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2017 Ontario Budget: Highlights for Pension Plan Sponsors and Administrators

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Pension plan sponsors and administrators have much to anticipate with the release of the 2017 Ontario Budget: A Stronger, Healthier Ontario (Budget) on April 27, 2017.  The Budget provides updates to several pension reform initiatives that many stakeholders have been waiting for, as well as new proposals aimed at benefiting plan sponsors, administrators and members.  The Budget also recaps recent major changes to the pension landscape, including the future enhancements to the Canada Pension Plan and the ability to implement Pooled Registered Pension Plans in Ontario.

Review of Ontario’s Solvency Funding Framework

Plan sponsors of defined benefit (DB) pension plans will be most interested in the Ontario government’s progress in reviewing the solvency funding regime in Ontario. Last summer, a consultation paper was released outlining two general approaches for reforming Ontario’s solvency funding framework: (i) maintaining the requirement to fund on both going concern and solvency bases, while modifying solvency funding requirements; and (ii) enhancing going concern funding requirements while eliminating current solvency funding requirements. The Budget provides that guiding principles for the new solvency funding framework will be released before the end of June 2017, along with measures to support transition to the new framework.  Draft regulations will be released for public consultation later this fall.

  • If you sponsor an Ontario-registered DB pension plan, you should continue to follow Ontario’s review of its solvency funding framework.  In particular, if an actuarial valuation report will be filed for your pension plan in the coming months, you should assess how the new framework could impact your pension plan and whether adjusting your funding objectives may be beneficial.

Framework for Target Benefit Multi-Employer Pension Plans

The Budget reiterates the Ontario government’s commitment to establishing a new regulatory framework for target benefit multi-employer pension plans (MEPPs). Later this spring, the proposed framework for target benefit MEPPs will be announced and draft regulations for public consultation will be released this fall.  The new framework will be of greatest interest to unionized employers participating in certain MEPPs, known as specified Ontario multi-employer pension plans (SOMEPPs), as the new framework would replace the current time-limited funding rules for SOMEPPs.

  • If you participate in a SOMEPP, you should continue to monitor these changes and consult with you plan administrator to confirm whether modifications will be made to your plan.

Modernizing the Framework for Defined Contribution Pension Plans

Several proposals to modernize rules relating to defined contribution (DC) pension plans are included in the Budget. Most notable are (i) the introduction of amendments to allow DC pension plans to pay variable benefits directly to plan members; (ii) potential updates to DC disclosure rules on plan member annual statements; and (iii) discussions with stakeholders regarding new approaches for managing the decumulation phase.

  • If you sponsor a DC pension plan, you may want to consider the advantages and disadvantages of offering variable benefits through your pension plan and the additional expenses that could be imposed in doing so.  Note that regulations regarding variable benefits will be developed this spring.
  • If you are a plan administrator, you should be mindful of the possible changes to pension governance obligations and administration costs if your pension plan provides variable benefits directly to plan members.  Among other things, you would continue to owe a fiduciary duty to plan members who choose to leave their assets in the plan, be required to maintain accounts with your DC service provider for these members and be obligated to provide ongoing plan information, such as member statements and investment disclosure, in accordance with legislative requirements and the CAP Guidelines.  We encourage you to assess the possible impact to your pension plan in light of the proposals and consider how best to discharge your obligations in the most effective and cost efficient manner.

Dealing with Missing Beneficiaries

The Budget acknowledges the challenges faced by plan administrators in trying to locate missing plan beneficiaries as well as the lack of guidance in dealing with this issue. In response, the Ontario government will instruct the Superintendent of Financial Services (Superintendent) to develop a policy to assist plan administrators in locating missing plan beneficiaries.  In addition, amendments to the Pension Benefits Act will be made to allow the Superintendent to waive requirements for providing pension statements to beneficiaries who cannot be located.  Other measures such as creating a registry for such beneficiaries will also be explored.

  • If you are a plan sponsor or administrator, you can look forward to the helpful guidance on dealing with missing plan beneficiaries as the proposed measures should have a positive impact on your pension plan administration policies.

 

New Pension Regulator and Powers of the Superintendent

The Ontario government reaffirmed its commitment to establishing a new financial services and pension regulator, the Financial Services Regulatory Authority (FSRA), in the Budget. The government expects to appoint a board of directors for FSRA in spring 2017.  It will also continue to consult with stakeholders and review recommendations from the expert advisory panel in developing FSRA’s mandate and governance structure.  More information regarding FSRA can be found in our November 24, 2016 blog post.

The government is moving forward with expanding the powers of the Superintendent. Draft regulations regarding the Superintendent’s authority to impose administrative monetary penalties (AMPs) were posted on April 28, 2017 and comments are due by June 12, 2017.  Additional amendments will also be introduced to further expand the Superintendent’s powers, including the ability to direct plan administrators to provide certain information to plan beneficiaries and to hold meetings to discuss matters specified by the Superintendent.

  • If you are a plan sponsor or administrator, you should be aware of the new rules regarding AMPs and when and how they can be applied.  Taking care to fulfil your fiduciary obligations will be key to avoiding possible AMPs and orders from the Superintendent.

Conclusion

Many of the pension reform initiatives announced in the Budget provide for further information to be released and action to be taken in the coming months.  We will keep you updated on these changes.  For more information and assistance in reviewing how these changes impact you and your pension plan, please contact a member of Dentons’ Pensions and Benefits group.

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