Ontario Announces New Funding Framework for Defined Benefit Pension Plans

May 19, 2017

Lesa MacDonald

On May 19, 2017, the Ontario government announced that it intends to implement new funding rules for defined benefit pension plans and make certain other changes to the legislation governing pensions. This announcement follows up on the Solvency Consultation process that we previously reported on.

The new funding framework described in the May 19^th announcement includes:

• Changes to the requirements with respect to funding a pension plan on a going concern basis, including a shorter amortization period for funding a going concern deficit (from 15 to 10 years) and consolidation of going concern deficit payments into a single schedule of payments;
• Requiring that a funding reserve known as a “provision for adverse deviation” or PfAD be established for each Plan; and
• Solvency funding requirements if a plan is less than 85% funded on a solvency basis.

Full details about the new funding framework have not been released. The announcement advises that the government intends to introduce legislation in the fall to enable these changes and will be consulting on the details.

A separate announcement for the funding framework for target benefit multi-employer pension plans that would replace the current rules for specified Ontario multi-employer pension plans (“SOMEPPs”) is expected soon.

The following changes were also described in the May 19^th announcement:

• increasing the maximum amount that can be provided by the Pension Benefits Guarantee Fund from $1000 per month to $1500 per month;
• providing a liability discharge if annuities are purchased to provide pensions;
• rules for benefit improvements and restrictions on contribution holidays; and
• requirements for plans to have funding and governance policies and that information about the status of their plan be provided to plan beneficiaries.

The government also announced that it will be reviewing the rules for the wind-up of defined benefit pension plans and a proposal to establish an agency to administer the benefits of wound-up plans. This latter proposal has been called for by many groups as a result of the high cost of purchasing annuities on plan wind up.

Finally, the announcement indicates that the government will soon announce measures for defined benefit pension plans that are required to file valuation reports as of dates between December 31, 2016 and December 31, 2017.

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