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Pension Plan Governance Policies: Have You Reviewed Yours Lately?

When was the last time you thought about pension plan governance? Or reviewed your pension governance policies? It would be great if your answer is “recently”. However, if you’re like many organizations whose answer is “I can’t remember” or “a while ago”, then you need to be aware of the potential risks of not regularly reviewing your pension plan governance structure.

Pension governance is often referred to as the decision-making structure and supporting policies and processes for overseeing, managing and administering a pension plan to ensure that fiduciary and other obligations of the plan are met.

Under pension standards legislation, the plan administrator is ultimately responsible for the governance of the pension plan. Plan administrators have a statutory fiduciary obligation to ensure that the plan is administered in accordance with the best interests of the plan members. Using “best efforts” is not sufficient. Fostering good governance practices, including having a written pension governance policy, will help you discharge this obligation. Without them, the likelihood of breaching your fiduciary standard of care increases. This could lead to claims and litigation against the pension plan and those responsible for plan administration, and even offences under pension standards legislation. It was only a few years ago that the trustees of a large multi-employer pension plan, who were responsible for plan administration, were charged and convicted under the Ontario Pension Benefits Act for breaching their fiduciary duty with respect to the plan’s investments, and fined a record-setting amount.

As a result, if you already have a written pension governance policy in place, now is a good time to review it. Conducting periodic reviews will assist you in making sure any required changes to that policy are made, and that your governance framework as a whole continues to be relevant and adequate to discharge your fiduciary duty. This in turn will ensure that there is proper oversight of the plan’s day-to-day operations, plan member interests are protected, and the risk of member complaints and claims against the pension plan are reduced.

If you don’t already have a written pension governance policy in place, now is the time to create one! A written pension governance policy can be an effective tool for improving your pension governance system. It’s also something that most regulators will ask for when conducting an examination of your pension plan.

As a starting point, any person involved in pension governance should be familiar with the guidelines published by the Canadian Association of Pension Supervisory Authorities (CAPSA) and in particular, Guideline No. 4. Originally released in 2004, CAPSA is currently updating Guideline No. 4, which sets out guiding principles and established best practices for pension plan governance. CAPSA has also developed several other guidelines that will assist plan administrators in developing good governance policies such as Guideline No. 3 on Capital Accumulation Plans, Guideline No. 5 on Fund Holder Arrangements, Guideline No. 6 on Pension Plan Prudent Investment Practices, and Guideline No. 8 on Defined Contribution Pension Plans. For a link to all of CAPSA’s guidelines, click here.

Although the CAPSA guidelines are not legally binding, pension regulators and most (if not all) pension practitioners expect plan administrators to follow them as industry standard. For that reason, establishing a written pension governance policy that takes into account the principles from the guidelines, after consultation with legal counsel, is recommended.

So if you haven’t reviewed your pension governance structure lately, or you don’t have a pension governance policy, now is the time to take action. Doing so will help ensure your plan is administered in accordance with applicable legislation (including your fiduciary obligation), and help avoid potential claims and deficiencies in the event of pension plan examinations.

Pension Plan Governance Policies: Have You Reviewed Yours Lately?

ORPP Update: Enrollment and Phase-in of Contributions Delayed

The Ontario and federal governments announced on February 16, 2016 that they have reached an agreement regarding the Ontario Retirement Pension Plan (ORPP) and improving pensions for Canadians.  With contributions originally set to begin next year, the Ontario government now proposes to phase-in the launch of the ORPP by starting enrollment in January 2017 and commencing collection of contributions in January 2018.

How will this affect businesses?

If applicable, the delay will give businesses more time to enroll in the ORPP, something that many organizations have been asking for.  Large employers who would have been required to start making contributions to the ORPP on January 1, 2017 will now have one additional year to prepare for the ORPP and consider whether changes should be made to their existing retirement and savings programs.

There was no mention of delaying enrollment or contributions for small and medium-sized employers in the Ontario government’s announcement. Based on the current enrollment schedule, small and medium-sized employers without a registered workplace pension plan will be required to contribute to the ORPP starting January 1, 2019 and January 1, 2018 respectively.

CPP enhancements and next steps

The delay will also provide more time for the federal government and other provinces to discuss and develop options for enhancing the Canada Pension Plan (CPP).  If provincial agreement on CPP enhancement is not reached, the Ontario government is committed to moving forward with the ORPP.  The federal government acknowledges this and has agreed to facilitate plan registration and data sharing agreements and help ensure that contributions are collected efficiently and cost-effectively.

To read the government bulletin on the announcement, click here.

ORPP Update: Enrollment and Phase-in of Contributions Delayed

ORPP: Additional Design Details Released

On January 26, 2016, additional design details of the Ontario Retirement Pension Plan (ORPP) were released by the Ontario government.  The government reconfirmed its commitment to implement the ORPP beginning January 1, 2017, ensuring that by 2020, every eligible employee in Ontario will be part of the ORPP or a comparable workplace pension plan.

The following is a summary of the additional design details.  Stay tuned for further postings which will put the details into context and discuss the implications for employers.

What employers should know: 

  • Contributions: ORPP contributions will be based on an employee’s pensionable earnings between $3,500 and $90,000, and will include cash and non-cash earnings and amounts beyond base salary such as bonuses and commissions.   
  • Definition of employment in Ontario: A person will be considered employed in Ontario for ORPP membership purposes if he or she:
    • is required to report to work at an establishment of the employer in Ontario, or
    • is not required to report to work at an employer’s Ontario establishment but is paid by the employing establishment in Ontario.
  • Comparability test:  Employers and employees in Ontario will be required to participate in the ORPP unless they participate in a comparable pension plan, subject to certain exceptions.  For information on the comparability tests, please see our August 12, 2015 posting.  The government has since released the following additional details relating to the comparability test:
    • Subset level: For pension plans with more than one group of employees (e.g. full- and part-time, union and non-union, etc.) and different benefit formulas for groups or “subsets” of employees, the comparability test will apply at the group or “subset” level.
    • Voluntary contributions: Voluntary contributions to a defined contribution pension plan will not be taken into account when determining if the plan is comparable to the ORPP.  Contributions to a defined contribution pension plan must be mandatory in order for them to be included in the comparability test.
    • Multi-Employer Pension Plans (MEPPs): The comparability test for a MEPP will be applied separately for each participating employer based on the employer’s collective bargaining agreements or employee agreements at the subset level, as defined by plan governing documents.  Employers will have the option to assess comparability using the defined benefit accrual or defined contribution rate threshold.
  • Waiting periods: Employees waiting to join their employer’s comparable pension plan will be required to participate in the ORPP during the waiting period.
  • Employer opt-in: Employers with a “comparable workplace pension plan” can opt-in to the ORPP on or after January 1, 2020.
  • Non-resident workers: Non-resident workers (for tax purposes) earning income over $3,500 that is subject to Canadian and Ontario income tax will be included in the ORPP.  However, if a non-resident worker is exempt from tax under an applicable tax treaty between Canada and another country, they will be exempt from participating in the ORPP.
  • Other workers: Individuals in receipt of ORPP benefits may opt-in to the ORPP if they return to eligible employment.  There will also be religious exemptions for certain workers, similar to the Canada Pension Plan (CPP).

ORPP benefits for employees:

  • Benefit formula: ORPP benefits will accrue at a rate of 0.375% of annual earnings per year and will be calculated using members’ average earnings over their career.  The ORPP is designed to provide a 15% income replacement rate to members who participate for over 40 years.
  • Payment of benefits: The ORPP will begin paying benefits starting in 2022.  Members will be eligible for retirement under the ORPP as early as age 60, and may postpone retirement until age 71.
  • Indexation: Benefits will be indexed according to average growth of wages and salaries as outlined by Statistics Canada pre-retirement, and indexed according to the Consumer Price Index post-retirement.
  • Pre-retirement survivor benefits: If a member dies before retirement, a lump sum based on the actuarial equivalent value of his/her pension will be paid to an eligible spouse, the member’s beneficiary or estate.
  • Post-retirement survivor benefits: If a member dies after retirement with an eligible spouse, the spouse will receive a survivor benefit equal to 60% of the member’s actuarially adjusted pension.  If the spouse waives his or her right to a survivor pension prior to the member’s retirement, or the member retires without an eligible spouse, the member would receive his or her full retirement pension with a 10-year guarantee period.  If the member dies within that guarantee period, the remaining value of his/her full retirement pension will be paid to his/her spouse, beneficiary or estate as an actuarially equivalent lump sum.

Other details:

  • Plan sustainability: A funding policy has been established for the ORPP to ensure that the plan is sustainable over the long-term.  In addition, the government will establish an Office of the Chief Actuary to conduct triennial valuations of the ORPP and to provide advice and analysis.
  • Plan review and changes: The ORPP will be reviewed five years after its full implementation and subsequent reviews will occur every ten years.  Fundamental changes to the ORPP that would substantially impact member benefits and are not resulting from funding policy adjustments would require the consent of at least 60% of ORPP members.

The Ontario government will set out these and other details about the ORPP in forthcoming legislation.

To read the Ontario government’s technical bulletin regarding these details, click here.  To read our previous ORPP postings, click the links below:

ORPP: Additional Design Details Released

ORPP: What’s next now that the election is over

With a new federal Liberal government coming into office on November 4, 2015, what does this mean for the Ontario Retirement Pension Plan (ORPP)?  That’s the question on the minds of many employers and workers in Ontario.

As part of its campaign platform, the federal Liberals promised to work with the provinces and territories, workers, employers, and retiree organizations to enhance the Canada Pension Plan (CPP).  Now that they’ve won a majority government, CPP expansion is back on the table.  This could mean higher employer and employee contributions and also higher CPP benefits for retirees.  As a result, it’s possible that the ORPP will be put on hold.  Ontario’s Premier Wynne has always stated that expanding the CPP was her first choice; the ORPP was a response to the federal Conservative party’s refusal to do so.

What can we expect in the coming months?

Justin Trudeau, the prime minister-designate, has committed to begin talks with the provinces on how to improve the CPP within three months of taking office, so it’s likely that a meeting of the federal and provincial finance ministers will be scheduled in the near future.  But don’t expect the CPP to be expanded any time soon.  Consent among at least 2/3rds of the provinces, having in the aggregate at least 2/3rds of the population of all of the provinces, is required before any changes can be made.  It could take years to obtain this level of agreement.

Prior to the election, Premier Wynne suggested that she would be willing to drop the idea of a provincial pension plan if the federal Liberals win.  However, she recently stated that until the federal Liberals make good on their pledge to enhance the CPP, she would continue with her plan for the ORPP.

For the time being, it seems that the Ontario government will stay on course to establish the ORPP by the 2017 deadline.  This will be an easier task now, as we can expect support from the federal government to help implement the plan.

What should employers do?

All Canadian employers should be aware of, and monitor, possible proposed changes to the CPP in order to assess the potential impacts to its organization.  In addition, employers with Ontario employees should continue to review and assess their retirement savings arrangements and determine whether changes should be made, keeping in mind that the ORPP is, for now, required to be in place by January 1, 2017.

For more information on the ORPP and how the proposed plan will work, click here to read our previous postings:

ORPP: What’s next now that the election is over

New details about the ORPP

On August 11, 2015, the Ontario government released long-awaited details about the Ontario Retirement Pension Plan (ORPP). Although there are design issues that need to be settled and many unanswered questions on how the ORPP will work, employers with Ontario employees are one step closer to understanding the impact of the ORPP on their businesses.

All Ontario employees age 18 and older (except federally-regulated workers) will be required to participate in either the ORPP or a comparable workplace pension plan by 2020. The timing for enrolment in the ORPP depends on which category an employer falls within:

Wave 1: Employers with 500 or more employees, without a registered pension plan, will be required to participate in the ORPP starting January 1, 2017.

Wave 2: Employers with 50 to 499 employees, without a registered pension plan, will be required to participate in the ORPP starting January 1, 2018.

Wave 3: Employers with 50 or fewer employees, without a registered pension plan, will be required to participate in the ORPP starting January 1, 2019.

Wave 4: Employers with a registered pension plan that is not comparable to the ORPP, or that have Ontario employees who are not members of their “comparable” pension plan, will be required to participate in the ORPP starting January 1, 2020.

Under the ORPP, the required employee and employer contributions will be phased in, depending on the applicable enrolment “wave”. By 2021, all participating employers and employees will be contributing 1.9% each (total 3.8%) of employees’ base salary to the ORPP annually.

Employers and employees that participate in a pension plan that is comparable to the ORPP will be exempt from participating in the ORPP. An employer that currently does not participate in a registered pension plan can establish a comparable plan prior to its scheduled ORPP enrolment date to qualify for exemption. Defined benefit (DB) and defined contribution (DC) plans will be considered comparable if they satisfy certain requirements. A DB plan that provides a minimum benefit accrual rate of at least 0.5% of an employee’s earnings will be comparable, while a DC plan must have annual contributions of at least 8% of an employee’s earnings (with at least 4% employer funded) in order to be comparable. Other group savings arrangements, such as group registered retirement savings plans (RRSPs) and deferred profit sharing plans, will not be considered comparable to the ORPP.

The government has stated that the ORPP Administration Corporation will “contact all Ontario employers in early 2016 in writing to verify their existing pension plans and assess the coverage offered by employers to their employees.”

What’s next:

The Ontario government continues to work on the design details of the ORPP, including developing appropriate comparability tests for other types of registered pension plans, exploring options for the self-employed, developing a buy-back mechanism for employees to purchase past service credits, and examining options to allow all Ontario employers with comparable plans to opt-in and participate in the ORPP. Other plan-specific information, such as the minimum earnings threshold, also must be confirmed. Additional details will need to be released prior to the implementation of the ORPP in 2017.

In the meantime, employers with Ontario employees should review their current retirement savings arrangements and determine whether changes should be made in light of the ORPP. For example, sponsors of non-comparable DC pension plans may want to increase mandatory employee and employer contribution rates in order to be comparable, and group RRSP sponsors may want to consider converting their plan to a DC pension plan given the many similarities of those plans. Before making changes, employers need to decide if participation in the ORPP is desirable for some or all of its Ontario employees and, if so, whether participation will be an alternative, or in addition, to the current workplace pension plan.

New details about the ORPP

More news on the ORPP

On December 18th, 2014, the Ontario government released its consultation paper on the new Ontario Retirement Pension Plan (ORPP).

What’s important to note is that the government’s “preferred approach” is to impose the ORPP on Ontario employers who have defined contribution registered pension plans, group RRSPs, PRPPs and DPSPs.  The government plans to exempt employees who participate in comparable workplace pension plans from participating in the ORPP, but proposes to only include defined benefit and target benefit multi-employer pension plans in the definition of “comparable plan”.  However, this could be changed.

Not all workers in Ontario will be affected by the ORPP.  The government has confirmed that Ontario employees who work in federally regulated sectors, such as telecommunications and banking, will not be required to participate.  In addition, employees earning less than $3,500 and the self-employed are proposed to be exempt from participating.

The government is inviting submissions on the consultation paper until February 13, 2015.

For more information on the ORPP, please see our earlier blog postings on December 9, 2014 and July 28, 2014.

More news on the ORPP

Update on the new, mandatory Ontario Retirement Pension Plan

On December 8, 2014, the Ontario government introduced Bill 56: An Act to require the establishment of the Ontario Retirement Pension Plan regarding the establishment of the new, mandatory Ontario Retirement Pension Plan (ORPP) effective January 1, 2017.  Bill 56 provides information about additional ORPP legislation to come.  It also provides details about the administrative entity that will need to be set up to administer the ORPP and the collection of information that’s necessary for the purpose of establishing the ORPP.

The ORPP was introduced in the 2014 Ontario budget as a new “made-in-Ontario” solution to the federal government’s decision to not expand the CPP.  It will be similar to, and build on key features of, the CPP and will be publicly administered at arm’s length from the Ontario government.  Employers and employees who are required to participate in the ORPP would be required to contribute up to 1.9% each (total of 3.8%) on the employee’s earnings, up to a maximum earnings threshold of $90,000. Additional details about proposed features of the ORPP can be found in our earlier blog posting here.

All Ontario employers should be aware of the ORPP and how it might impact their business.

The main concern for most Ontario employers is whether they will be exempt from mandatory participation in the ORPP.  The only information released by the Ontario government so far is that employees who participate in a “comparable workplace pension plan” will be exempt.  It’s unclear what “comparable” means.  The legislation doesn’t tell us exactly what types of retirement savings plans will exempt employers from the ORPP.

We will continue to provide updates on the ORPP as information becomes available.

If you have questions about the ORPP or would like more information, please do not hesitate to contact one of the pensions and benefits experts at Dentons.

For more information from the Ontario government on the ORPP and Bill 56, click here.


Update on the new, mandatory Ontario Retirement Pension Plan

LTD insurance requirements coming soon for Ontario employers

As part of the 2014 Ontario budget, which was passed on July 24, 2014, the Ontario government proposed to amend the Insurance Act (Ontario) by requiring mandatory insurance of long-term disability (“LTD”) benefits provided by employers. The amendment prohibits the provision of LTD benefits by Ontario employers unless the benefits are provided through an insurance arrangement with a licensed insurer.

The purpose of the amendment is to protect recipients of LTD benefits from reductions in their benefits when their employer faces financial challenges. This change will be effective on a future date to be proclaimed. Terms and conditions, including limitations, restrictions and exemptions, may be set out in regulations to come.

The requirement to insure LTD benefits is not new. The federal government introduced a similar requirement for federally-regulated employers in 2012, which came into effect on July 1, 2014. The federal requirement is prospective meaning that LTD benefits that were in pay to employees on that date do not have to be insured.

Ontario employers with self-insured LTD benefit plans should consider insuring their plans in the near future, in anticipation of the change.

By: Heather Di Dio and Aiwen Xu

LTD insurance requirements coming soon for Ontario employers

Get ready for the new Ontario Retirement Pension Plan

Now that the 2014-2015 Ontario budget has been passed by the Ontario legislature, Ontario employers should think about how the new Ontario Retirement Pension Plan (ORPP) could affect them.

The ORPP is part of the Ontario government’s solution to help individuals save for retirement. It’s a new “made-in-Ontario” solution to the federal government’s inaction on expanding the CPP. The ORPP will be a defined benefit pension plan, similar to the CPP, that will be publicly administered at arm’s length from the Ontario government.

Mandatory participation in the ORPP is set to begin in 2017, with enrolment occurring in stages starting with the largest employers. Contributions will be split equally between employers and employees, up to 1.9% each (3.8% total) on an employee’s earnings above a yet-to-be-determined minimum threshold and up to a maximum annual earnings threshold of $90,000. The ORPP aims to provide individuals with retirement benefits that replace 15% of the individual’s pre-retirement earnings (up to $90,000).

The question that employers should be asking is simple: Will I have to participate in the ORPP? The answer, however, is not so simple.

The Ontario government has stated that employers with a “comparable workplace pension plan” will be exempt from participating in the ORPP. But what does “comparable” mean? Does it mean a registered defined benefit pension plan? Probably. What about a registered defined contribution pension plan (DCPP)? Maybe. How about a group Registered Retirement Savings Plan (group RRSP) or a Pooled Registered Pension Plan or even a Tax-Free Savings Account? I don’t know.

To date, the government has not offered any details on what would constitute a “comparable” plan.
If the intent is to require employers to help contribute to their employees’ retirement savings, offering a group RRSP where employer contributions are optional may not suffice. It also might not be enough for an employer to provide a DCPP to its employees since the minimum employer contribution in a DCPP is 1% of an employee’s earnings, almost half of the maximum 1.9% required under the ORPP.

Employers need to start thinking about how the ORPP could affect their business. Employers who aren’t exempt will certainly have increased payroll costs. In addition to that fact, an employer offering a comparable pension plan to its employees may want to consider whether to integrate its current plans with the ORPP, to offload some responsibility, costs and future risk. An employer wishing to wind up a registered pension plan and replace it with a group RRSP in order to save costs may want to wait and see if a group RRSP counts as a comparable pension plan before making changes. Until more details about the ORPP are released, any Ontario employer who doesn’t have a defined benefit pension plan should be monitoring this since we can’t be sure how the ORPP will affect them.

If you’d like more information on the ORPP and its impact on your business, contact one of the pension and benefit experts at Dentons.

For more information on the ORPP from the Ontario government, click here.

Get ready for the new Ontario Retirement Pension Plan

Welcome guidance on pension plan fees & expenses

The subject of what can and can’t be charged to a pension plan has always been an important one for employers because of the often high costs related to administering a pension plan.

On January 23, 2013, the Ontario pension regulator (the Financial Services Commission of Ontario), issued a new policy regarding administrative fees and expenses payable from a pension fund. The new policy, Policy A200-101, replaces four existing policies on the topic and is accessible at http://www.fsco.gov.on.ca/en/pensions/policies/active/Documents/A200-101.pdf.

Although clarification regarding expenses chargeable to pension funds was provided in late 2010 with the addition of a new section 22.1 in the Ontario Pension Benefits Act (“PBA”), Policy A200-101 provides additional guidance that is welcome.

Policy A200-101 reiterates that fees and expenses payable from a pension fund must:

  1. be reasonable;
  2. relate to the administration of the pension plan or the administration and investment of the pension fund; and
  3. not be prohibited or otherwise provided for under the documents that create and support the plan or the fund, or under the PBA or related regulations.

It is the plan administrator’s responsibility to determine whether or not an expense fits the criteria to be properly charged to a pension fund. So it is up to the plan administrator to decide whether amounts are appropriate and reasonable, and to find out whether there are provisions in the pension plan documentation that restrict the charging of expenses.

Since each pension plan is unique, the PBA and regulations do not set out the specific nature or type of administrative expenses that can be paid from a pension fund. However, Policy A200-101 provides examples of the types of expenses that would usually be considered appropriate administrative expenses, such as certain actuarial fees, trustee and custodial fees, and investment management fees. It also provides examples of expenses incurred that would not usually be properly chargeable to a pension fund. These typically include fees incurred by a person acting in the role of plan sponsor, collective bargaining agent or employer.

Many types of fees and expenses incurred by a plan sponsor or administrator can be complex and difficult to categorize. FMC can help you identify proper fees and expenses that can be charged to your pension fund. Please feel free to contact one of our Pension & Benefit experts and we would be pleased to assist.


Welcome guidance on pension plan fees & expenses