Ontario's Proposed Pension Reforms - Technical Backgrounder
Since March 2009, Ontario has taken a number of important steps to modernize Ontario's employment pension system. The government introduced a temporary solvency funding relief program and is working to simplify pension division on marriage breakdown. It has convened an Advisory Council on Pensions and Retirement Income and initiated technical discussions with the Canadian Institute of Actuaries about funding rules for defined benefit pension plans. The government is also actively participating in a broader national discussion about improving the Canadian retirement income system.
Building on recommendations from the Expert Commission on Pensions and delivering on the commitment made in the 2009 Budget, the government is introducing the Pension Benefits Amendment Act, 2009. This reform package addresses significant issues that balance stakeholder concerns.
Reforms included in the Pension Benefits Amendment Act, 2009, would:
- Clarify the benefits of plan members affected by lay-offs and eliminate partial wind-ups
- Facilitate the restructuring of pension plans affected by corporate reorganizations, while protecting benefit security for plan members and pensioners
- Increase transparency and access to information for plan members and pensioners
- Enhance regulatory oversight
- Improve plan administration and reduce compliance costs.
1. Clarify the benefits of plan members affected by lay-offs and eliminate partial wind-ups:
- No partial wind-ups would be allowed following a transition period, planned to end on December 31, 2011. Partial wind-ups with an effective date prior to that date would be permitted for a further period, after which no partial wind-ups could be declared. At that point, no distribution of surplus would be required except on full wind-up of a plan.
- Starting January 1, 2012, grow-in benefits would be extended to all eligible members whose employment is terminated by the employer, other than for cause, and would continue to be provided on full wind-up of a pension plan. Eligibility would continue to be based on age plus years of service totalling at least 55.
- Multi-employer pension plans and jointly sponsored pension plans could elect not to provide grow-in, according to a prescribed process.
- All accrued pension benefits (past and future) would be vested immediately. A brief transition period would allow plan administrators to adjust to this change, and the amount for small pension payouts would be increased.
- The Superintendent of Financial Institutions would be given the power to require valuation or other reports, as prescribed. For example, after partial wind-ups are eliminated, this power could be used to order an employer to file a report after an event which significantly reduced membership in a plan.
- Plan administrators would not be required to purchase life annuities for pension benefits related to partial wind-ups in progress, provided the benefits have not yet been annuitized and provision is made for the distribution of any applicable surplus.
- Requirements for asset transfers between plans, as they relate to defined benefits, would be clarified and simplified.
- Although an individual's specific benefits could change as a result of the transfer, the commuted value of a member's accrued benefits or pension or deferred pension could not be reduced.
- If the transaction involves the transfer of a portion of the membership from one employer's plan to another employer's plan, plan administrators could agree to give individual plan members the option of transferring or not transferring their pension benefit to the successor plan. Bargaining agents could also exercise this choice on behalf of their members.
- A prescribed portion of any surplus related to the assets being transferred from the previous employer's plan would be transferred to the successor plan. The government would consult with stakeholders prior to setting the size of this prescribed portion.
- Asset transfers between plans would continue to require the Superintendent's consent to protect the value of the benefits of members and other beneficiaries in both the new and old plans.
- Any entitlement to surplus on full wind-up of a plan would remain unless the pension benefits are fully annuitized such that the plan has no continuing obligation.
- Until July 1, 2013, pension plans affected by past restructurings could enter into agreements that would allow current individual plan members to consolidate their pension benefits in a single plan through an asset transfer based on value.
- "Retired members", those in receipt of pension payments, would be defined separately from "former members", and their right to participate in Pension Advisory Committees and receive prescribed information about their plan would be set out.
- Pension Advisory Committees would be easier to establish, allowing members and retired members to monitor plans on an advisory basis. Cooperation from plan administrators would be required, as specified.
- Plans would be required to give all members, including retired members, information about the funded status of the plan at prescribed times.
- Plan administrators and the regulator would be required to provide copies of specified documents, electronically or by mail, on written request. Any related fees would be no higher than those charged by the regulator.
All pension plans would be required to provide members, retired members, and former members with notice of all plan amendments before they are registered with the regulator, with some prescribed exceptions. This would replace the current provisions related to "adverse amendments", which only require plan administrators to inform certain members if an amendment would reduce future pension accruals or would otherwise adversely affect rights of members or others entitled to payment from the pension plan.
- The Superintendent would be granted the power to make interim orders in specified circumstances, for example, to order special valuations when there is evidence that a plan is at risk. These orders would not be subject to the Notice of Proposal process and could be appealed directly to the Financial Services Tribunal.
- The Superintendent would be granted the necessary power to approve arrangements as provided for under the federal Companies' Creditors Arrangement Act and Bankruptcy and Insolvency Act, subject to prescribed conditions.
- A number of changes would clarify and improve plan administration. For example, the filing of specified documents could be waived for prescribed classes of pension plans and the existing time limit for refunding employer pension contributions made in error would be extended.
- Members would also receive the right in specified circumstances to transfer certain pension monies, for example, excess contributions, small pension payouts, to a registered retirement savings plan or a registered retirement income fund.
- The implementation of surplus-sharing agreements on full wind-up of a pension plan would be facilitated where written agreements reached by employers, members and pensioners comply with the existing prescribed rules. If such an agreement is reached, no review of historical plan documents, such as plan texts and trust agreements, would be required.
- As announced in the 2009 Budget, pension plans would be permitted to offer phased retirement.
This proposed package marks the beginning of a multi-staged pension reform process in Ontario.
A staged approach is both necessary and desirable because of the broad range of issues identified by the Expert Commission, the challenging economic environment, and the need for further consultation and additional information before certain issues can be resolved.
The next stage of Ontario's pension modernization process is planned for 2010.