The 2012 Ontario Budget (the
"Budget"), released on March 27,
contains several changes related to pension plans. This bulletin
addresses those recommendations specifically related to private
sector plans and that may be of interest to private sector
employers. The Budget also contains recommendations pertaining to
public sector pension plans, which are not discussed.
Continuing Pension Reforms
Regulations are being drafted to implement many of the reforms
in the Pension Benefits Amendment Act, 2010 (Bill
236) and the Securing Pension Benefits Now and for the Future
Act, 2010 (Bill 120). The regulations, to be released in draft
this spring, will include:
provisions specifying the rights and responsibilities of
the clarification of pension surplus rules; and
the implementation of certain asset transfer provisions.
Also this year draft regulations will be posted that include the
strengthening of funding rules for defined benefit pension plans,
such as eligibility conditions for contribution holidays and
accelerated funding of benefit improvements.
The elimination of future partial wind-ups and the introduction
of immediate vesting will become effective on July 1, 2012. This is
consistent with the effective date for grow-in benefits becoming
available to all eligible members terminated other than for
Please note that if your pension plan does not currently
provide for immediate vesting, it should be amended prior to July
2. Financial-Hardship Unlocking
Ontario allows locked-in account owners to withdraw funds where
there are circumstances of financial hardship. The Government
intends to change the program to make it simpler to access
locked-in funds. The consent of the regulator would no longer be
required, as applicants would be able to request withdrawals from
their financial institutions. This change is consistent with the
process employed for federally regulated locked-in accounts.
3. Solvency Funding Relief
The Government has proposed to extend solvency funding relief to
sponsors of private-sector defined benefit pension plans.
Consistent with the measures introduced in 2009, for the first
filed actuarial valuation report on or after September 30, 2011, a
plan administrator would be able to:
Consolidate existing solvency payment schedules into a new
5-year payment schedule; and
Extend the solvency payment schedule for a new solvency
deficiency to a maximum of 10 years (as opposed to 5), subject to
the consent of plan beneficiaries.
In addition, regulations are to be put in place this spring that
would allow employers to use irrevocable letters of credit to cover
up to 15 per cent of pension plans' solvency liabilities.
Further flexibility will also be provided by permitting a deferral
of solvency and going concern special payments for one year after a
plan valuation date.
Canada's Retirement Income Project
1. CPP Enhancement
The Budget provides that Ontario continues to support a modest,
phased-in and fully funded enhancement to the Canada Pension Plan
("CPP"). The Ontario Government
recommends that such a CPP enhancement would be fully funded by
employees and their employers, with full implementation taking
place over a 40-year period. This recommended gradual phase in of
the enhancement would be a way to limit the negative impact on
employers and employees.
2. Pooled Registered Pension Plans
The federal government has recently released the Pooled
Registered Pension Plans Act, which outlines the legislative
framework for PRPPs for federally regulated industries. In order
for Ontario employers and employees to participate in PRPPs,
Ontario would need to implement legislation and regulations. At
this point, Ontario has indicated that it has a number of concerns
with the federal model, but that it will continue to work
collaboratively with the federal government and other provinces to
develop the PRPP model. However, the Ontario Government is of the
view that the implementation of pension innovation should be tied
with enhancements to the CPP.
The content of this article does not constitute legal advice
and should not be relied on in that way. Specific advice should be
sought about your specific circumstances.
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