On October 29, 2010, Bill 120, the Securing Pension Benefits
Now and for the Future Act, 2010, the second phase of pension
reform, was released. The first phase, Bill 236, the Pension
Benefits Amendment Act, 2010, had received Royal Assent on May
18, 2010. These bills are legislative responses to the November
2008 Report of the Expert Commission on Commissions. Regulations
for both, which should provide many of the missing details, are
We expect to publish articles on Bill 120 and the future
regulations in upcoming issues of the Business Law
Quarterly. The following is a quick review of the highlights
of Bill 236 which is generally focused on substantive issues.
Like Québec, Ontario has opted for immediate
vesting and locking-in. This change comes into effect on a
date to be proclaimed. It means that vesting and locking-in will
occur on or soon after hire in those plans where there is little or
no waiting period. Therefore, in conjunction with amending their
pension plans to comply with this new requirement, plan sponsors
may also wish to provide for eligibility requirements that can
extend to 24 months of continuous employment.
Ontario and Nova Scotia are the only Canadian jurisdictions
providing "grow-in benefits." Currently, these benefits
consist of a right, arising on the wind-up of a defined benefit
pension plan, to receive a pension beginning on the date on which
the plan member would have been entitled to an enhanced or
unreduced pension if membership had continued to that date. In
order to qualify for grow-in benefits, the member's age and
years of service must equal at least 55 as of the wind-up.
Grow-in benefits are extended to any Ontario plan
member whose age and years of service equal 55 when his or her
employment is involuntarily terminated on or after July 1, 2012.
The only exceptions are terminations for cause, expressed as
terminations resulting from "willful misconduct, disobedience
or willful neglect of duty by the member that is not trivial and
has not been condoned by the employer," and any other
exception that may be prescribed in the upcoming regulations.
Jointly sponsored and multi-employer pension plans are allowed to
elect to opt out from extended grow-in benefits.
It will be interesting to see how employers and employees react to
this change. It should discourage employees from resigning where
they are likely to receive grow-in benefits if the employer
terminates their employment instead. Seen in this light, the
extension of grow-in benefits may be viewed as a retention tool,
and early retirement windows will have to be structured to take
this into account. The extended grow-in benefits may also motivate
employers to eliminate enhanced early retirement and bridging
benefits to avoid additional costs.
The quid pro quo for extended grow-in benefits is the
elimination of partial wind-ups that would
otherwise have occurred on a date to be proclaimed, and the
revisions to the surplus rules that will allow
surplus reversion to an employer if the terms of the pension plan
allow for it OR the employer, plan members and other plan
beneficiaries enter in a written surplus-sharing agreement. Details
as to the proportion of consenting members and beneficiaries will
be revealed in the regulations.
Interestingly, this change affects even partial wind-ups that were
identified by the Financial Services Commission of Ontario (FSCO)
as being required to deal with surplus following the Supreme Court
of Canada's decision in Monsanto. This is an odd
policy choice since it may benefit those plan sponsors who may have
been less than diligent in responding to FSCO's promptings in
dealing with surplus entitlement with respect to these partial
Bill 236 will bring about a variety of changes to
portability rights such as the right of a plan
member to transfer a small pension to a registered retirement
savings plan or registered retirement income fund, the right of a
spouse to transfer the lump-sum pre-retirement death benefit
consisting of pre-1987 member contributions, and the elimination of
the requirement that the election of portability options be made in
a form approved by the Superintendent
The content of this article is intended to provide a general
guide to the subject matter. Specialist advice should be sought
about your specific circumstances.
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