In a surprise statement buried in its recently released 2015
Ontario Economic Outlook and Fiscal Review, the Ontario government
has announced that it intends to eliminate the "30% rule"
from Ontario pension legislation in order to "open up new
investment opportunities and tap the capacity of the pension sector
to contribute more to economic growth."
The 30% rule prohibits pension administrators from directly or
indirectly investing the assets of the plan in securities of a
company to which are attached more than 30% of the votes that elect
the directors of the company. The rule applies regardless of
whether the investment is being made in Canada or elsewhere.
The 30% rule is currently included in federal pension
legislation and in the pension legislation of almost every province
in Canada. In April 2015, the previous Harper government announced
that it would undertake a public consultation on the usefulness of
the rule in federal law, but that consultation has not yet
Over the years, pension funds have developed complex investment
structures to acquire greater than 30% of the equity of a company
in a 30%-rule compliant manner. However, these structures increase
transaction costs without any corresponding benefit to the pension
fund or the plan beneficiaries.
The Ontario government intends to release a description of the
proposed regulation eliminating the 30% rule for consultation in
What You Need To Know
Although this appears to be a very
welcome development for large Ontario pension funds that engage in
direct investing, we will not know until the draft regulation is
released whether the proposal would result in a complete
elimination of the 30% rule or whether it might be eliminated only
for certain pension funds (for example, a fund asset-size threshold
which results in the 30% rule continuing to apply to smaller
pension funds) or only for certain types of investments or subject
to certain conditions.
Even if the Ontario government does
eliminate the 30% rule, it has emphasized that pension plan
administrators will still be required to exercise a fiduciary
standard of care, diligence and skill in the administration and
investment of the pension fund. In addition, plan administrators
must continue to comply with other pension fund investment rules,
including related party restrictions and the 10% concentration
Unless and until other Canadian
governments follow suit, the 30% rule will continue to apply to
pension plans governed by the legislation of other provinces or
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