Canada: Old Wine In New Bottles: Ontario's 2016 Budget Re-Announces Previous Pension And Benefit Proposals

Each year, we pension and benefit lawyers watch Ontario's Budget announcement intently. We ask: "Will this be the year for blockbuster, sweeping announcements on changes in pension and benefit policy?" For 2016, the answer is a decided "no". Largely, this year's Ontario Budget recommitted to a number of previously announced proposals. This alert briefly summarizes the Ontario 2016 Budget tabled February 25, 2016, entitled "Jobs for Today and Tomorrow" (the "Budget") and the corresponding Budget Bill, Bill 173, Jobs for Today and Tomorrow Act (Budget Measures), 2016.

The Budget is the Government's self-described initiative to keep itself "accountable" for previously announced pension initiatives, with some of these initiatives having been introduced more than five years ago. In addition, the Government made new announcements regarding drug benefits for seniors, which some Ontario employers will want to review carefully. The table below outlines the proposals and deadlines that the Budget's pension and benefit portions set out.

Initiative Timeline What does this mean for employers/administrators now?
Pension-Related Announcements
Eliminate "30% Rule"

The 30% Rule prohibits plan administrators from directly or indirectly investing plan assets in securities of a company to which are attached more than 30% of the votes that elect the directors of the company.
Unannounced For plans that have already implemented structures to make investments in companies in a manner that complies with the 30% Rule, administrators may wish to consider mechanisms to unwind or streamline those structures.

In our view, most administrators ought best to wait until the actual legislative wording to eliminate the 30% Rule has been introduced before proceeding to unwind existing structures or planning on taking additional stakes in companies. For example, we do not yet know if elimination of the 30% Rule will have any conditions (including being limited to certain plans or certain types of investments). We further emphasize that this change will not affect plans registered outside of Ontario.
Release final report reviewing the mandates of the Financial Services Commission of Ontario (FSCO), the Financial Services Tribunal (FST) and the Deposit Insurance Corporation of Ontario (DICO)

On November 4, 2015, an Expert Review Panel appointed to review the FSCO, FST and DICO mandates released its Preliminary Position Paper. Among other things, the Paper recommended the establishment of a new regulatory agency called the Financial Services Regulatory Authority (FSRA) to replace both FSCO and DICO. The Pension Benefits Guarantee Fund would be administered and overseen by an entity that is separate from, but accountable to, the FSRA. The paper further recommends that the FSRA be given the authority to make binding rules, within legislatively defined limits, with the ability to impose monetary penalties for non-observance.
Spring 2016: Final Paper

As early as possible: Legislative changes following the release of the Final Paper
The ultimate changes will affect the make-up of the regulator (and its administrative procedures) for Ontario-registered pension plans, although we do not yet know the details this impact may have on regulation.

Employers and administrators will no doubt wish to pay attention to the recommendation that the FSRA ought to have binding rule-making power with a separate power to impose monetary penalties for non-observance. These new powers would represent a significant departure from the current regime. It is unclear if fines may be assessed against a pension fund itself. If so, it would raise questions as to whether levying fines against a pension fund is in the best interests of plan beneficiaries and the most effective way to ensure prudent administration. In this regard, employers and administrators may wish to make submissions on any draft legislation when released.
Release final elements of Ontario Retirement Pension Plan ("ORPP") plan design

The Government announced it will table new legislation setting out the ORPP's detailed terms, including eligibility, benefit calculations, funding and compliance and enforcement regimes (some have characterized this legislation as the ORPP "plan text"). As previously announced, the phase-in process for ORPP contributions would be delayed by one year, so that Ontario's largest employers (without a comparable workplace pension plan) would begin contributing in 2018 rather than 2017.

At the same time, the Government reconfirmed that it intends to work "collaboratively" and "intensely" with the federal government, provinces and territories to enhance the Canada Pension Plan ("CPP").
Spring 2016 The ORPP Administration Corporation, responsible for administering the ORPP and managing and investing ORPP contributions, will be launching the employer verification and enrolment process in 2017 (with contribution collection beginning as early as 2018). This means that all employers with Ontario employees should be reviewing their current plans (if any) to determine if any of them are a "comparable workplace plan" (thereby exempting participation in the ORPP), and if not, determining whether to amend an existing plan in order to make it "comparable", or to integrate an existing plan with ORPP participation.

The Government's comments on CPP expansion continue to create uncertainty for employers. The Budget suggests that the Government may still reverse course on the ORPP if CPP expansion is brought about on an expedited basis (presumably, by the January 1, 2018 contribution effective date), and if that expansion provides an enhancement comparable to the ORPP's proposed benefit level. The Budget does not, however, say this explicitly.
Release consultation paper outlining possible solvency funding reform measures for single-employer defined benefit ("DB") pension plans

The Government appointed David Marshall, former president and CEO of The Workplace Safety and Insurance Board, to lead this solvency funding review. He will make recommendations to the Ministry of Finance on developing solvency funding reforms that would "focus on plan sustainability, affordability and benefit security, and take into account the interests of pension stakeholders". A stakeholder reference group is also being established to ensure that reforms to the existing solvency funding framework are informed by a broad range of stakeholder opinions.
Spring 2016 We have no details regarding what possible reform measures may be announced. This may or may not include the elimination of the requirement for private-sector DB plans to be funded on a solvency basis, as was introduced in Quebec effective January 1, 2016. For now, employers and administrators will need to wait and see (and ensure their voices are heard) when draft proposals are released.
Post draft regulations regarding extension of temporary solvency funding relief measures previously introduced in 2009 and 2012 for private-sector DB pension plans

As previously announced, the Government plans to extend the temporary solvency funding relief measures introduced in 2009 and 2012 for an additional three-year period, starting with actuarial valuation reports dated December 31, 2015. The options include the ability to consolidate existing solvency payment schedules into a new five-year payment schedule, or extend the solvency payment schedule to a maximum of 10 years for any new solvency deficiency (subject to no more than two thirds of active, former and retired members objecting).
Spring 2016 We do not know whether these measures will be available to all pension plans, regardless of whether or not they previously took advantage of the temporary relief available under the 2009 or 2012 measures. At this point, employers may wish to consult with their lawyers and actuaries to consider whether they will want to take advantage of these temporary relief options. They may also wish to comment on any draft regulations released.
Introduce regulatory framework for target benefit multi-employer pension plans ("MEPPs")

The Government continues to consider the implementation of a new framework for target benefit MEPPs, including a permanent exemption from solvency funding requirements. The Budget states that it is committed to providing a transition period that allows sufficient time and ensures minimal disruption to the collective bargaining process. The Government released a consultation paper in July 2015 inviting feedback on key policy issues associated with developing a new target benefit framework for MEPPs. The proposed framework would address issues such as eligibility conditions, funding rules and governance requirements.
Unannounced Interested stakeholders should continue to pay attention to these developments.
Finalize regulations incorporating stakeholder feedback regarding pension advisory committees ("PACs")

Amendments to the Ontario Pension Benefits Act ("PBA") were introduced in 2010, making it easier for members to establish a PAC (with new obligations on the administrator to assist in the PAC's formation). Draft legislative amendments were released on August 25, 2015.
Late 2016 When effective, administrators will have to meet a number of new requirements aimed at facilitating the formation and operation of PACs, should their members wish to form one. Administrators should therefore begin to make themselves aware of these new requirements.
Introduce regulations to support the implementation of pooled registered pension plans ("PRPPs") Unannounced Employers may consider establishing a PRPP for their employees. The Budget also states that the Government will be developing an appropriate test to determine plan comparability for the purposes of the ORPP, meaning that if an employer contributes to a comparable PRPP, the employer may not have to participate in the ORPP.
Benefit-Related Announcements
Release paper and launch public consultations regarding introduction of a redesigned public drug program

The redesigned drug program, called the "Patients First Drug Program", would co-ordinate with individuals' private insurance benefits and increase equitable access to medications. Before transitioning to the Patients First Drug Program, the Government would take steps to update the current Ontario Drug Benefit Program for seniors by increasing the income-eligibility thresholds for the low-income seniors' benefits and increasing co-payments and deductibles for certain other seniors (effective August 1, 2016).
Spring 2016 This change could affect employers who provide retirement benefits to their employees, which are aligned with public programs. When further details are released, employers ought to review their own plans carefully and determine whether the provincial changes (and the wording of their own plans) would support amendments to create cost savings.
Streamline health, life and dental benefit plans in Ontario's education sector

Currently, there are more than 1,000 different benefit plans for teachers and education workers throughout Ontario's 72 school boards. All of these individual benefit plans are proposed to be consolidated into a handful of provincial trusts, resulting in improved purchasing power and cost management. The goal of the trusts would be to establish a harmonization of benefits throughout the education sector, eliminating the disparity that characterizes the current system and ensuring access to comparable benefits within the trusts.
Unannounced Employers in this sector will want to follow the specific proposals as they are released.
Develop sector-specific executive compensation frameworks in the broader public sector

According to the Budget, compensation information has been collected from all colleges and universities, in order to inform frameworks that balance sector-specific considerations with the need to prudently manage public funds. The Budget indicates that this could also apply to other broader public sectors, to collect compensation information and engage in consultation with affected sectors over the coming months.
2016 Universities and colleges may expect changes soon relating to their executive compensation frameworks. Other broader public sector employers may expect to be consulted by Government soon on this issue as well.

What's still on the books?

The Ontario Government still has a lot of work to do. This work includes the following changes to the Ontario PBA (some of which were announced well over five years ago):

  • Optional pension plan design changes: We are still waiting on supporting regulations that will bring into force the following optional plan design changes: optional benefits; variable benefits; and phased retirement.
  • Required advance notice for all pension plan amendments: We are waiting on regulations that will require pension plan administrators to provide members, retired members, former members, and trade unions with notice of all plan amendments before they are registered with the regulator, subject to exceptions that will be set out in future regulations.
  • Prescribed requirements to retain pension plan records: Future regulations will bring into effect a PBA provision that requires plan administrators to retain prescribed pension records for prescribed periods of time.

* * *

The Budget's pension and benefit announcements (or in many cases, confirmatory re-announcements) have significant ramifications for employers, administrators, trustees and pension service providers located in Ontario or who have Ontario employees.

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