On June 24, 2011, the Ontario government published final regulations governing the division of pensions on marriage breakdown. With the publication of these regulations, which come into force on January 1, 2012, long-awaited reform of the family law provisions of the Ontario Pension Benefits Act appears to be coming to a close.
Continue Reading...The Ontario government recently filed regulations under the Pension Benefits Act (the PBA), which implement funding changes for jointly sponsored pension plans (JSPPs) and certain public sector plans, as well as more general changes applicable to all defined benefit (DB) plans.
Continue Reading...Certain provisions of Bill C-9, last year's Budget Bill, which amended the federal Pension Benefits Standards Act (PBSA), have been proclaimed in force.
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:
Effective July 1, 2011, provisions related to immediate vesting of benefits will come into force.
Effective March 25, 2011, Ontario amended the regulations under its Pension Benefits Act (the Regulations) to adopt the federal investment rules “as they may be amended from time to time.”
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.
Continue Reading...In this week’s Budget announcement, the Ontario government confirmed that work continues on its pension reform initiatives. While a number of the government’s announcements focus on the administration, investment and funding of single and multi-employer pension plans, the government also reiterated its desire to make changes at the “macro” level through support of modest phased in CPP enhancements and its ongoing investigation of new forms of retirement vehicles to improve workforce coverage in a cost effective manner.
Continue Reading...In this post, I will discuss important pension plan funding changes implemented by Bill 120, Securing Pension Benefits Now and for the Future Act, 2010. (Previous posts have considered some of the more controversial aspects of Bill 120, namely, changes to the rules regarding surplus withdrawals, contribution holidays and plan expenses.)
Like many aspects of Bill 120, these changes have not yet been proclaimed into force, and regulations are needed to provide much of the underlying details. However, plan sponsors and administrators should start considering the implications of these amendments now since they could require changes to current practices.
This week the federal government announced that it is amending the Pension Benefits Standards Regulations (the Regulations) to provide federally-regulated plan sponsors with greater flexibility when meeting their funding obligations, while protecting the benefits of plan members and retirees.
The federal government began on the road to pension reform with the introduction of Bill C-9 – this year’s budget bill – which received royal assent on July 12, 2010. (See our April 1, 2010 blog post.)
Bill C-9 included a number of funding-related provisions that required separate amendments to the Regulations. A number of these outstanding issues appear to have been addressed in this latest round of amendments. The amendments to the Regulations will add the following details:
Continue Reading...The federal government announced that Bill C-47, which included another round of pension reform, received royal assent yesterday.
As discussed in a prior post, Bill C-47 follows up on the Bill C-9 amendments to the federal Pension Benefits Standards Act (the PBSA) that were passed earlier this year. Perhaps the most interesting are amendments which purport to provide defined contribution plan administrators with a limited form of “safe harbour” from liability related to member directed plan investments. Bill C-47 also included the following amendments to the PBSA:
Continue Reading...On December 2, 2010, the Prince Edward Island government introduced Bill 30 - Pension Benefits Act , the first step towards implementing provincial pension standards legislation that will establish minimum standards similar to that of other Canadian jurisdictions.
Interestingly, a previous version of the PEI Pension Benefits Act received Royal Assent on April 26, 1990 (the 1990 Act), but was never proclaimed in force. Bill 30 repeals the 1990 Act.
Continue Reading...Yesterday Bill 120, Securing Pension Benefits Now and for the Future Act, 2010, received royal assent. As discussed in previous posts (see October 22, October 29 and December 6, 2010 posts), Bill 120 made a number of significant changes to the Ontario Pension Benefits Act, including:
Continue Reading...Last month, I appeared before the federal government’s Standing Committee on Industry, Science and Technology to convey our concerns regarding Bill C-501,An Act to amend the Bankruptcy and Insolvency Act and other Acts (pension protection), which if passed will alter the status of unfunded pension plan liabilities in the context of restructurings and bankruptcies. These changes could negatively impact employers with defined benefit (DB) pension plans and their ability to fund their plans.
Continue Reading...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:
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.
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.
Continue Reading...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.
Continue Reading...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.
Continue Reading...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.
Continue Reading...One of the results of pension reform in Ontario in 1988 was the introduction of "grow- in" rights. Grow-in rights allow Ontario members with defined benefits affected by a partial or full wind up of their pension plan to "grow in" to ancillary benefits such as enhanced early retirement benefits provided under their plan, if their age and service equals at least 55 points.
One of the most significant changes brought about by Ontario's Bill 236 is that, effective July 1, 2012, grow-in rights will apply to all terminations by employers, unless the employee was terminated for "wilful misconduct". Special rules will permit multi-employer plans and jointly sponsored plans to elect to be excluded from this rule.
Continue Reading...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.
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.
Continue Reading...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:
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.
Continue Reading...Following several days of public hearings and receipt of many written submissions, on April 19, 2010 the Standing Committee on Finance and Economic Affairs reported on Ontario Bill 236, Pension Benefits Amendment Act, 2010, making a number of amendments to the Bill.
Probably the most significant change in the revised version of the Bill, which was ordered for third reading, was the extension of the modified surplus sharing regime to partial wind-ups.
The current surplus sharing regime requires employers to satisfy member consent thresholds AND demonstrate surplus ownership. Bill 236 (similar to the federal regime) originally permitted employers to withdraw surplus from their pension plans on full wind-up without needing to prove surplus ownership if member consent thresholds were satisfied and other prescribed requirements were satisfied. Future and pending partial wind-up surplus withdrawals (prior to the elimination of partial wind-ups in 2012) were, however, being treated differently under Bill 236 and remained subject to troublesome conflicts in the current legislation which have caused problems for employers and affected members for years. Revised Bill 236 fixes the problem by prescribing identical treatment for full and partial wind-up surplus distributions. This means that once the Bill becomes law, plan sponsors with pending partial wind-ups (and pending partial wind-up surplus distributions) will be able to take advantage of this modified surplus sharing regime and withdraw surplus by proving ownership or with the required level of member consent.
Continue Reading...Following through on its announcement last fall, the federal government has recently tabled a Notice of Ways and Means Motion, which includes amendments to the Income Tax Act increasing the pension plan surplus threshold from 10% to 25%.
These amendments, which will apply to all registered pension plans, whether federally or provincially regulated, beginning with 2010 current service contributions, will allow employers to accumulate greater surpluses in their plans. The theory is that in doing so employers will be encouraged to contribute more to their plans, thereby increasing benefit security and reducing funding volatility.
While many in the pension industry have been lobbying for these changes to the tax rules for some time, the willingness of employers to take advantage of these amendments may be influenced by their perceived ability (or lack thereof) to access such surplus under current provincial pension standards legislation. The so-called “asymmetry issue” (where those responsible for funding deficits are not given equivalent access to surplus) is an issue that can only be fully resolved by legislative reform, which is still pending across Canada.
The Minister of Finance recently announced proposed amendments to the Income Tax Act creating a new vehicle, called an employee life and health trust (EL&H trust), through which employers can provide certain group benefits to their employees and former employees in a tax effective manner.
While many of the rules in the proposed amendments regarding EL&H trusts are similar to existing law and policy for health and welfare trusts (H&W trusts), there are a number of interesting new provisions, including the following:
The Ontario Court of Appeal’s recent decision in Hydro One confirmed that the Superintendent may use a “subset analysis” when assessing the “significance” of plan member terminations for purposes of ordering a partial plan wind-up. The impact of this decision may be limited, however, if the amendments to the Ontario Pension Benefits Act (PBA) wind-up provisions included in Bill 236 are passed.
Currently, s. 69(1)(d) of the PBA gives the Superintendent the discretion to order a partial plan wind-up if a “significant” number of plan members are terminated as a result of a business reorganization. In the past, cases have held that the “significance” inquiry may be conducted on one or both of the following two bases: the absolute number of terminations or a percentage of the total number of active plan members. The Hydro One case considered a third scenario: whether the Superintendent can carry out the “significance” analysis based on the number of terminated members falling within a defined subset of plan members.
In Hydro One, there were different categories of plan members based on whether or not they were represented by unions. The absolute number of terminations was 73. As a percentage, the terminations represented 2% of the total plan membership (4000) and 18% of the category at issue. Based on the latter test, the Financial Services Tribunal held that the number of terminations was significant. (PDF) The Divisional Court upheld the Tribunal’s decision.
The Court of Appeal agreed with the Tribunal and the Divisional Court. Noting that the public policy and remedial objectives of the PBA require it to be given a “liberal interpretation”, and that the term “significant” is not defined under the PBA, the Court found that a flexible and contextual approach should be taken when assessing whether a “significant” number of plan members has been terminated, thereby triggering a partial wind-up order by the Superintendent. Not surprisingly, the Court concluded that a subset analysis was consistent with a the remedial nature of the PBA and the long line of authorities that have considered s. 69(1)(d).
The Hydro One case is likely one of the last disputes over the meaning of “significant” in s. 69(1)(d). The decision will continue to be relevant during the transition period while partial wind-ups are being phased out, but will ultimately be moot. (Under Bill 236, partial wind ups with an effective date prior to January 1, 2012 will be grandfathered, after which partial wind-ups will be eliminated.)
The elimination of partial wind-ups means that employers will no longer be required to distribute surplus out of the plan based on the test in s. 69(1)(d). However, the elimination of partial wind-ups is not a panacea. The trade off is that the other main benefit conferred on Ontario plan members by partial wind-ups – “grow in rights” – must in future be provided to all eligible involuntary terminations (other than for cause).
The Pension Benefits Amendment Act, 2009 (Bill 236) proposes to extend “grow-in rights” to all Ontario pension plan members whose employment is involuntarily terminated (other than for cause). While this measure was recommended in the Report of the Expert Commission on Pensions (the OECP Report) and comes as no surprise, it is one of the more controversial aspects of the Bill.
Currently, grow-in benefits are only available to members affected by a full or partial wind-up whose age plus years of total service equal at least 55. Such persons are entitled to any early retirement benefits provided under the plan that they would have “grown into” had both the plan and their employment continued until their early retirement date.
The Bill proposes to extend these benefits to all members who are involuntarily terminated by an employer (other than for cause) on and after January 1, 2012. Jointly sponsored pension plans and multi-employer pension plans may elect to opt out of this requirement.
This proposed change is part of a general initiative in the Bill to treat plan members uniformly regardless of the circumstances of their termination (i.e., whether they are terminated in the normal course or as part of a broader program). Such consistency is a worthwhile goal, since it makes little policy sense to provide this benefit to employees terminated in a special situation (e.g., plant shut down or other reorganization) but not those terminated in the normal course. But consistency of treatment among plan members could also have been achieved by abolishing mandatory grow-in rights (for those who had not yet met the eligibility requirements).
Continue Reading...On December 9, 2009 the Ontario government announced the first stage of a multi-step process to reform the province’s occupational pension system – the Pension Benefits Amendment Act, 2009 (Bill 236). The next stage is scheduled to be released in the spring of 2010.
It appears that the government is taking its cue from the Arthurs Report released one year ago, and rolling out legislation that provides some fixes to problems that have plagued the Ontario pension industry since the current pension legislation was enacted in 1987. The stated goal of the Arthurs Report was to balance the interests of employees and employers. Bill 236 seems to be tracking the recommendations in the Arthurs Report quite closely. As a result, some changes will be welcomed by sponsors; however, the proposals also contain enhancements for plan members that will increase benefit costs.
Here is a summary of the Bill with some initial thoughts on its key provisions.
1. Elimination of partial wind ups, introduction of immediate vesting and extension of “Rule of 55” grow-in benefits to all plan members whose employment is involuntarily terminated (other than for cause)
2. Forced annuitization eliminated
3. Facilitate plan mergers and asset transfers while protecting member benefit security
4. Increase transparency and access to information for plan members and pensioners
5. Enhanced regulatory oversight
6. Improve plan administration and reduce compliance costs
7. Surplus sharing settlements not subject to historical plan terms
8. Phased retirement
On November 5, 2009, Bill 48 (PDF) received Royal Assent and amended the Nova Scotia Pension Benefits Act to accommodate phased retirement.
Phased retirement occurs when a plan member receives a portion of their pension, while at the same time continuing to accrue pension benefits under the same plan. The amendments to the Nova Scotia Act permit an employer to offer phased retirement to eligible plan members by allowing payments of up to 60% of an accrued pension without having to retire and with or without a reduction in their work hours.
This announcement brings Nova Scotia pension legislation in line with other jurisdictions, such as the Federal, Alberta (PDF), British Columbia, Quebec, and Saskatchewan (PDF) governments, which have adopted similar legislation and/or policies to allow phased retirement. Based on the Ontario Budget announcement on March 26, 2009, it is expected that Ontario pension legislation will also be amended to permit similar phased retirement programs.
Nova Scotia’s private defined benefit pension plans are set to benefit from an extension of the time required to make their plans fully solvent.
Under the new regulations recently announced by the Department of Labour and Workforce Development, plan administrators will have ten years to fund solvency deficiencies, as opposed to the normal five years, with permission from plan members. The regulations apply to plans reporting underfunding between December 30, 2008 and January 2, 2011. The regulations also permit plan administrators to file a new valuation in order to pay previous funding shortfalls over the new ten-year period.
The announcement follows the recommendation of the report of the Nova Scotia Pension Review Panel (PDF) to lengthen the amortization for funding solvency deficits from five to ten years. It also comes on the heels of temporary solvency funding relief announced in other provinces, including Ontario, where pension plan administrators can extend the amortization period to ten years for new solvency deficiencies only, with the consent of members and former members.
The new regulations are not yet available, but are expected to be incorporated into the Nova Scotia Pension Benefits Regulations shortly.
On October 21, 2009, the Québec government published amending regulations to complement the new measures for funding defined benefit pension plans that were introduced in the Supplemental Pension Plans Act by Bill 30 (PDF) (as amended by Bill 68) (PDF) (the Bill 30 Regulations).
The Bill 30 Regulations include the following:
The Bill 30 Regulations will come into force on January 1, 2010. However, some measures such as the provision for adverse deviation must be reflected in actuarial valuations as at December 31, 2008 or later if an employer elects to avail itself of one or more of the funding relief measures introduced by Bill 1 (PDF) and the related regulation (PDF).
Since the Bill 1 regulation has not yet been adopted, the Régie des rentes du Québec announced that the deadline for submitting an actuarial valuation as at December 31, 2008 to the Régie has been extended until December 31, 2009 (instead of September 30, 2009).
Now that the legislative framework for the new funding scheme is largely in place, it will be interesting to see whether it will significantly strengthen the funding of defined benefit plans while slowing the gradual decrease in defined benefit plan coverage.
Traduction en français:
Le gouvernement du Québec a publié, le 21 octobre 2009, un règlement qui complète les nouvelles mesures de financement des régimes à prestations déterminées qui ont été introduites dans la Loi sur les régimes complémentaires de retraite par la Loi 30 (PDF) (telles qu’ajustées par la Loi 68) (PDF) (le « Règlement »).
Le Règlement prévoit notamment les points suivants:
Le Règlement entrera en vigueur le 1er janvier 2010. Toutefois, certaines mesures telles que la constitution d’une provision pour écarts défavorables devront être reflétées dans les évaluations actuarielles dont la date est postérieure au 30 décembre 2008 si un employeur choisit de se prévaloir d’une ou plusieurs des mesures d’allégement prévues dans la Loi 1 (PDF) et son règlement d’application (PDF).
Comme ce règlement d’application n’est pas encore été adopté, la Régie des rentes du Québec a annoncé que les comités de retraite qui doivent remettre une évaluation actuarielle au 31 décembre 2008 ont jusqu'au 31 décembre 2009 (au lieu du 30 septembre) pour le faire.
Maintenant que le cadre législatif du nouveau régime de financement est presque entièrement en place, il sera intéressant de voir si les nouvelles règles renforceront la sécurité des prestations tout en aidant à enrayer la diminution graduelle du nombre de régimes à prestations déterminées.
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