Strengthening Ontario's Pension System
The Ontario government is moving forward with pension reform to address the current economic challenges and strengthen the pension system. Pension and retirement initiatives were announced as part of the 2009 Ontario Budget, and these changes to the regulations were approved in June 2009.
Providing Solvency Funding Relief
Pension plan sponsors can now extend solvency special payments for a period of up to 10 years, with the consent of members and retirees, providing relief for more than 4,100 defined-benefit pension plans in Ontario.
In addition to extending the payment schedule, the measures are expected to help businesses reduce cash flow pressures by:
- Permitting a one-year deferral of payments due when a valuation report is filed. This means that, following a reported pension plan loss, businesses have an additional year to start making payments
- Allowing payments remaining under past solvency amortization schedules to be consolidated into a single new five-year schedule
- Adopting revised actuarial standards that reduce pension plan liabilities, retroactive to December 12, 2008.
These measures will also benefit pension plan members by enhancing transparency and pension benefit security:
- Active and retired plan members will receive additional information on the financial health of pension plans and the steps plan administrators are taking regarding solvency relief
- Future benefit improvements will have to be funded over five years on a going-concern basis, rather than the normal 15 years, while solvency relief measures are in effect. This acts as a check and balance to further ensure a plan remains solvent
- Reductions or suspensions of contributions by plans, also called contribution holidays, will be limited unless the plan's actuary indicates a surplus remains in the plan
- Consent of active members or their collective bargaining agent, as well as retirees, will be required for plans that are not jointly governed to extend a new solvency payment schedule from five to 10 years.
The solvency relief measures apply to the first valuation report prepared as of September 30, 2008. A one-month filing extension has been provided for valuations dated before November 1, 2008.
Beginning January 1, 2010, locked-in account owners in Ontario will have the option to unlock up to 50 per cent of the assets transferred into a LIF, up from 25 per cent. A LIF is a registered account to which assets from a pension plan have been transferred that is used to provide a steady stream of income in retirement. This change will provide significant flexibility for seniors who require access to additional funds.
Money can be transferred into a LIF as early as 10 years before the normal retirement date of the pension plan from which the funds were originally transferred, which is generally at age 55. The federal Income Tax Act requires that taxable income payments begin no later than the year in which the account holder turns 71.
Starting January 1, 2010, 50 per cent unlocking will be available when assets are transferred into a new LIF. Existing owners of new LIFs will have a one-year window to unlock the funds by either withdrawing in cash or transferring the funds to an RRSP or RRIF.
As of January 1, 2011, old LIF and locked-in retirement income funds (LRIF) owners will have a 16-month window to unlock, but these funds can be transferred to a new LIF at any time.
Effective January 1, 2011, as announced in the 2008 Budget, the rules for old LIFs and LRIFs will be harmonized with the new LIFs. All of the rules for locked-in retirement accounts will also be consolidated into a new Schedule. Consolidating rules helps financial institutions administer these accounts.
The government is also providing a two-year waiver of fees for financial-hardship unlocking applications. While the waiver is in place, the Financial Services Commission of Ontario (FSCO) will not charge fees on applications approved on or after April 1, 2009. Money transferred from a registered pension plan into a locked-in account can only be used to provide retirement income. However, individuals who qualify under specific circumstances of financial-hardship can apply for access to the money.