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Immediate vesting and locking-in

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Ontario pension rules prior to July 1st, 2012 allowed employers to require Ontario members of pension plans to wait two years after joining a pension plan, to “vest.” In other words, if an employee terminated employment within the first two years of joining a pension plan, it was permissible for plan texts to state that he is not entitled to receive anything (other than a refund of employee contributions, if any).

Commencing July 1, 2012, the two-year vesting rule will no longer be permitted. Ontario is adopting the approach that has long been in place in Quebec: as soon as an Ontario employee becomes a member of a pension plan, he is immediately vested and his benefit is locked-in. There will no longer be any forfeiture amounts in pension plans with respect to Ontario members.

In reaction to this change, plan sponsors may want to consider lengthening the eligibility period for joining the plan, if it is currently less than two years. Ontario pension law will continue to permit employers to impose a two-year waiting period to join a pension plan.