• plan records to be made available on request by the plan administrator for inspection;
• plan records which can be provided by the plan administrator via mail or electronically and the fees which may be charged; 
• plan records which may be inspected at the offices of the Superintendent or provided by the Superintendent via mail or electronically upon the payment of a fee; and 
• a requirement that the administrator of a defined benefit plan file an investment information summary.

These new regulations update the list of documents specified persons can require be provided, to include the actuarial information summary and the investment information summary. Otherwise much of the information to be provided is the same as it was before. Also, while there is currently no legislative or regulatory requirement to file an investment information summary, the Financial Services Commission of Ontario (FSCO) has been requiring administrators of defined benefit pension plans to file such a summary (see Form 8) for some time. This regulation will provide the authority backstopping this requirement.

Perhaps most curious is that while FSCO charges plan members 50 cents per page for copies of documents made at its offices, the government has determined that plan administrators may only charge 25 cents per page for paper copies of plan documents.

Similar to the other draft regulations posted late last month (see our April 30, 2012 post) comments on the regulations are due by June 1, 2012.

Bill 38 marks the first significant amendments to British Columbia’s pension regime since the Joint Expert Panel on Pension Standards released their report on November 14, 2008. This panel was established by the Finance Ministers of Alberta and British Columbia to study the pension legislation of the two provinces and to make recommendations on pension reform.

Bill 38 introduces significant changes to British Columbia’s pension regime. According to a B.C. government press release, the amendments are designed to encourage “wider private-sector pension coverage”. In addition, the explanatory notes to the proposed reforms indicates that the reforms are intended “to harmonize British Columbia’s pension legislation more closely with that of Alberta.” (This statement seems to imply that we may see some similar amendments in Alberta in the near future.)

However, Bill 38 also introduces a number of novel and interesting pension reforms, including the following:

• Governance & Funding Policy Requirements: Plan administrators would be required to establish governance policies. In addition, plan administrators of defined benefit and target benefit plans would be required to establish funding policies. (This would appear to build on the requirements set out in the guidelines established by CAPSA.)
• Distinguishing Between Actuarial Excess and Surplus: The PBSA would distinguish between excess assets over liabilities in an ongoing plan (i.e., actuarial excess) and excess assets over liabilities in a plan that has been terminated (i.e., surplus).
• Solvency Reserve Account: Administrators of a defined benefit plan (other than a target benefit plan) would be permitted to establish a separate account within the pension fund and deposit payments into this account made in respect of a solvency deficiency. Prescribed “actuarial excess” in the reserve account will also be permitted to be withdrawn by a “prescribed person”. 
• Innovative Plan Designs: New plan designs would be added to the PBSA, including:
  • negotiated cost plans – a pension plan established under a collective agreement where contributions are determined and limited by the collective agreement;
  • target benefit plans – a pension plan where contributions and benefits are fixed according to a pre-determined formula (as in a defined benefit plan). However, in a target benefit plan, accrued benefits can be increased or reduced from time to time based upon the funded status of the plan. (Other provinces, such as Ontario, have likewise introduced target benefit provisions through recent pension reforms. However, British Columbia will permit target benefit provisions to be used in non-unionized environments. By contrast, it seems that currently an employer in Ontario will only be permitted to adopt target benefit provisions where their contribution obligations are limited to a fixed amount set out in one or more collective agreements); and
  • jointly sponsored pension plans (JSPP) – the proposed amendments create the framework for a cost-sharing plan model for private sector plans which is similar to that which is currently used in British Columbia’s public-sector pension plans. (This differs from Ontario, where the focus has been on moving public sector plans to the JSPP model.)

As is typically the case with pension reforms, these provisions will not come into force until accompanying regulations (which provide the details of how these reforms are to be applied) are released. We will be reviewing these regulations once they are released, and will provide any additional commentary in future posts.

• proclamation of the "retired member" provisions in the PBA;
• implementation of immediate vesting for plan members (the 2012 Budget indicates that this change will come into effect on July 1, 2012);
• increases to the threshold for the pay out of "small pensions"; and
• clarification of the surplus withdrawal rules.

• clarifying entitlement of retired members receiving joint and survivor pensions where their spouses pre-decease them;
• adding a transition provision requiring survivor consent to any lump sum settlement of small survivor benefits where the first instalment of the deceased retired member’s pension is due before the coming into force date; 
• specifying that the new letter of credit provisions do not apply to jointly sponsored pension plans, as well as multi-employer pension plans; 
• repealing provisions that currently enable the Superintendent of Financial Services to consent to the commutation or surrender of certain retirement savings arrangements in circumstances of financial hardship; 
• allowing the Superintendent to require plan administrators to provide additional information to persons entitled to notice upon the wind-up of a plan; 
• clarifying requirements for asset transfers between defined contribution plans; and 
• extending the time period (to June 30, 2013) permitting the government to make retroactive regulations in connection with defined benefit plan funding.

Some Good News for Private Sector Employers

The government recognized that as a result of ongoing market volatility and low interest rates many private sector defined benefit plans continue to struggle with solvency funding deficits. In response, the government announced an extension of the temporary solvency funding relief measures introduced in 2009. Employers will also be permitted to begin amortization of solvency and going concern special payments one year after a plan valuation date. These changes will go into effect when filing the first actuarial valuation report dated on or after September 30, 2011. 

In addition, the government reiterated its plan to permit employers to use letters of credit for up to 15% of a plan’s solvency liabilities. (This amendment was included in Bill 120, but is yet to be proclaimed in force.)

The Budget also announced the establishment of an “Unclaimed Intangible Property Program” to reunite owners with their “unclaimed property”, including insurance policies, returned stocks and bonds, bank deposits, unpaid wages, and pension benefits. This may finally provide a mechanism for plan administrators to deal with the benefits of unlocated members.

The Budget recaps past pension reform (e.g., Bill 236 and Bill 120 amendments to the Ontario Pension Benefits Act) and indicates that draft regulations to implement these reforms will be released later this year – some as early as this spring – including regulations related to the following:

• clarification of the surplus rules;
• implementation of many of the asset transfer provisions;
• implementation of a “funding concerns” test for plans not required to fund on a solvency basis; and
• eligibility conditions for “contribution holidays” and accelerated funding of benefit improvements.

The Budget also states that a number of previously announced reform amendments will be coming into force on July 1, 2012, including:

• immediate vesting;
• elimination of future partial plan wind-ups; and
• extension of grow-in benefits to all employees (other than those dismissed for wilful misconduct, disobedience or wilful neglect of duty) and the related ability of jointly sponsored and multi-employer pension plans to opt out.

“Sustainable” and “Affordable” Public Sector Plans

Taking its cue from the pension-related recommendations in Don Drummond’s report on the Ontario public service, the Budget notes the increasing cost of the government’s pension obligations and emphasizes the need for public sector plans to be “more affordable for taxpayers and sustainable for pension plan members.” In this regard, the Budget  includes (in addition to wage freezes, which would impact most public sector plans) the following announcements specific to pension plans:

Jointly Sponsored Plans

• The government would develop a legislative framework, subject to consultation, to implement the objectives set out below.
• Where employee contributions are currently less than employer contributions, increases to employee contributions would be considered as a means of reducing pension deficits. The goal being to split plan funding 50/50 between employers and employees.
• Where there is a deficit, plans would be required to reduce future benefits or ancillary benefits (subject to limits in exceptional circumstances) before further increasing employer contributions.
• Any benefit reductions would affect future benefits only. It would not impact benefits that have already been accrued or the benefits of current retirees. 
• If plan sponsors cannot reach an agreement on benefit reductions, a new third-party dispute resolution process would be triggered.

Single-Employer Plans

• The government will adjust previously announced temporary solvency funding relief measures to encourage plans to split the cost of ongoing contributions evenly between employers and employees within five years.
• Efforts to convert current single-employer defined benefit public-sector pension plans to jointly sponsored pension plans with equal cost-sharing will also be encouraged.

Pension Asset Management

• Recognizing the effectiveness of the asset management strategies of some of the larger public sector plans, the government indicates that it will introduce legislation this fall to facilitate the pooling of pension fund assets and investment management functions of smaller public sector plans.
• The Budget indicates that this pooling of resources may be achieved “through a new investment management entity or by building on existing large public-sector pension plans” and that further consultation will be required.

Enhancements to Canada’s Retirement System

The Budget reiterates the Ontario government’s commitment to“modest” enhancements to the Canada Pension Plan. At the same time, the government expresses its concerns regarding the federal government’s proposed pooled registered pension plans, specifying that “the implementation of pension innovation should be tied to CPP enhancement as part of a comprehensive approach.”

Next Steps

While much of the detail is yet to come, this year’s Ontario Budget contains more pension announcements than we have tended to see in past years, indicating that pensions are higher up on the government’s agenda. Private and public sector plans, and organizations that sponsor them, may want to start preparing (now) for the changes ahead.

In response to these “letter of credit amendments”, which came into force on April 1, 2011, the Office of the Superintendent of Financial Institutions recently updated its frequently asked questions on the changes to the DB funding rules to include new FAQs on letters of credit.

These FAQs consider issues such as:

• the treatment and application of letters of credit obtained under the Solvency Funding Relief Regulations and how they interplay with the “new” letter of credit regime;
• the treatment of a letter of credit that is included in solvency assets when calculating a plan’s average solvency ratio; and
• when a letter of credit that is used in lieu of solvency special payments must be provided to the trustee and what must be its effective and expiry dates.

This guidance should be of assistance to sponsors of federal pension plans seeking to use letters of credit in the future.

• defining “retired members”, thereby creating rights for a new group of plan participants;
• introducing immediate vesting;
• permitting plans to offer phased retirement options;
• permitting prescribed employers to use letters of credit to fund solvency deficiencies;
• allowing for the use of jointly sponsored pension plans and target benefit plans;
• allowing employer contribution holidays when the plan is in surplus, unless prohibited by the plan or the funding documents for the plan;
• clarifying the requirements with respect to asset transfers between pension plans;
• providing that surplus may be paid to an employer when it has reached an agreement with two-thirds of the plan members (or a union on behalf of such members) and a prescribed number of former members, retired members and others or by court order; and
• permitting the payment of “reasonable” plan administration expenses from the plan fund unless such payment is prohibited or the payment of fees and expenses is otherwise provided for in the plan or funding documents for the plan.

While these reforms will bring Nova Scotia’s pension regime closely in line with Ontario’s, certain differences will continue to exist between Ontario’s and Nova Scotia’s pension legislation. Most notably, partial plan wind ups will continue to be permitted in Nova Scotia, whereas they are to be phased out in Ontario after a transition period.

Further, Nova Scotia is not following Ontario’s expansion of grow-in rights to all plan members whose employment is involuntarily terminated (except where there has been wilful misconduct, disobedience or wilful neglect). Nova Scotia will continue to require grow-in rights to be provided on the partial or full wind-up of a plan, however, in Nova Scotia’s pension regime there is no requirement to pre-fund such benefits and the full amount of all pensions, deferred pensions, ancillary benefits and other benefits must be paid prior to grow-in benefits in the event of full or partial wind-up.

We expect Nova Scotia to amend the regulations to their pension legislation in order to clarify the “prescribed requirements” for many of the amendments discussed above. Since Nova Scotia followed Ontario’s amendments to its pension legislation, they may very well continue to look to Ontario’s reforms for guidance in this regard. We look forward to reviewing Nova Scotia’s regulations in the future and will keep you informed as to the progress of pension reform in Nova Scotia.
 

• Use of a “smoothing” method (i.e., averaging method) to value plan assets on a solvency basis over a 5-year period rather than using the current market value;
• Consolidate certain solvency deficiencies; and
• Extend the amortization period to eliminate the new solvency deficiency from 5 to 10 years.

Last week, the Quebec government announced its intention to extend the temporary solvency relief measures for an additional period of two years (i.e., until December 31, 2013). The other details of the proposal have not yet been released.

The government will also extend for two more years the special settlement option available to certain plan members and beneficiaries who participate in an underfunded plan that is terminated in connection with the bankruptcy or insolvency of their employer. In these circumstances, such members and beneficiaries can elect to have their reduced benefits paid by the Régie des rentes du Québec. The assets attributable to those who elect this option are to be administered and invested by the Régie during a prescribed period and will then be used to purchase annuities at a time when the annuity market is (hopefully) more favourable. The Régie is thereby assuming the risk of a further deterioration in economic conditions.

See our prior post for more details regarding this settlement option and Bill 42 for more details regarding the extension itself.

Further Pension Reform on the Horizon?

As part of its announcement, the government also indicated that it would take the two-year extension as an opportunity to review the Quebec Supplemental Pension Plans Act in light of the new economic and demographic realities. The government has directed the Régie to establish an independent expert committee to study the various problems affecting DB plans, and to propose a series of changes to the current legislation that would improve the viability of DB plans in Quebec. That being said, no reform is expected to occur before 2014.

• applying to the plan administrator for the “imputed value” or “family law value” of the pension;
• the administrator advising the applicant if an application is incomplete; 
• providing a statement of the imputed value of the pension to the applicant -- there are different versions of these forms depending on the type of plan (e.g., defined benefit or defined contribution) and the status of the member (e.g., active or retired); and
• requesting the plan administrator to transfer a former spouse’s share of a pension or to divide a retired member’s pension, or to advise that there will be no pension division.

One form that appears to be missing is a form for the plan administrator to advise the member and the former spouse of the completion of a pension transfer or division, which could include information such as the amount transferred to the former spouse and the amount of the member’s adjusted pension going forward.

While FSCO has indicated that the forms may be amended between now and the December 31, 2011 deadline, they have also stated they do not expect to make any “material changes” to the forms.

To provide plan administrators and members with further guidance, FSCO has posted instructions and questions and answers related to the forms. FSCO has also indicated that they are in the process of developing additional materials, including questions and answers that will clarify transitional issues.

We’ll discuss these forms further and, more generally, the practical implications of the new pension division regime for plan administrators at an upcoming webinar on Wednesday, November 9, 2011. For more information, please contact Vaughna Mackenzie at seminars@osler.com.

These concerns regarding declining pension coverage appear to be supported most recently by statistics released by the Office the Superintendent of Financial Institutions (OSFI) although, perhaps surprisingly, the decline does not seem to be as precipitous as one might have expected.

The statistics also demonstrate the well-known disparity between the public and private sectors, with RPP coverage for the public sector at 86% in 2009, versus only 25% for the private sector. There is also a large disparity in the type of pension plans offered. While the proportion of pension plans offering defined benefit (DB) coverage in the public sector has been stable between 1999 and 2009 (at 94%), there has been a significant reduction in the proportion of pension plans offering DB coverage in the private sector (from 76% to 56%).

These statistics make it clear that while overall pension coverage is not declining as quickly as some might have thought, DB plans are indeed on the decline, at least in the private sector. Whether the various pension reform initiatives introduced across Canada will serve to slow this trend remains to be seen.

As I discussed in an earlier blog post, New Brunswick was the fifth jurisdiction in Canada to appoint an expert panel to review pensions when it announced the formation of the Task Force last fall. The Task Force has indicated that it intends to issue an interim report, based on its initial review and stakeholders’ submissions, in the fall of 2011, and that it will present recommendations to the New Brunswick government aimed at encouraging risk management and risk sharing and ensuring the long-term sustainability of New Brunswick pension plans. Written submissions are due by September 19, 2011 and may be sent via e-mail to: pensions-retraite@gnb.ca.

There will be an opportunity for further stakeholder feedback following the release of the interim report. The Task Force expects to review and evaluate the feedback it receives and issue its final report in the spring of 2012.

In March of this year, the Ontario government finally released the regulations – in draft form – required to implement this regime. As discussed in my earlier blog post, the draft regulations set out the methodology to be followed by pension plan administrators when calculating the valuation of the member’s pension assets.

In the final form of the regulations, some refinements have been made to the calculation methodology, including:

• guidance for administrators of “hybrid” plans (i.e., plans that include both defined benefit and defined contribution components) – the government had sought feedback on this issue earlier this year in its consultation paper;
• separate methodologies depending upon whether the valuation date falls before or after the earliest date on which the member would have been eligible (or deemed eligible) for an unreduced pension under the plan’s early retirement provisions; and
• procedures to follow where an agreement has not yet been reached with respect to the valuation date.

To provide additional guidance to plan administrators and members, the Financial Services Commission of Ontario (FSCO) has posted questions and answers on its website. Among other things, these Qs&As confirm that there will be no retroactive application of the new rules, and thus court orders and agreements made before January 1, 2012 will continue to be governed by the current “if and when” regime. The Qs&As also emphasize that once in force, all plan administrators must provide these calculations when requested to do so – it is not voluntary.

FSCO has also indicated that it is in the process of developing new marriage breakdown forms, including a form to be completed by spouses requesting a plan administrator to determine the value of pension assets and a form to be completed by the plan administrator showing the value of those assets.

Given the complexity of these new regulations, plan administrators should begin putting in place systems and procedures now so that they are ready to respond to requests in the new year.

• the eligibility requirements to be a PRPP administrator;
• the application of the “primary purpose” test to PRPPs (i.e., the primary purpose of a registered pension plan (RPP) must be to provide periodic payments to individuals after retirement in respect of their service as employees); 
• the treatment of employer contributions (if any) and member contributions to a PRPP (i.e., two approaches could be considered: (1) permitting contributions to PRPPs under the dual system of RPP and RRSP limits; or (2) permitting contributions to PRPPs under the RRSP limits only); 
• whether and how the concept of “pensionable service” for past service could be applied to PRPPs; 
• whether the rules allowing contributions during leaves of absence and periods of reduced pay should be extended to PRPPs; 
• to what extent certain transfers should be permitted from RPPs to PRPPs;
• the application of investment rules to the PRPP (e.g., the rules regarding “prohibited investments”); 
• whether there should be minimum employer/membership requirements; and 
• the application of potential rules associated with forfeitures or refunds of PRPP contributions.

At least two provincial jurisdictions have recently shown interest in PRPPs -- Ontario indicated in its spring budget that it would continue to work with the federal and other provincial jurisdictions regarding the implementation of PRPPs and Quebec expressed an interest in amending its legislative and regulatory frameworks to allow “voluntary retirement savings plans”. (See our earlier blog post for further discussion of the Quebec proposal.)

The government is seeking feedback on the Paper by August 12, 2011.
 

• JSPPs that existed on August 24, 2010 (as listed in the regulations) are exempt from solvency funding requirements. However, JSPPs will still be required to determine solvency deficiencies using the method set out in the amendments, and a valuation report will have to be filed if a plan amendment changes the amount of the solvency deficiency.
• In exchange for this solvency funding exemption, JSPPs must file certain statements with the regulator and provide enhanced reporting to plan members. For example, JSPPs must include additional information in annual statements for members, such as informing them that their benefits are not guaranteed by the PBGF and may be reduced on plan wind-up, the contribution rates for employers and members could change, additional contributions are not being made to eliminate the solvency funding shortfall, and what the amounts of contribution rates were for the year before and the year after the statement.
• It is important to note that the regulations’ JSPP solvency funding exemption applies only to the six named JSPPs. All other JSPPs interested in exploring solvency funding exemptions will have to consider seeking specific exemptions.
• New regulation 3.2 requires the administrator of all JSPPs to file a statement certifying that the plan satisfies the criteria to be a JSPP and describing how this criteria has been met. This statement must be filed no later than the filing date of the first plan valuation after becoming a JSPP (or the filing date of the next plan valuation after June 1, 2011 for existing JSPPs). 
• Certain changes were also implemented with respect to DB plans more generally. For valuations on or after December 31, 2012, plans with a funding threshold below 85% (as opposed to 80%) will be required to undertake annual valuations. (JSPPs, specified Ontario multi-employer plans and certain other specified plans are exempt from this provision.) In addition, as of January 1, 2012, all DB plans must include information regarding funding levels in annual plan member statements.

The Ontario government also filed Regulation 178/11, which sets out rules and procedures for certain public sector plans seeking temporary solvency funding relief through the two-stage process announced earlier this year. (Please see our February 14, 2011 post for further discussion of this funding relief initiative.)

When the Toronto Dress and Sportswear Industry Retirement Fund was wound up in April of 1996, the plan was severely underfunded. Plan assets were only sufficient to fund about 41% of plan liabilities. As the wind up proceeded, extensive efforts were made to contact all members and former members. In the end, however, there remained 249 missing, but identifiable members and approximately $1 million in undistributed plan assets relating to their 41% share of pension liabilities. The plan Trustees wanted to complete the wind up distributions, but they could not agree on how the missing member assets should be treated.

The union referred the arbitrator to a similar case decided under federal pension legislation in 2009 by the Ontario Superior Court (Hawker Siddley Canada Inc. (Re) [2009] O.J. No. 5795), where residual funds relating to missing persons had been ordered paid into court, but requested the arbitrator in this case order that the left-over funds be transferred (with regulatory approval) to an ongoing successor pension plan and continue to be held for the unlocated group.

The arbitrator noted FSCO’s position that funds owing to one member cannot be paid to another member and found, based on “general principles of trust law”, that the undistributed plan assets should remain in trust for the missing members. The arbitrator further noted the need for regulatory approval and that, while FSCO may be agreeable to a locked-in transfer to another registered retirement vehicle or pension plan, FSCO had communicated its unwillingness to accept any guarantee by either an employer or a union to pay benefits if the funds were released from the trust.

In the absence of any clear directions under the Ontario Pension Benefits Act on how to deal with missing members on a plan wind up, and to permit completion of the wind up process, the arbitrator ordered that an application be brought to seek FSCO’s approval of the transfer of the remaining plan assets to the successor plan, “with the intent that the assets be held and accounted for separately, and maintained in the event any of the missing but identifiable members are located or come forward.”

This case underscores a common dilemma faced by pension plan administrators when completing plan wind ups – difficulties arise when outstanding basic benefit and/or surplus entitlements are owed to missing plan members or their beneficiaries.

Interestingly, in the 2011 Ontario Budget, the government announced that it intends to “explore options to handle the benefits of unlocated members of plans that are wound up, in whole or in part, so that full and partial wind-ups may be completed.” Perhaps, the Ontario government will consider making amendments similar to those recently passed by the federal government (which will authorize the federal Minister of Finance to designate an entity for the purposes of receiving, holding and disbursing the pension benefit credit of any person who cannot be located.) In any event, however the issue is addressed, the Toronto Dress and Sportswear case highlights the need for further pension reform in this area.

As noted in an earlier blog post, Bill C-9 included a number of significant amendments to the PBSA related to funding, plan wind-ups, vesting, and plans at risk.  Briefly, the sections coming into force as of April 1, 2011 relate to:

• an employer's ability to use letters of credit in lieu of solvency payments;
• the ability of employers and plan members to agree to "workout schemes" (i.e., short moratoriums on deficit payments and changes to pension arrangements) where the employer is unable to meet the statutory funding requirements;
• the rights of members, former members and certain others to new types of plan information (e.g., actuarial reports, and documents related to workout schemes and letters of credit);
• the Superintendent’s authority to appoint a replacement administrator in insolvencies and certain other circumstances; and
• payments required on plan termination.

Effective July 1, 2011, provisions related to immediate vesting of benefits will come into force.

Previously, Ontario had adopted the investment rules as they read on December 31, 1999 – requiring any changes to the rules made by the federal government to be specifically adopted by the Ontario government. This change to the Regulations means that Ontario registered pension plans will now be subject to the most recent amendments to the federal investment regulations, and any future changes to these regulations will automatically apply to Ontario plans.

Future amendments to the federal investment rules will also apply to Ontario plans. For example, the regulatory impact statement that accompanied the amendments to the quantitative investment limits also indicated that the federal government intended to propose further modifications to the investment rules in respect of the 10% concentration limit (which, according to a previous government announcement, is to be updated to reflect market, rather than book value) and the general prohibition on pension fund investment in the shares of its sponsoring employer.

Administrators of Ontario plans will want to watch for any further amendments to the federal investment rules, as their plans will now be directly and immediately impacted by any future changes.

The government confirmed its commitment to certain previously announced amendments to the Ontario Pension Benefits Act (PBA) and the related regulations, such as providing a solvency funding exemption for certain jointly sponsored pension plans, updating Ontario’s pension investment rules to reflect recent and future federal changes, and implementing new rules regarding pension division on marriage breakdown. The Budget also announced further reforms, including:

• requiring plans to file Statements of Investment Policies and Procedures (SIP&Ps) with the regulator and to disclose whether or not their SIP&Ps address environmental, social or governance factors;
• exploring options for dealing with the benefits of unlocated members of partially and fully wound up plans; and
• reviewing the funding requirements for multi-employer pension plans with members outside Ontario.

Pension Innovation

Together with support for modest CPP expansion, the Budget expands on the government’s interest in making new, innovative retirement vehicles available to Ontarians, including: 

• taking steps to facilitate single-employer target benefit plans (i.e., changes to the Income Tax Act are needed); and
• working with the federal and provincial jurisdictions regarding the implementation of pooled registered pension plans (PRPPs) as a simple, low cost option to expand pension coverage directed at smaller employers and self employed individuals (the federal government announced a proposed framework for PRPPs last December).

Bill 173

Shortly after announcing the Budget, the government introduced Bill 173, Better Tomorrow for Ontario Act (Budget Measures), 2011. Other than the inclusion of the Nortel retiree portability amendment referred to in the Budget papers, the Bill does not address the issues raised in the Budget (as discussed above), but rather makes amendments to the PBA in relation to previously announced reforms largely described in the explanatory notes as “technical”. Bill 173 includes the following PBA amendments:

• to s. 42(1)(c), allowing terminating members to direct the plan administrator to purchase a life annuity only if the plan so provides;
• to s. 68, authorizing the Superintendent to require administrators to provide specified additional information and documents to specified individuals on plan wind up;
• to s. 115(7), extending the effective date to June 30, 2012 for the repeal of the PBA authorization for retroactive DB funding regulations;
• to s. 74 automatic grow-in provisions (triggered by “activating events”), scheduled to come into force on July 1, 2012, permitting additional “activating events” to be prescribed by regulation; and 
• to revised and unproclaimed s. 80 governing sale of business pension asset transfers, requiring all affected members, former members and retirees to consent to the transfer if the sale agreement provides for any member consent.

Perhaps most interesting of these changes is the amendment to the s. 74 grow-in rules. Does this signal the government’s intention to further expand the impact of automatic grow-in benefits?

While the government seems keen to continue its reform agenda, it will be interesting to see how much more pension reform will be completed with a provincial election looming.

The government is planning to amend Quebec’s legislative and regulatory frameworks to allow a new type of retirement savings vehicle for those who are not eligible for an employer-sponsored pension plan. VRSPs would essentially be based on the framework for “pooled registered pension plans” (PRPPs) that was announced by the federal government last December.

The implementation of VRSPs will require significant changes to the heavy legal framework governing registered pension plans in Quebec. The bulk of the new rules will probably be found in the exemption regulations, much like what was done in respect of simplified pension plans, which are somewhat similar to VRSPs.

Amendments to the federal Income Tax Act will also be required to accommodate VRSPs in Quebec and PRPPs (if any) in other provinces. Notably, the federal government will have to create exceptions to the requirements for an employer-employee relationship and a minimum employer contribution.

We will monitor the March 22, 2011 federal budget closely to see if the required tax amendments will be made in the near future, and we will report on the proposed legislative changes as the different pieces of legislation are tabled.

 

In this post, I provide a brief overview of the government’s funding relief proposal. Those seeking further information on the complex requirements of this program should refer to the detailed description provided on the Ontario government website.

Which Plans Are Eligible?

In order to be eligible for this funding relief, plans must fall within the proposed definition of “public sector pension plan”, which includes plans provided by Crown agencies and corporations, school boards, colleges, universities and municipalities. The plan must provide defined benefits and at least 25% of the total plan membership must be actively accruing benefits. Multi-employer and jointly sponsored pension plans are specifically excluded from this funding relief proposal.

Applications for Relief

Plans which intend to request this solvency funding relief, must submit an application to the Ministry of Finance (Ministry) within the applicable window. (As I note below, the first window is now open.) The government lists a number of documents that must be provided with the application, including:

• the estimated “savings target” of the plan;
• a detailed funding plan showing how the pension plan could be amended to improve its sustainability;
• evidence that the funding plan has been shared with plan members and any union, and will be shared with retirees; 
• identification of applicable collective bargaining agreements; 
• identification of plan amendments made or scheduled to come into force within the last 5 years that may have enhanced the plan's sustainability;
• identification of amendments scheduled to come into effect after entering the funding relief program that may have increased the cost of the plan; and
• copies of all plan documents, amendments and valuation reports filed since December 31, 1999.

Details of the relief measures, including eligibility criteria and additional conditions, will be outlined in amendments to the regulations under the Ontario Pension Benefits Act (PBA), which the government expects to come into force by mid-May of this year. In the meantime, you should consult the backgrounder if you think your plan may be eligible for the new relief.

Two-Stage Process

The proposed measures would provide temporary funding relief in two stages – with specific criteria attached to each stage.

If a sponsor’s application to the Ministry is accepted, plan sponsors would file a valuation report with the Financial Services Commission of Ontario. During this stage, plan sponsors would be required to make minimum payments to ensure that the solvency shortfall did not increase.

Plan sponsors would have three years from the date of the valuation report to determine what plan amendments could be made to improve the plan’s sustainability. Examples of design changes suggested by the government are: converting to joint sponsorship for future service, providing for more equitable cost sharing of benefits between sponsors and members, linking some future benefits (e.g., inflation protection) to plan performance, and enhancing cost certainty through benefit adjustments. Since many of the members of these plans are unionized, this process will likely include discussions with collective bargaining agents.

After three years, plan sponsors would be required to prepare another valuation and submit a report to the Ministry to demonstrate their progress in meeting their funding plan targets. The results revealed in the valuation would be measured against “savings targets”, which outline the criteria a plan would have to be meet to qualify for Stage 2 relief.

If the Ministry is of the view that targets have been met, it could recommend that the plan be eligible for further relief in Stage 2. Otherwise, the normal funding provisions in the PBA effective at the time would begin to apply. Among the benefits of Stage 2 would be the ability to amortize any solvency deficiency identified in the second valuation report over a ten-year period.

Window Now Open

Even though the amendments to the regulations have not yet been finalized, the first window for applying for funding relief is already open – from February 10, 2011 to March 23, 2011. Eligible pension plans with a valuation date as at December 31, 2009 or with a valuation date in 2010 could apply during this window. The government indicated that other windows of opportunity for eligible pension plans with valuation dates in 2011 and 2012 will be announced at a future date.