On April 11, 2019, the Ontario Ministry of Finance posted two proposed regulations affecting pension plans. One draft regulation sets out rules for the payment of variable benefits to Ontario retired members from the defined contribution provision of a pension plan. The other draft regulation amends the rules for obtaining a discharge upon purchase of an annuity to satisfy a defined benefit pension plan’s obligation to pay a pension to an Ontario retired member or surviving spouse.
Variable benefits
The draft variable benefit regulations follow a 2018 public consultation on the proposed content of the future variable benefit regulations.
The draft regulations set out rules regarding the minimum and maximum annual payments from a variable benefit account, transfers to other retirement arrangements, statements, and death benefits payable from a variable benefit account.
They also permit the retired member to withdraw or transfer from the variable benefit account up to 50 per cent of the initial account balance to an unlocked registered retirement savings arrangement within 60 days of the establishment of the variable benefit account. This 50 per cent unlocking option for variable benefit accounts is the same option available upon establishment of a Life Income Fund. The extension of the 50 per cent unlocking option to variable benefit accounts was recommended by Morneau Shepell in its submission during the 2018 public consultation.
The draft regulations also require the administrator to provide the retired member with information on how to designate his or her spouse as a specified beneficiary for the purpose of the Income Tax Regulations, in order for the spouse to receive continuing benefit payments after the retired member’s death.
Discharge upon annuity purchase
In the fall of 2018, the Ontario Pension Benefits Act (the Act) was amended to clarify the annuity discharge provisions and to extend the discharge provisions to surviving spouses entitled to a pre-retirement or post-retirement death benefit.
The draft regulations support these amendments to the Act by:
- Aligning the definition of "solvency ratio" in the annuity purchase and discharge regulations with the general definition of “solvency ratio” used elsewhere in the pension regulations;
- Setting out conditions under which a discharge will be provided for annuities purchased for surviving spouses; and
- Specifying the funding requirements under which a discharge will be provided for previously purchased annuities that are adjusted to meet the requirements for a discharge at a later date.
Comment
Upon adoption, the new variable benefit regulations and accompanying amendments to the Act will permit a DC plan to offer variable benefit accounts to Ontario DC members who wish to retire and receive payments directly from the DC pension plan. By offering this option, DC plan sponsors can assist their former DC members in obtaining retirement income directly from a DC plan, instead of requiring them to transfer funds to a financial institution or purchase an annuity.
The amended annuity purchase rules will facilitate discharges upon purchase of buy-out annuities for surviving spouses in Ontario. In addition, they will also facilitate discharges for previously purchased annuities for which the administrator wishes to obtain a discharge from liability.
Public comments on the draft regulations were permitted until May 3, 2019.
Tracy Solhi and Andrew Zur are pension and benefits lawyers with Morneau Shepell Ltd.