November 20, 2017
Bill 177, the Stronger, Fairer Ontario Act (Budget Measures) (the “Act”), was introduced to the Ontario Provincial Parliament for first reading on November 14, 2017. Schedule 33 of the Act provides changes to the Pension Benefits Act (the “PBA”), which will have broad implications for pension regulation in Ontario. While sweeping changes have been announced, the exact parameters of many of those changes were left to be dealt with in regulations which have not been released yet.
Changes to PBGF Benefits
Some of the most significant changes from Schedule 33 relate to enhancing and broadening the Pension Benefit Guarantee Fund (the “PBGF”). The amendments eliminate certain age and years of service requirements which had affected eligibility and coverage, as well as increase the amount of monthly benefit protection from $1,000 to $1,500. The enhanced PBGF protections will only apply to plans that are wound up after the amendments come into force.
Updated Target Benefit Provisions
Section 39.2 of the PBA was passed previously and is intended to govern target benefit plans, but it has yet to go into force. With Schedule 33, that section is receiving an overhaul. First of all, the definition of what constitutes a target benefit plan has been updated to include the following criteria:
- The pension plan is a multi-employer pension plan (“MEPP”).
- The documents that create and support the pension plan identify the benefit provided as a target benefit.
- If the pension plan was not initially registered as providing target benefits, the benefit, if accrued, was converted to a target benefit in accordance with section 81.0.2.
- The reduction the administrator is authorized to make under the plan is not prohibited by any applicable pension legislation of a designated jurisdiction, except as provided by the regulation.
Further, a plan will not be able to provide both defined and target benefits, “except as otherwise prescribed by regulation”. This exception remains unclear as these regulations have not been created or released.
Multi-employer pension plans wishing to convert provided benefits to target benefits will receive greater scrutiny under s. 81.0.2. It should be noted that jointly-sponsored pension plans such as OMERS and HOOPP would not qualify for conversion under this section. The new conversion options will only apply to traditional, collectively bargained MEPPs – i.e. those where all contributions are provided for in a collective agreement and benefits can be reduced at any time. This section will require notice to all stakeholders, consultations with affected trade unions, and consent of the Superintendent, prior to conversion. The new provisions set out the specific criteria on which the Superintendent’s consent will be given, including proper notice, consultation with stakeholders, and compliance with the criteria for conversion in the statute. Upon completion of conversion, this section notes that the cancellation of special payments for plans in deficit is acceptable, as long as it is in compliance with regulations yet to be created. Further, in addition to the general requirements set out under s. 39.2, this section stipulates that a defined contribution plan cannot be converted to a target benefit plan, and it requires that all benefits be converted to target benefits (reinforcing the inability to have both defined and target benefits under one plan). Despite these rules for converting a MEPP into target benefit plans, it should be noted that Ontario MEPPs have, in most senses, been providing target benefits for decades.
New Requirements for Funding and Governance Policies
Section 10 of the PBA will be amended to require that the documents that create and support a pension plan include funding and governance policies for the plan. This will have a retroactive effect and may require amendments to previously formed plan documents, in order to bring them into compliance with the act.
Missing Beneficiaries Registry
Section 30.2 will be added to the PBA, requiring the Superintendent create an electronic registry for missing beneficiaries of plans. This will facilitate beneficiaries in locating entitlements by creating one central source of data.
Statutory Discharge for Annuities
Section 43.1 has been added to provide a statutory discharge to an administrator who purchases a “pension, deferred pension or ancillary benefit from an insurance company”. This means that an administrator who purchases, among other things, an annuity for a beneficiary will now be discharged from liability for the benefit that is being annuitized. A noted exception of this discharge is when there is a surplus on wind up, where annuitized members will remain entitled to any surplus that is paid to members on wind up.
New Definitions for PfAD and Other Funding Provisions
Schedule 33 also contains certain changes to solvency funding requirements, including replacing “solvency funding” with the term “reduced solvency funding”. The definition of “reduced solvency funding” as well as many of the other changes has been left to regulations. What we do know is that a new definition will be added to the PBA for “provision for adverse deviations” or PfADs. A PfAD is a requirement for additional funding. This PfAD will be used to limit contribution holidays and surplus payments to employers, under ss. 55.1 and 79(1) respectively. Further, as solvency funding becomes less stringent, the purpose of requiring plans to maintain a PfAD is to provide a means for added benefit security without requiring full exposure to the costs of funding all pension plans on a solvency basis.
Clarification for MEPPs on Wind Up
A new exemption is created under s. 75(2.1) for employer payments on the wind up of a multi-employer pension plan to which a collective bargaining agreement applies. This provides clarification that an employer will not be responsible for the wind up deficit beyond the normal contributions that it owes to the plan.
New Requirements for Specified Beneficiaries
The bill will also increase the rights of the specified beneficiaries of a retired member as separate and apart from the retired member. It will give them the right to receive a statement about the pension plan or variable benefit account and to transfer their benefits from that plan or account. It will also allow the specified beneficiary to designate its own beneficiary for any death benefit payable.
The New Regulator
In addition to all of the above, the Act will increase the opportunities for pension regulation to occur in spaces outside of the governing legislation. Schedule 33 provides rule-making authority to the new pension regulator, the Financial Services Regulatory Authority of Ontario (“FSRA”), as well as regulation-making authority to the Lieutenant Govern in Council. Schedule 16 increases the breadth of stakeholders to which the Financial Services Regulatory Authority Applies, and Schedule 17 amends the PBA to bring it within the authority of the Financial Services Tribunal Act. The goal will be to promote the good administration of pension plans and safeguard pension benefits and beneficiaries. The FSRA will have the authority to make rules related to timing for registering a plan and filing an annual return, as well as the information required to be made available for various stakeholders. In addition, the FSRA will be able to set fees payable by plans, but it will not be able to impose penalties. All rules will be subject to approval of the Minister of Finance, after being posted on the FSRA’s website for 90 days to elicit commentary from interested persons.
As the Act was only introduced for first reading this week, it will be subject to further debate and revisions as it passes through committee, second reading, and third reading.
Pension and Benefits