Canada: Goodbye Ontario Solvency Funding (In Part)!

In this Update

  • Ontario announced major changes to defined benefit pension plans registered in the province, moving away from traditional solvency funding requirements and providing an employer discharge for buy-out annuities
  • impact of these funding related changes
  • how these proposed changes will facilitate de-risking through the use of buy-out annuities
  • implications of these changes for plan sponsors going forward

On May 19, 2017, Ontario announced various changes that are intended to promote the health and sustainability of defined benefit pension plans registered in Ontario. The proposed changes relate to funding and buy-out annuities and are the product of a lengthy consultation process on how Ontario should modernize the funding framework for defined benefit pension plans.

The move away from solvency funding and the proposed employer discharge on buy-out annuities are welcome changes for employers who sponsor defined benefit pension plans registered in Ontario.

The announcement notes that the government intends to introduce legislation in fall, 2017 to enable these changes and that the government will consult with stakeholders prior to finalizing the regulations that will ultimately bring these changes into force.


The announced changes follow the consultation on solvency funding that the province undertook last year.  With the proposed changes that have been announced, the Ontario government has clearly tried to strike a balance between protecting benefits earned by plan members and reducing the funding volatility (and potentially affordability) for plan sponsors that maintain defined benefit pension plans.

The last several years have been extremely difficult for many plan sponsors.  While we have recently seen an improvement in the solvency funded levels of some plans, with interest rates at record lows for many years, as well as market volatility and demographic issues (such as increased longevity), the solvency position of many registered pension plans in the country has suffered.  As a result, plan sponsors have had to take advantage of various temporary solvency relief measures introduced by governments and/or face crippling solvency amortization payments.

Québec was the first province to eliminate solvency funding for all pension plans registered in the province with its reforms introduced in 2015.  Unlike Québec, Ontario has opted to maintain solvency funding requirements for troubled plans, but to exempt from solvency funding requirements plans that have a solvency funded ratio of at least 85%.  The announcement indicates that, based upon the Financial Services Commission of Ontario's most recent estimates, approximately 15% of plans would still need to be funded on a solvency basis under the new regime.  However, the prospect of a solvency funding exemption may have the effect of incentivizing certain of these plan sponsors to (where possible) make lump sum contributions to increase the funded ratio above this threshold.

Similar to Québec's reforms, which introduced the concept of a "stabilization reserve," Ontario's new regime will require funding on a going concern basis, plus funding a reserve, known as a provision for adverse deviation (PfAD).  In addition, Ontario, like Québec, will move the amortization period for funding going concern deficiencies from 15 years to 10 years and special payments will be consolidated into a single schedule.  For more information on Québec's funding reform, please see here.

Other key elements of today's announcement related to funding are as follows:

  • To help balance the funding changes, and provide greater benefit security in the event that an employer is bankrupt and the plan is not fully funded, there will be an increase in the maximum coverage that can be provided under Ontario's Pension Benefits Guarantee Fund from $1,000 to $1,500.  While not discussed in the announcement, we anticipate that there will be a corresponding increase in Pension Benefits Guarantee Fund premiums to finance the increased coverage.
  • The new regime will include a framework for restrictions on contribution holidays and funding rules for benefit improvements.
  • There will be additional requirements related to transparency, including requiring funding and governance policies and additional funding disclosure requirements to plan beneficiaries.

Buy-out annuities

In addition to the proposed funding changes, Ontario will introduce new rules that will facilitate de-risking through the use of buy-out annuities.  As defined benefit plan administrators look for ways to reduce risks associated with their pension plans, one option is to purchase an annuity from an insurance company for pensions in pay.  Where this is done, the insurance company assumes the responsibility to pay the pensions to those members.  Under the current rules in Ontario, the employer retains responsibility with regard to the payment of the pensions, even though contractually the responsibility has been transferred to the insurer. 

The proposed changes will include a discharge provision for an employer.  That is, where an employer purchases buy-out annuities in respect of retirees or deferred plan members, this would satisfy the employer's obligation under the plan to provide the pension.

What do these proposed changes mean for plan sponsors now?

The proposed funding changes will impact single employer pension plans registered in Ontario.  However, it is unclear from the announcement whether any or all of these changes will also apply to multi-employer pension plans or jointly sponsored pension plans that are registered in Ontario.

The announcement provides that, as an interim step, there will be measures introduced in the near future to assist defined benefit plans that are required to file actuarial valuation reports on or after December 16, 2016, and prior to December 31, 2017.  Once we receive more details on these measures, we will release a further update.

Plan sponsors need to review their plan documentation to determine what, if any changes, will be needed as a result of these upcoming changes.  For example, plan texts should be reviewed to determine whether there is any language relating to contribution holidays or funding that is restrictive, given the impending changes.  Similarly, for pension plans that already have funding policies, these may need to be revised in light of these changes. 

The changes to the funding regimes in both Ontario and Québec may, in the right circumstances, create cost savings opportunities for employers with pension plans registered in Québec and/or Ontario, as well as other jurisdictions in Canada, through the implementation of plan mergers.

With going concern funding potentially becoming more important for the majority of pension plans in the province, sponsors may be taking a closer look at the actuarial assumptions underlying the going concern calculation.  In doing so, it is important for the employer to be aware of what "hat" it is wearing and any potential fiduciary concerns.

We would also point out that it is important to be aware of these upcoming funding changes as employers enter into labour negotiations with any union.   

As discussed in earlier Osler publications, there are a spectrum of de-risking options available to defined benefit plan sponsors and administrators.  Ontario employers who are looking at de-risking options may now wish to consider whether to proceed with a buy-out annuity.  If this is a consideration, the plan terms will need to be revised to ensure that the language permits the plan administrator the right to purchase annuities instead of paying lifetime pensions monthly from the plan fund.

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.

To print this article, all you need is to be registered on

Click to Login as an existing user or Register so you can print this article.

In association with
Up-coming Events Search
Font Size:
Mondaq on Twitter
Register for Access and our Free Biweekly Alert for
This service is completely free. Access 250,000 archived articles from 100+ countries and get a personalised email twice a week covering developments (and yes, our lawyers like to think you’ve read our Disclaimer).
Email Address
Company Name
Confirm Password
Mondaq Topics -- Select your Interests
 Law Performance
 Law Practice
 Media & IT
 Real Estate
 Wealth Mgt
Asia Pacific
European Union
Latin America
Middle East
United States
Worldwide Updates
Mondaq Ltd requires you to register and provide information that personally identifies you, including what sort of information you are interested in, for three primary purposes:
  • To allow you to personalize the Mondaq websites you are visiting.
  • To enable features such as password reminder, newsletter alerts, email a colleague, and linking from Mondaq (and its affiliate sites) to your website.
  • To produce demographic feedback for our information providers who provide information free for your use.
  • Mondaq (and its affiliate sites) do not sell or provide your details to third parties other than information providers. The reason we provide our information providers with this information is so that they can measure the response their articles are receiving and provide you with information about their products and services.
    If you do not want us to provide your name and email address you may opt out by clicking here
    If you do not wish to receive any future announcements of products and services offered by Mondaq you may opt out by clicking here

    Terms & Conditions and Privacy Statement (the Website) is owned and managed by Mondaq Ltd and as a user you are granted a non-exclusive, revocable license to access the Website under its terms and conditions of use. Your use of the Website constitutes your agreement to the following terms and conditions of use. Mondaq Ltd may terminate your use of the Website if you are in breach of these terms and conditions or if Mondaq Ltd decides to terminate your license of use for whatever reason.

    Use of

    You may use the Website but are required to register as a user if you wish to read the full text of the content and articles available (the Content). You may not modify, publish, transmit, transfer or sell, reproduce, create derivative works from, distribute, perform, link, display, or in any way exploit any of the Content, in whole or in part, except as expressly permitted in these terms & conditions or with the prior written consent of Mondaq Ltd. You may not use electronic or other means to extract details or information about’s content, users or contributors in order to offer them any services or products which compete directly or indirectly with Mondaq Ltd’s services and products.


    Mondaq Ltd and/or its respective suppliers make no representations about the suitability of the information contained in the documents and related graphics published on this server for any purpose. All such documents and related graphics are provided "as is" without warranty of any kind. Mondaq Ltd and/or its respective suppliers hereby disclaim all warranties and conditions with regard to this information, including all implied warranties and conditions of merchantability, fitness for a particular purpose, title and non-infringement. In no event shall Mondaq Ltd and/or its respective suppliers be liable for any special, indirect or consequential damages or any damages whatsoever resulting from loss of use, data or profits, whether in an action of contract, negligence or other tortious action, arising out of or in connection with the use or performance of information available from this server.

    The documents and related graphics published on this server could include technical inaccuracies or typographical errors. Changes are periodically added to the information herein. Mondaq Ltd and/or its respective suppliers may make improvements and/or changes in the product(s) and/or the program(s) described herein at any time.


    Mondaq Ltd requires you to register and provide information that personally identifies you, including what sort of information you are interested in, for three primary purposes:

    • To allow you to personalize the Mondaq websites you are visiting.
    • To enable features such as password reminder, newsletter alerts, email a colleague, and linking from Mondaq (and its affiliate sites) to your website.
    • To produce demographic feedback for our information providers who provide information free for your use.

    Mondaq (and its affiliate sites) do not sell or provide your details to third parties other than information providers. The reason we provide our information providers with this information is so that they can measure the response their articles are receiving and provide you with information about their products and services.

    Information Collection and Use

    We require site users to register with Mondaq (and its affiliate sites) to view the free information on the site. We also collect information from our users at several different points on the websites: this is so that we can customise the sites according to individual usage, provide 'session-aware' functionality, and ensure that content is acquired and developed appropriately. This gives us an overall picture of our user profiles, which in turn shows to our Editorial Contributors the type of person they are reaching by posting articles on Mondaq (and its affiliate sites) – meaning more free content for registered users.

    We are only able to provide the material on the Mondaq (and its affiliate sites) site free to site visitors because we can pass on information about the pages that users are viewing and the personal information users provide to us (e.g. email addresses) to reputable contributing firms such as law firms who author those pages. We do not sell or rent information to anyone else other than the authors of those pages, who may change from time to time. Should you wish us not to disclose your details to any of these parties, please tick the box above or tick the box marked "Opt out of Registration Information Disclosure" on the Your Profile page. We and our author organisations may only contact you via email or other means if you allow us to do so. Users can opt out of contact when they register on the site, or send an email to with “no disclosure” in the subject heading

    Mondaq News Alerts

    In order to receive Mondaq News Alerts, users have to complete a separate registration form. This is a personalised service where users choose regions and topics of interest and we send it only to those users who have requested it. Users can stop receiving these Alerts by going to the Mondaq News Alerts page and deselecting all interest areas. In the same way users can amend their personal preferences to add or remove subject areas.


    A cookie is a small text file written to a user’s hard drive that contains an identifying user number. The cookies do not contain any personal information about users. We use the cookie so users do not have to log in every time they use the service and the cookie will automatically expire if you do not visit the Mondaq website (or its affiliate sites) for 12 months. We also use the cookie to personalise a user's experience of the site (for example to show information specific to a user's region). As the Mondaq sites are fully personalised and cookies are essential to its core technology the site will function unpredictably with browsers that do not support cookies - or where cookies are disabled (in these circumstances we advise you to attempt to locate the information you require elsewhere on the web). However if you are concerned about the presence of a Mondaq cookie on your machine you can also choose to expire the cookie immediately (remove it) by selecting the 'Log Off' menu option as the last thing you do when you use the site.

    Some of our business partners may use cookies on our site (for example, advertisers). However, we have no access to or control over these cookies and we are not aware of any at present that do so.

    Log Files

    We use IP addresses to analyse trends, administer the site, track movement, and gather broad demographic information for aggregate use. IP addresses are not linked to personally identifiable information.


    This web site contains links to other sites. Please be aware that Mondaq (or its affiliate sites) are not responsible for the privacy practices of such other sites. We encourage our users to be aware when they leave our site and to read the privacy statements of these third party sites. This privacy statement applies solely to information collected by this Web site.

    Surveys & Contests

    From time-to-time our site requests information from users via surveys or contests. Participation in these surveys or contests is completely voluntary and the user therefore has a choice whether or not to disclose any information requested. Information requested may include contact information (such as name and delivery address), and demographic information (such as postcode, age level). Contact information will be used to notify the winners and award prizes. Survey information will be used for purposes of monitoring or improving the functionality of the site.


    If a user elects to use our referral service for informing a friend about our site, we ask them for the friend’s name and email address. Mondaq stores this information and may contact the friend to invite them to register with Mondaq, but they will not be contacted more than once. The friend may contact Mondaq to request the removal of this information from our database.


    From time to time Mondaq may send you emails promoting Mondaq services including new services. You may opt out of receiving such emails by clicking below.

    *** If you do not wish to receive any future announcements of services offered by Mondaq you may opt out by clicking here .


    This website takes every reasonable precaution to protect our users’ information. When users submit sensitive information via the website, your information is protected using firewalls and other security technology. If you have any questions about the security at our website, you can send an email to

    Correcting/Updating Personal Information

    If a user’s personally identifiable information changes (such as postcode), or if a user no longer desires our service, we will endeavour to provide a way to correct, update or remove that user’s personal data provided to us. This can usually be done at the “Your Profile” page or by sending an email to

    Notification of Changes

    If we decide to change our Terms & Conditions or Privacy Policy, we will post those changes on our site so our users are always aware of what information we collect, how we use it, and under what circumstances, if any, we disclose it. If at any point we decide to use personally identifiable information in a manner different from that stated at the time it was collected, we will notify users by way of an email. Users will have a choice as to whether or not we use their information in this different manner. We will use information in accordance with the privacy policy under which the information was collected.

    How to contact Mondaq

    You can contact us with comments or queries at

    If for some reason you believe Mondaq Ltd. has not adhered to these principles, please notify us by e-mail at and we will use commercially reasonable efforts to determine and correct the problem promptly.

    By clicking Register you state you have read and agree to our Terms and Conditions