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Private Pension Plans: What The Budgets Have In Store For You

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Last week, the Ontario and federal governments released their budgets for 2012. While the Ontario budget, Strong Action for Ontario (Ontario Budget), included numerous reforms that will impact private sector pension plans, the same could not be said for the federal Jobs Growth and Long-Term Prosperity: Economic Action Plan 2012 (Federal Budget). Employers in Ontario offering private pension plans should examine the need to change their current pension arrangements, while federally-regulated employers offering similar types of arrangements can rest easy (at least for another year).

Confirming Ontario Reforms

The Ontario Budget proposes to implement various reforms to the Pension Benefits Act (Ontario) (PBA) that were initially introduced in 2010, but are not yet in force. Click here for information on Bill 236 and Bill 120 reforms, announced in 2010. None of the proposed changes are new or surprising, but it is worthwhile to review them since it has been two years since they were first announced.

As of July 1, 2012, the Ontario government intends to make effective the following changes to the PBA:

  • immediate vesting of pension benefits;
  • elimination of future partial wind ups;
  • grow-in benefits available to all plan members whose employment is terminated (except if a member’s employment is terminated as a result of wilful misconduct, disobedience or wilful neglect of duty); and
  • the ability for multi-employer and jointly sponsored pension plans to opt out of grow-in benefits.

In addition, the Ontario government announced its intention to introduce long-awaited regulations to the PBA this year, some as early as this spring, which will:

  • clarify surplus rules;
  • implement many of the provisions for plan-to-plan asset transfers;
  • implement provisions that specify the rights and responsibilities of “retired members”;
  • set out a “funding concerns” test for defined benefit plans not required to fund on a solvency basis;
  • deal with eligibility conditions for sponsors taking “contribution holidays” and accelerated funding of benefit improvements; and
  • permit employers to use irrevocable letters of credit to fund up to 15% of solvency liabilities of defined benefit pension plans in certain circumstances.

Federal Budget Proposals

The Federal Budget includes very little on changes to the federal Pension Benefits Standards Act, 1985 (PBSA), other than a statement that the federal government will introduce technical amendments to strengthen the PBSA.

What the Federal Budget does focus on in terms of federally-regulated pension plans is pooled registered pension plans (PRPPs) and its intention to move forward with implementation. However, in order for PRPPs to be available for all Canadians, provinces must introduce their own legislation. Ontario has already expressed concerns over the PRPP model as currently proposed by the federal government.

What Does This Mean For You?

If you are an Ontario employer that provides a pension plan to your employees, you should review your plan terms to determine whether amendments are needed to immediately vest plan members, delete partial wind up provisions and provide for grow-in benefits.

If you are a federally-regulated employer that has a pension plan, stay tuned for future amendments to the PBSA that may affect your plan. You may also wish to re-evaluate your current retirement arrangements as the implementation of PRPPs may soon be on the horizon.

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