eliminate or reduce ancillary benefits such as unreduced (or
partially reduced) early retirement and bridge benefits;
change ancillary benefit eligibility criteria (age and service
change the future service defined benefit formula (e.g., reduce
the percentage, narrow the scope of pensionable earnings or change
to career average);
reduce or eliminate indexation on future service accruals
(including a change to ad hoc indexing); and
increase member contributions.
Can Accrued Benefits be Reduced?
Typically, plan amendments that purport to reduce accrued
benefits are void under pension legislation, other than for
multi-employer pension plans and other special plans (e.g., jointly
sponsored pension plans). However, for federally regulated plans,
s. 10.1(2)(a) of the Pension Benefits Standards Act, 1985
provides that the Superintendent may approve an amendment which has
the effect of reducing accrued benefits. OSFI's July 2012 Instruction Guide
"Authorization of Amendments Reducing Benefits in Defined
Benefit Pension Plans" outlines what the Superintendent
will consider when faced with an application for a "reducing
amendment". Specifically, the Instruction Guide provides that,
among other things, the amendment power in the pension plan text
and any supporting documents must allow for a "reducing
amendment" and the amendment must have been instituted in
accordance with those documents. Please see our
previous post on reducing benefits in federally regulated
defined benefit pension plans for further discussion.
Any of the above-noted restructuring options, however, must be
done on a prospective basis and, in Ontario, they are also subject
to s. 14 of the Ontario Pension Benefits Act (PBA) which
prohibits an employer from amending a plan to reduce accrued
benefits. In addition, s. 14(1)(c) of the PBA prevents an employer
from amending a plan to reduce or eliminate an ancillary benefit
for which a member or former member has met all the eligibility
requirements necessary to exercise the right to receive payment of
the benefit. For example, if a plan member retires and as part of
the pension plan, is entitled to receive a dental benefit until
death, that dental benefit cannot be removed as the member has met
all the requirements necessary to entitle him or her to it.
While the above restructuring options (and those discussed in
parts I-III of this series) are possible subject to the terms of
the plans and any collective bargaining considerations, an employer
must always remember that communication with members is key to
reducing the risks associated with making such changes.
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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