefits under the plan and employees are no longer allowed to become members of the plan.
This is a significant expansion of the Superintendent’s discretion to order a plan wind up that existed under the PBA prior to these reforms. This will clearly apply to “frozen” defined benefit pension plans that no longer have members accruing benefits, and puts such plans at risk of an involuntary wind up order if the Superintendent is of the view that it is in the best interests of the former and retired members to do so.
As discussed in an earlier post, the regulations were amended to update the list of plan information/records to be made available to members, former members, retired members and their spouses on request, to include the actuarial information summary and the investment information summary. In addition, there is now a regulatory requirement to file an investment information summary, which FSCO has been requiring administrators of defined benefit pension plans to file (see Form 8) for some time. [Note: The final regulations also include a requirement to disclose an entitlement (if any) to grow-in benefits in a member's termination statement.]
Under the PBA, plan documents, as well as notices and member statements, can now be provided electronically where the administrator has the person’s permission to do so. The regulations also specify the fees that may be charged for providing plan documents to the specified persons. [Note: The final regulations reduced the maximum amount that can be charged for requests to provide records electronically.]
Lump Sum Transfers
Former members, retired members and spouses are now entitled to request that lump sum payments from a pension plan be transferred to a registered retirement savings arrangement. The regulations specify that such transfers must be requested by the specified person within 90 days of the administrator notifying them of their entitlement, and the administrator must make the transfer within 60 days of receiving such direction.
Plan members’ benefits immediately vest upon commencement of plan participation (i.e., the two year vesting period no longer applies). However, pension plan eligibility periods may still apply.
The threshold for unlocking small amounts has been increased and expanded. Plans may be amended to permit the payment of the commuted value of a pension benefit if, in the year the former member terminates employment, the annual benefit payable at the normal retirement date is not more than 4% of the Year’s Maximum Pensionable Earnings (YMPE) (increased from 2% of the YMPE), or the commuted value of the benefit is less than 20% of the YMPE.
In addition, the following new provisions of the PBA have been proclaimed in force:
- New definitions of “former member” and “retired member” and certain provisions that include these new definitions. While the PBA does not currently provide distinct rights for former versus retired members, future provisions may. For example, new provisions related to advisory committees (not yet in force) provide that retired members (specifically) will be entitled to appoint at least two representatives to the committee.
- A requirement that plan documents specify the consequences of participating employers withdrawing from MEPPs.
- Clarification of the surplus withdrawal rules.
- Certain “housekeeping”amendments to the regulations to: (i) reflect changes to the Income Tax Act regarding Individual Pension Plans; (ii) revoke provisions for “qualifying plans”(which used to exempt certain large plans from solvency funding requirements, but which no longer apply to any plans); and (iii) clarify requirements with respect to crediting interest on contributions.
While most of these amendments will require changes to the procedures to be followed and/or how a plan is administered, employers and administrators should review their plans to see if their plan provisions reflect any of the pre-reform PBA provisions (e.g., specifying the vesting period). If such provisions are included in the plan text, the plan must be administered in accordance with the above-noted amendments to the PBA and regulations effective July 1, 2012 and the text itself should be amended as soon as possible.
As we noted above, there are still a number of PBA amendments which are yet to be proclaimed in force. We will continue to monitor the progress of Ontario’s pension reform agenda and will report on further developments as they arise.