- Federal Government Proposes Amendments to Pension Regulations
- Ontario Government Makes Further Amendments to Pension Legislation
Federal Government Proposes Amendments to Pension Regulations
On December 14, 2010, the federal Minister of Finance announced proposed changes to the Pension Benefits Standards Regulations, 1985 intended to "help pension plan sponsors to better manage their funding obligations while providing additional protection to plan members and retirees." The proposed amendments:
- permit the use of letters of credit in lieu of making solvency payments to a limit of 15% of plan assets;
- require plan sponsors to fully fund pension benefits on plan termination;
- void any plan amendments that would reduce the solvency ratio of the pension plan to below 0.85; and
- permit sponsors, plan members and retirees of a distressed pension plan to negotiate their own funding arrangements to facilitate a plan restructuring.
The proposed amendments are being released for a 30 day public comment period that starts with official pre-publication in the Canada Gazette on December 18, 2010.
Ontario Government Makes Further Amendments to Pension Legislation
On December 8, 2010 the Securing Pension Benefits Now and for the Future Act, 2010 ("Bill 120") received Royal Assent.
Bill 120 amends the Pension Benefits Act (the "PBA") in a number of areas. It is the second set of reforms intended to address recommendations from the Expert Commission on Pensions. The first set of reforms was set out in Bill 236 which received Royal Assent on May 18, 2010. Many of the provisions of Bill 120 and Bill 236 will not come into force until a date yet to be proclaimed by the Lieutenant Governor. A few provisions are effective as of the date of Royal Assent.
Some of the notable amendments in Bill 120 include:
DC, Target and Optional Benefits - New provisions are to be added to the PBA that specifically address defined contribution benefits, target benefits and optional benefits.
The new defined contribution benefit provision expressly permits the payment of pensions or pension benefits in any manner permitted by the Income Tax Act (Canada).
Target benefits previously were not referred to in the PBA. They are defined, in part, as benefits for which the obligation of the employer to contribute to the pension fund is limited to a fixed amount set out in one or more collective agreements and the administrator is authorized by the plan and fund documents to reduce benefits, deferred benefits and pensions while the plan is ongoing and upon wind up. Target benefits can be reduced in a prescribed manner and in prescribed circumstances.
A defined benefit pension plan will be permitted to provide prescribed optional benefits. Members will be permitted to make optional contributions in respect of such benefits and, if the pension plan permits, the member may choose or vary the amount of optional contributions to be made. Optional contributions can only be used to provide optional benefits.
Surplus - New provisions would change the way that surplus entitlement and surplus withdrawals are addressed. Payment of surplus may be made to an employer from either a continuing or a wound up pension plan subject to a written agreement and specified levels of consent in different circumstances. Of particular note is that a written agreement that complies with the PBA will prevail over (a) any document that creates and supports a pension plan or a pension fund, (b) specified surplus provisions of the PBA and (c) any trust that may exist in favour of any person. In a previous issue of Pensions@Gowlings we discussed how the surplus sharing agreement provisions of Bill 236 left open the question of whether trust law principles would override any surplus sharing agreement. The Ontario government has expressly addressed this issue. This part of Bill 120 came into force on December 8, 2010 (i.e. it is not subject to proclamation as are most of the other provisions of Bill 120).
A new provision provides for the use of arbitration to address surplus issues in the event of wind up. The provision would apply in circumstances where the Superintendent has not consented to the pay out of surplus to the employer or a surplus sharing agreement has not been entered into before the expiry of a prescribed period of time after the date of wind up. Any relevant parties (employer, union, members, former members) may file a notice with the Superintendent proposing that arbitration be used. The Superintendent can also propose arbitration on his/her own initiative. An arbitrator may be appointed by agreement of those who are authorized under the PBA to enter into a surplus sharing agreement or may be appointed by the Superintendent. Once an arbitrator is appointed the relevant parties are deemed to have consented and are not permitted thereafter to commence a civil proceeding in respect of surplus entitlement. An arbitration award made in accordance with this provision will prevail over the documents that create and support the pension plan and the pension fund. This part of Bill 120 is not in force until proclaimed.
These changes to the surplus distribution provisions clearly demonstrate the intention of the Government of Ontario to try to get such matters out of the court system.
Funding Requirements - There are a number of changes that relate to funding requirements including:
- the ability of certain jointly sponsored pension plans to avoid contributions for solvency deficiencies;
- restrictions on circumstances in which a pension plan can be amended to authorize benefit improvements;
- an express provision addressing the permissible circumstances for contribution holidays; and
- a new provision specifying when letters of credit can be used in the event of a solvency deficiency.
Pension Benefits Guarantee Fund - There are a number of changes related to the PBGF but the most notable is that the exemptions from coverage of pension plans and increases in pensions and pension benefits that are less than three years old has been increased to five years for wind ups on or after December 8, 2010.
Administration - A new provision states that a pension plan administrator is entitled to be paid from the pension fund reasonable fees and expenses related to plan administration and pension plan administration and investment. Such payment is not permitted if prohibited by the documents that create and support the pension plan and the pension fund. Reasonable fees and expenses are also payable from a pension fund to agents, employers and service providers.
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