Canada: Ontario's Fall Economic Statement

Last Updated: November 20 2013
Article by Daniel R. Hayhurst

The Ontario government released an economic statement on November 7, 2013 (Economic Statement) that addresses a variety of issues, including a host of issues concerning pensions/retirement savings.

The announcements in the Economic Statement include the following:

Canada Pension Plan (CPP) - The Ontario government supports an enhancement to the CPP for all Canadians, and has gone so far as to suggest that if national agreement on an expansion of the CPP cannot be secured, Ontario may adopt a "made in Ontario" solution.  The Economic Statement indicates that any such CPP enhancement should be "fully funded" over time and would accrue based on (future) contributions actually made.

Pooled Registered Pension Plans - Ontario will introduce PRPP legislation, although only after public consultation (proposed for Fall 2013).

Pension Investment Rules – Like all other Canadian jurisdictions, Ontario has adopted a "prudent person" rule for pension fund investments.  The prudent person rule is supplemented by a number of prescribed rules, including two quantitative rules.  The Ontario government has proposed further exceptions to these quantitative rules.

  • 30% Rule – subject to limited exceptions, the 30% Rule prohibits a pension plan administrator from investing moneys of the plan in securities of a corporation to which are attached more than 30% of the votes that may be cast to elect directors.  This rule applies on both a direct and indirect basis.  The current exemptions to this rule relate to holding companies which meet prescribed requirements.  The government has announced that it will provide a further exemption to the 30% Rule for "certain Ontario public infrastructure projects". 
  • 10% Rule -  subject to a number of exceptions, the 10% Rule prohibits a pension plan administrator from lending or investing more than 10% of the book value of the plan's assets in any one person, two or more associated persons or two or more affiliated corporations.  An exemption currently exists for investments in securities issued or fully guaranteed by the Government of Canada, the government of a province, or an agency thereof.  The Ontario government proposes a further exemption for "certain government-issued, inflation indexed securities (e.g., U.S. Treasury Inflation-Protected Securities)".    

Target Benefit Plans – So-called "target benefit plans" combine features of both defined benefit (DB) and defined contribution (DC) plans.  They "target" a specific benefit level funded by fixed contributions, but benefits may be reduced to address any funding shortfalls.  The government intends to engage in consultations with "interested parties" on a target benefit framework for eligible multi-employer pension plans in 2014.  The Economic Statement indicates that Ontario also wishes to establish such a framework for single-employer, private sector plans.

Asset Pooling – As reported previously in pensions@gowlings, in its 2012 Budget the Ontario government proposed asset pooling for the investments of Ontario public sector pension plans.  Following release of that Budget, in November 2012 the Province's special pension investment advisor, Bill Morneau, issued a report which indicated that significant savings could be achieved by public sector pension plans through a pooling of assets for investment purposes.  The Economic Statement indicates that asset pooling in the public sector remains on the Ontario government's agenda.  Specifically, the Economic Statement indicates that, following the 2013 Budget, a technical working group was established, and that the government will seek advice from this working group on design, governance and transition issues relating to implementing a new pooled asset management entity for Ontario public-sector single-employer pension plans.  The Economic Statement states that this advice will assist the government in determining how to move forward with implementation in 2014.

Funding Rules for Ontario (Private and Public Sector) DB Plans – The Ontario government states that it "will continue implementing new and revised rules to ensure Ontario's private-sector DB plans remain financially sound and public-sector DB plans remain affordable and sustainable".  These changes include limits on employers taking contribution holidays and accelerated funding for benefit improvements.  In the public sector, they include: (a) additional relief from solvency funding obligations for public-sector single-employer pension plans that have "demonstrated increased affordability and sustainability"; and (b) use of a letter of credit by eligible single-employer plans that are engaged in discussions with members and retirees to convert to a jointly-sponsored pension plan model.

Inter-Plan Asset Transfer Rules – New rules relating to asset transfers between registered pension plans will be made effective in January 2014.  Draft regulations were published in July 2013, with the comment period ending in September.

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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