Three key pieces of legislation were passed in the past 12 months, each of which made certain amendments to the Ontario Pension Benefits Act: (a) Bill 177 of the previous Ontario government, Stronger, Fairer Ontario Act (Budget Measures), 2017, which received Royal Assent on Dec. 14, 2017; (b) Bill 31 of the previous Ontario government, Plan for Care and Opportunity Act (Budget Measures), 2018, which received Royal Assent on May 8, 2018; and (c) Bill 57 of the current Ontario government, Restoring Trust, Transparency and Accountability Act, 2018, which received Royal Assent on Dec. 6, 2018.
1. SOLVENCY FUNDING RULES
Effective May 1, 2018, a new solvency funding regime for Ontario came into force for single employer defined benefit pension plans and certain jointly sponsored pension plans. Plans are now funded on a reduced solvency deficiency basis if the plan is below 85 per cent funded. Going-concern liabilities must now be funded over 10 years (instead of 15), and plans are now required to fund a provision for adverse deviation in respect of both normal cost and going-concern liabilities, calculated based on three main factors: (i) whether the plan is open or closed to new members, (ii) the plan’s asset mix, and (iii) the excess of the plan’s going-concern discount rate over a benchmark discount rate. Bill 177 also amended section 55.1 by permitting members of JSPPs and employers to reduce or suspend any required contributions for the provision for adverse deviation in respect of the normal cost of the pension plan in certain circumstances.
The new regime also restricts the improvement of benefits under a plan unless it is at least 80 per cent funded on both a going-concern and a solvency basis (unless such improvements are immediately funded). Contribution holidays will also only be permitted if there is an “available actuarial surplus”, as specified O. Reg. 250/18. Bill 177 also amended subsection 79(1) of the PBA to specify that the Superintendent of Financial Services shall not consent to the payment of surplus out of a continuing pension plan to an employer unless at least twice the provision for adverse deviation in respect of the normal cost of the pension plan is retained in the pension fund as surplus.
2. DISCHARGE OF ADMINISTRATOR UPON PURCHASE OF ANNUITIES
Bill 177 added a new section to the PBA, section 43.1, which provides for the discharge of the administrator of a pension plan if the administrator purchases an annuity in satisfaction of a pension, deferred pension or ancillary benefit from an insurance company that complies with specified requirements. A notice of the purchase must be made to the former member or retired member. Bill 57 added that an administrator is deemed not to have been discharged if it is discovered that the annuity purchase did not meet the requirements.
Former members and retired members will still be entitled to a portion of plan surplus upon plan wind up, if they would have been entitled to such surplus had the plan been wound up on the day of the annuity purchase.
3. PENSION BENEFITS GUARANTEE FUND
Bill 177 expanded the pension benefits guarantee by the PBGF from $1,000 to $1,500 per month for pension plans with a wind up date on or after May 19, 2017, and removed the age and years of employment or membership eligibility requirements that members and former members had to meet in order for their benefits to be guaranteed by the fund.
Bill 31 further amended the PBA to require the Ministry of Finance to review the provisions and regulations relating to the PBGF every five years, with the first review to be completed within three years.
4. FINANCIAL SERVICES REGULATORY AUTHORITY OF ONTARIO
Bill 177 amended the FSRA Act and the PBA to provide FSRA with rule-making authority over certain matters, including: timing requirements for registering a plan and filing annual information, prescribing the records an administrator must make available upon request, the conditions that must be met for a pension plan to be deemed to permit variation in circumstances of shortened life expectancy and certain family law matters. FSRA released proposed rules on fees and assessments for consultation in fall 2018.
5. VARIABLE BENEFITS
Bill 177 amended section 39.1 of the PBA relating to variable benefits to provide that the specified beneficiary of a retired member for whom a variable benefit has been established is entitled (i) to receive statements about the pension plan or variable benefit account and (ii) to transfer amounts out of the variable benefit account (in accordance with the PBA). Bill 57 added amendments to the PBA permitting withdrawals from variable benefit accounts in certain circumstances. Draft regulations were published in spring 2018.
6. TARGET BENEFITS
Bill 177 replaced the unproclaimed sections of the PBA relating to target benefits with new provisions at section 39.2, including that the pension plan is a multi-employer pension plan and the plan supporting documents identify the benefit as a target benefit. Further, the amendments add new section 81.0.2 regarding the conversion of benefits provided by a multi-employer pension plan to target benefits. Notice of a proposed conversion must be given to: members, former members, retired members, participating employers, trade unions, and other persons entitled to benefits under the pension plan. Prior consent of the Superintendent is required.
7. CONVERSIONS AND ASSET TRANSFERS
Bill 57 amends subsection 80.4 of the PBA regarding conversions from single employer to jointly sponsored pension plans to clarify that the transfer of assets in respect of defined contribution benefits must comply with such requirements as may be prescribed and amends subsection 79.1(2) of the PBA to permit a transfer of assets relating to the provision of defined contribution benefits if the transfer is authorized under section 80.4.
8. FURTHER PENSION REFORMS
Bill 57 added new sections 30.1.1 and 50.0.1 permitting electronic designation of beneficiaries and commuted value payments of a deferred pension to non-residents, subject to spousal waivers.
Tom Stevenson is a senior associate and Christophe Cinqmars Viau an articled student with Torys LLP