Canada: Ontario Expert Commission On Pensions Report

Copyright 2008, Blake, Cassels & Graydon LLP

Originally published in Blakes Bulletin on Pension & Employee Benefits, November 2008

OVERVIEW

The Government of Ontario released today the final report of the Expert Commission on Pensions, A Fine Balance: Safe Pensions, Affordable Plans, Fair Rules (the Report).

In today's press release announcing the delivery of the Report, the Ministry of Finance also states that:

"To help plans manage solvency funding issues arising from recent market uncertainty, while taking into account the need for benefit security, the government is actively considering temporary solvency relief measures. The government is also working on this issue with its federal and provincial partners, through the Federal-Provincial Working Group on Pensions, announced by the Finance ministers on November 3, 2008."

The government press release also announces that the province is providing a written comment period ending February 27, 2009, and says that they are "committed to introducing legislation".

Given the length and breadth of the Report – 222 pages containing 142 recommendations – we have decided to immediately release a list of the highlights of the Report together with excerpts from the recommendations that relate to the provisions we believe to be of most relevance to our readers.

We have divided the excerpts from the recommendations into four sections to facilitate readers locating the portions most particularly relevant to their circumstances. One section will include the generally applicable recommendations and the other three separate out the recommendations relevant to each of single employer pension plans (SEPPs), jointly sponsored pensions plans (JSPPs) and multi-employer pension plans (MEPPs).

In addition to the detailed recommendations, the Report stresses the need for innovation of the broader pension system. It suggests that the optimal way to expand pension coverage is to encourage large scale commingled pension arrangements. It also suggests that an expansion of the Canada Pension Plan, or the creation of a comparable provincial plan, should be investigated seriously.

We will be presenting a more detailed discussion of the significant recommendations at our seminar with Watson Wyatt and the Commissioner of the Report, Harry W. Arthurs, to be held on November 26, 2008 at the Royal York Hotel. (For further information, please click here.)

HIGHLIGHTS

  • Exemption from 30% investment rule available provided joint governance and requisite capacity exists
  • MEPPs and JSPPs not required to fund on a solvency basis
  • Monsanto to be overruled by statute – no longer any requirements to distribute surplus assets on a partial pension plan wind-up
  • Only Partial Wind-Ups in very limited circumstances
  • Except for MEPPs and JSPPs, Grow-In required for all Involuntarily Terminated who satisfy the Rule of 55
  • On Plan Termination surplus withdrawal permitted based on document wording or agreement
  • Ongoing surplus withdrawals permitted above greater of (i) 125% of full solvency funding and (ii) 105% of full solvency funding plus two years of current service costs, on the same basis as termination surplus withdrawal
  • Statutory provision permitting Contribution Holidays and Payment of Expenses
  • DC conversions and mergers with cross funding permitted
  • 5% Provision for Adverse Deviation (Pfad) required for all single employer pension plans. Once plans are funded at 95% or higher, they are permitted an eight-year solvency amortization
  • Letters of Credit permitted as security for contributions within limits
  • Immediate Vesting of benefits mandated
  • Increase in PBGF limits
  • An agency should be established to hold, among other benefits, benefits for unlocated beneficiaries
  • Advanced Rulings to be provided
  • Expanded Annual Information Statement
  • Governance, Funding and Investment Policies Required
  • Pension Advisory Committee Required subject to limited exceptions
  • Governance Best Practices to be disseminated
  • On-Line Access to Plan Documents
  • New Jointly Governed Target Benefit Plan Possible
  • Fiduciary Duties to be subject to Consultation
  • Promotion of Large Scale Commingled Arrangements
  • Promotion of National Pension Dialogue

COPIES OF THE REPORT AND ACCOMPANYING DOCUMENTS

The entire Report and a Summary thereof is available at www.pensionreview.on.ca/ , together with details of the Commission's consultations, submissions and research program.

Also available on line is a separate memorandum prepared by the Expert Advisors on the technical amendments recommended to the government.

SEPPs

GOING CONCERN AND SOLVENCY VALUATIONS REQUIRED

Recommendation 4.13 Single employer pension plans should continue to fund according to both going concern and solvency valuations.

PROVISION FOR ADVERSE DEVIATION

Recommendation 4.14 Single employer pension plans should be required to maintain a security margin (or provision for adverse deviation) of 5% of solvency liabilities. This margin should be amortized over an eight-year period. The security margin should be deemed to be part of the plan surplus on wind up, but not for other purposes.

95% FUNDED

Recommendation 4.15 For plans which have achieved 95% of solvency funding, the normal amortization period for achieving the new required funding level, inclusive of the security margin, should be extended from five to eight years. For plans funded below 95%, the current amortization period of five years should continue to apply until such time as they become eligible for the extended amortization period.

Surplus on Wind-up

Recommendation 4.16 If a single employer pension plan is in surplus on being wound up, the surplus should be distributed in accordance with the plan documents unless the parties agree, or the proposed Pension Tribunal of Ontario rules, that the documents are not clear. In the event of such an acknowledgement or ruling, the sponsor may propose a scheme for the distribution of surplus which would take effect if approved in one of two ways:

  1. if plan members are not represented by a union, the proposal should be submitted to a vote by secret ballot of the plan members and retirees, and would take effect if approved by two-thirds of those voting; or
  2. if plan members are represented by a union or other organization, the sponsor should submit its proposal to representatives of the active members and retirees with a view to concluding a surplus distribution agreement.

If the sponsor and the representative negotiators cannot reach agreement, they should submit the matter for determination to a dispute resolution procedure of their own choosing. If they cannot agree on such a procedure, or if it does not resolve the matter within a reasonable time, any party may apply to the Superintendent to refer the matter to the Pension Tribunal of Ontario, which would then establish the terms of the surplus distribution agreement.

Any scheme approved by secret ballot, any surplus distribution agreement reached by representative negotiators, and any determination by the Tribunal or an agreed dispute resolution procedure would be final and binding on the Superintendent and on all persons claiming to be entitled.

CONTRIBUTION HOLIDAYS

Recommendation 4.17 Plan sponsors should be entitled to reduce or omit their contributions to a plan in any year in which it is funded at 105% or more of its solvency liabilities. However if – based on benchmarks to be developed by the regulator – a plan administrator knows, or ought reasonably to know, that funding has fallen below 95%, the administrator should immediately notify the sponsor to resume contributions until the plan is again funded at 105% of solvency liabilities. The pension regulator should develop benchmarks based on the plan's annual financial statements that will enable plan administrators to determine when contributions should be resumed.

If the regulator finds that a contribution holiday was improperly taken or continued, any contributions withheld from the plan should become immediately due and payable, together with interest, regardless of the plan's present funded status, and the sponsor should be subject to an administrative fine of up to $1 million, or double the amount withheld during the improper contribution holiday, whichever is less. The improper use of plan surplus to pay the expenses of the plan, including PBGF premiums, should be treated in similar fashion.

The parties to a collective agreement should be free to negotiate other arrangements for the use of surplus in an ongoing plan. These arrangements should prevail notwithstanding those proposed in this recommendation or established in the plan documents.

ONGOING SURPLUS WITHDRAWAL

Recommendation 4.18 Sponsors may apply to withdraw surplus from an ongoing plan pursuant to the procedures set out in Recommendation 4.16, provided that the plan remains funded subsequent to withdrawal at 125% of full solvency funding, or 105% of full solvency funding plus two years of current service costs, whichever is greater.

"GROW-IN"

Recommendation 5.8 Existing "grow-in" rights that provide access to early retirement benefits for all qualifying single-employer pension plan members in the event of a full or partial plan wind-up should be extended to all such members who are involuntarily terminated. "Qualifying members" should continue to be those whose age and years of service add up to 55.

PARTIAL PLAN WIND-UPS

Recommendation 5.14 Partial wind-ups of single employer plans should be declared by the Superintendent only when 40% of the active members of the employer are terminated within a two-year period. In such circumstances, administrators should file a plan reduction report, which would enable the Superintendent to ensure that plan funding is secure.

Recommendation 5.15 When 90% of the active members of a single employer plan are terminated within a two-year period, the Superintendent should have the power to require that the plan to be wound up or reconfigured. This power should be used only if the Superintendent concludes that either (a) the sponsor is not acting bona fide, or (b) the plan in its reduced state is unable to meet its obligations.

PENSION BENEFITS GUARANTEE FUND

Recommendation 6.15 Benefit improvements agreed to within five years prior to the failure of a plan should be ineligible for payment out of the Pension Benefits Guarantee Fund.

Recommendation 6.16 The risk assessment protocol by which levies are established for the Pension Benefits Guarantee Fund should be studied and revised to include not only the funding status of plans but other risk-generating factors such as the asset/liability match within the plan and the sponsor's financial health.

Recommendation 6.17 The level of monthly pension benefits eligible for protection by the Pension Benefits Guarantee Fund should be increased to a maximum of $2,500 to reflect the effect of inflation on the original maximum of $1,000.

The Superintendent (or other agency responsible for the administration of the Pension Benefits Guarantee Fund) should recommend to the Minister of Finance within one year:

  • the formula by which benefit levels should be determined on a going-forward basis;
  • the basis on which the levy paid by sponsors should to be calculated;
  • procedures for ensuring that both the benefits and the levy are adjusted at regular intervals; and
  • any other matter relevant to the implementation of this recommendation.

The recommendations should be accompanied by a statement concerning the anticipated effects of any such adjustment. The Minister should act promptly upon receipt of these recommendations and the accompanying statement.

Recommendation 6.18 The Ministry of Finance or some other agency, either alone or in cooperation with other Canadian pension authorities, should initiate a study of possible alternatives to the Pension Benefits Guarantee Fund. Unless and until such an alternative can be identified, the Pension Benefits Guarantee Fund should continue to exist in its present form proposed in Recommendations 6-14 to 6-17.

JOINTLY GOVERNED TARGET BENEFIT PLAN

Recommendation 8-27 The sponsor of a single-employer pension plan may enter into an agreement with a trade union, or other union-like organization that represents plan members, to establish a jointly governed target benefit pension plan. Such plans should (a) be governed by a board of trustees or comparable body on which representatives of plan members and retirees should comprise not less than one-half of its members, (b) offer target benefits, and (c) be funded on the same going concern basis as multi-employer and jointly sponsored plans.

JSPPs

SEPARATE FUNDING RULES

Recommendation 4.8 MEPPs, JSPPs and SEPPs should have separate funding rules related to their distinctive characteristics. In general, MEPPs and JSPPs should be allowed more flexibility in funding, while SEPPs should be subject to stricter rules than other plans.

ONLY GOING CONCERN VALUATIONS

Recommendation 4.11 Jointly sponsored pension plans should be required to fund only according to going concern valuations on the same basis as Specified Ontario Multi-employer Pension Plans, but should continue to provide solvency valuations for the information of the regulator as well as their active and retired members.

NO"GROW-IN"

Recommendation 5.9 Multi-employer plans, jointly sponsored plans, and the proposed jointly governed target benefit plans should not be required to provide grow-in benefits.

LIMITED PARTIAL PLAN WIND-UPS

Recommendation 5.16 If a multi-employer or jointly sponsored pension plan experiences a reduction of 40% of its active members, or of sponsors providing 40% of its contributions, or if the sponsoring union splits, the administrator should prepare a plan reduction report and file it with the regulator. The regulator may require the administrator to prepare such a report if there are reasonable grounds to believe that the plan may no longer be viable.

GOVERNANCE REQUIREMENTS

Recommendation 8-4 Multi-employer and jointly sponsored pension plans should develop governance policies that ensure participation of representatives of both active and retired members in their governance, establish the means of selection of those representatives, fix their remuneration and lay down rules governing their conduct in office.

ANNUAL STATEMENTS

Recommendation 8-5 Multi-employer and jointly sponsored pension plans should provide annual statements to all active, deferred and retired plan members which include:

  • a statement of the plan's current funded status;
  • a reminder that benefits provided under the plan are not defined or guaranteed but subject to reduction while the plan is ongoing (in the case of multi-employer plans) or on wind-up (in the case of jointly sponsored plans);
  • disclosure of any known events likely to lead to a reduction in benefits; and
  • an indication of any procedure or formula specified by law or in the plan documents by which benefit reduction may be determined.

INVESTMENT RULES

Recommendation 8-8 Any plan with some recognized form of joint governance and with the requisite capacity to make complex investment decisions (as defined by regulations) should be allowed to adopt a resolution claiming an exemption from the 30% investment rule. The resolution should be filed with the pension regulator and have effect upon filing, unless and until it is successfully challenged.

MEPPs

SEPARATE FUNDING RULES

Recommendation 4.8 MEPPs, JSPPs and SEPPs should have separate funding rules related to their distinctive characteristics. In general, MEPPs and JSPPs should be allowed more flexibility in funding, while SEPPs should be subject to stricter rules than other plans.

SOMEPP REGULATION

Recommendation 4.9 The basis for such legislation and regulations should be Ontario's SOMEPP regulation of 2007. After five years, the practical effects of these arrangements should be assessed.

ONLY GOING CONCERN VALUATIONS

Recommendation 4.10 Multi- employer pension plans should be required to fund only according to going concern valuations, but should continue to provide solvency valuations for the information of the regulator as well as their active and retired members.

NO"GROW-IN"

Recommendation 5.9 Multi-employer plans, jointly sponsored plans, and the proposed jointly governed target benefit plans should not be required to provide grow-in benefits.

LIMITED PARTIAL PLAN WIND-UPS

Recommendation 5.16 If a multi-employer or jointly sponsored pension plan experiences a reduction of 40% of its active members, or of sponsors providing 40% of its contributions, or if the sponsoring union splits, the administrator should prepare a plan reduction report and file it with the regulator. The regulator may require the administrator to prepare such a report if there are reasonable grounds to believe that the plan may no longer be viable.

ADDITIONAL POWERS OF THE SUPERINTENDENT

Recommendation 6.3 The Superintendent should have the power to initiate, facilitate and approve arrangements relating to all aspects of multi-employer plans at risk of failure or of significant benefit reduction. The Superintendent may exercise this power notwithstanding the provisions of plan documents.

GOVERNANCE REQUIREMENTS

Recommendation 8-4 Multi-employer and jointly sponsored pension plans should develop governance policies that ensure participation of representatives of both active and retired members in their governance, establish the means of selection of those representatives, fix their remuneration and lay down rules governing their conduct in office.

ANNUAL STATEMENTS

Recommendation 8-5 Multi-employer and jointly sponsored pension plans should provide annual statements to all active, deferred and retired plan members which include:

  • a statement of the plan's current funded status;
  • a reminder that benefits provided under the plan are not defined or guaranteed but subject to reduction while the plan is ongoing (in the case of multi-employer plans) or on wind-up (in the case of jointly sponsored plans);
  • disclosure of any known events likely to lead to a reduction in benefits; and
  • an indication of any procedure or formula specified by law or in the plan documents by which benefit reduction may be determined.

INVESTMENT RULES

Recommendation 8-8 Any plan with some recognized form of joint governance and with the requisite capacity to make complex investment decisions (as defined by regulations) should be allowed to adopt a resolution claiming an exemption from the 30% investment rule. The resolution should be filed with the pension regulator and have effect upon filing, unless and until it is successfully challenged.

General

ELIMINATION OF SMOOTHING AND BENEFIT EXCLUSIONS FROM VALUATIONS

Recommendation 4-3 Going concern valuations should no longer permit the exclusion of promised indexation benefits. Solvency valuations should no longer permit the use of smoothing practices or the exclusion of benefits. A special exception should be made for those plans that continue to provide plant closure benefits pursuant to a specific, long-standing commitment to continue their non-funded status.

Potential increases in sponsor contributions attributable to these enhanced transparency measures should be offset so far as possible by the extension of amortization periods, by selective relief from contribution increases for well-funded plans or by other means.

SHORTENED TIME TO FILE VALUATION

Recommendation 4-4 The time for filing the valuation after it is due should be reduced from nine to six months.

INDEXING

Recommendation 4-20 Every plan should contain a clause stating explicitly what provision, if any, has been made for the indexation of benefits and for the funding of indexation. Each triennial valuation and each annual statement provided to the regulator, active plan members and retirees should provide the same information.

Recommendation 4-21 The government should proclaim in force the provisions of the Pension Benefits Act which allow it to require that pensions be inflation-adjusted in accordance with a formula to be prescribed. That formula should be restricted to "inflation emergencies".

LETTERS OF CREDIT

Recommendation 4-22 Irrevocable letters of credit should be permitted as security for a fixed proportion of contributions owing to a plan, and for a maximum time, provided they are enforceable by the plan and immune from inclusion in the sponsor's estate in the event of insolvency. The Superintendent should have no power to relieve against these requirements either before or after the fact.

After five years, experience with letters of credit should be reviewed by the regulator. If no difficulties are found, they should be made available as a permanent feature of pension funding in Ontario.

TAX LIMITS

Recommendation 4-24 The Ontario government should endeavour to persuade the federal government to increase benefit and contribution levels for registered pension plans under the Income Tax Act, and to consider policies that encourage participation by workers and employers in DB plans or their functional equivalents.

INVESTMENT RULES

Recommendation 4-25 The Ontario government should endeavour to persuade the federal government to reform the federal investment rules and, in particular, to remove or amend particular quantitative restrictions that no longer make sense, such as those involving prohibitions on Canadian, but not foreign, investments.

However, if the federal government does not do so within a reasonable time frame, the Ontario government should cease to rely on the federal regulations and establish its own investment rules, tracking the federal rules only to the extent that doing so is deemed good public policy in Ontario.

ASSET TRANSFERS

Recommendation 5-3 Sponsors should be required to develop a standard policy for dealing with newly hired employees who seek pension credit for service during employment with a previous employer. The policy should state whether such credit will be given and, if so, on what terms, and should be made available to all such employees.

Recommendation 5-4 When individual or group transfers from one plan to another are contemplated, the importing plan should provide a detailed statement of the benefits to be provided. Each transferee should be given four options:

  1. as a default option, to accept the asset transfer and begin future accruals in the importing plan, provided it offers benefits of comparable aggregate value to those provided under the exporting plan;
  2. to remain as a deferred member of the exporting plan;
  3. Ontario Pension Agency; or
  4. to transfer the value to a locked-in account.

If active plan members are represented by a union or similar organization, it may accept one option on behalf of all members, or allow each member to exercise one or more of the options provided.

The value of benefits provided by an "importing" plan should be deemed to be "comparable" to those provided by an "exporting" plan for purposes of the default option, if (a) approved by the Superintendent as approximating the aggregate collective value of such benefits, notwithstanding differences in the nature, value or terms of individual benefits, or (b) agreed to by a union representing active plan members affected by the transfer.

Recommendation 5-23 The regulator should have the power to review the effects of a plan split, merger, asset transfer or other pension transaction involving related corporate entities in order to ensure that the plan's financial prospects have not been compromised by being assigned to a less solvent corporate entity. The regulator's powers should be exercised in accordance with specified criteria, and should include the power to (a) require a plan to be brought up to its previous funding level, or 105% of full funding, whichever is the lesser, (b) require the previous sponsor to provide guarantees that the new sponsor will meet its obligations to the plan, and (c) rescind the transaction.

ONTARIO PENSION AGENCY

Recommendation 5-2 The Lieutenant Governor in Council should establish an Ontario Pension Agency to receive, pool, administer, invest and disburse stranded pensions in an efficient manner.

Recommendation 5-6 When a pension plan is being wholly or partially wound up, when a transaction provides the opportunity for a pension asset transfer, or when an active plan member leaves a job in which she or he has earned pension credits, active plan members and retirees should be given the choice of depositing any pension accruals standing to their credit with the Ontario Pension Agency. Sponsors and unions negotiating the consequences of corporate or government restructuring should, by mutual consent, also be able to transfer plan assets to the Ontario Pension Agency in respect of some or all of the members affected.

Recommendation 5-7 The Ontario Pension Agency should receive and administer funds payable to pension beneficiaries who cannot be located. Plan sponsors should be obliged to file with the Ontario Pension Agency a list of all beneficiaries who cannot be located, and of all deferred members whose assets remain under the control of their plan. Plan members seeking to trace their standard or deferred pensions should have access to this list.

PHASED RETIREMENT

Recommendation 5-10 The Pension Benefits Act should be amended to provide for phased retirement as contemplated by the Income Tax Act.

IMMEDIATE VESTING

Recommendation 5-11 All active plan members should be immediately vested for all accrued pension benefits. However, as at present, the plan administrator should retain the discretion to authorize the payment out of small amounts in specified circumstances.

No Monsanto

Recommendation 5-12 Active plan members who are involuntarily terminated, whether in groups or individually, while a plan is ongoing, should not be entitled to an immediate distribution of surplus. However, those who leave their pension assets in the plan, should retain the right to participate in any subsequent surplus distribution.

ANNUITIZATION

Recommendation 5-13 Involuntarily terminated members may have their benefits annuitized at the option of the sponsor.

PLAN MERGERS AND SPLITS

Recommendation 5-17 Any surplus in a plan that is to be split (the "original plan") can be allocated to any of the new plans derived from it provided that the liabilities associated with the original plan and all of the derivative plans remain fully funded (including the 5% security margin) as of the date of completion of the transaction.

Recommendation 5-18 Any surplus in a plan that is to be merged with another plan can be assigned to the merged plan, provided that the members of the original plan remain in the new merged plan, and that the merged plan itself is fully funded (including the 5% security margin) as of the date of completion of the transaction.

Recommendation 5-19 A sponsor considering a plan split or merger must give notice of the proposed transaction to active plan members and retirees, and any union or other organization representing them. The notice should be accompanied by an accurate, readily understood explanation of its implications, as well as technical data relating to the new plan in a form approved by the regulator.

If the union or representative organization approves of the proposed transaction or, in the absence of such an organization, if the transaction is approved by two-thirds of the active members and retirees voting in a secret ballot, the approval shall be filed with the regulator. Upon receiving the approval and ensuring that the transaction is otherwise in accordance with Recommendations 5-17 and 5-18, the regulator may, without further delay, issue an advance ruling approving the transaction.

In the absence of approval from the union, organization or plan beneficiaries, the sponsor must give 90 days' notice to all interested parties and to the regulator. After expiry of the 90-day notice, the regulator should process the proposed transaction in the normal manner.

Where a split or merger is proposed by any plan on whose governing body at least 50% of the members are nominated by active plan members and/or retirees, approval by the governing body should serve in lieu of the approval process set out in this recommendation.

Recommendation 5-20 Notwithstanding Recommen-dations 5-18 and 5-19, a sponsor may, with the consent of the Superintendent, use surplus from the original plan to fund a new plan into which it has been merged, or from which is derived, provided that (a) if the original plan continues in force, its security margin is maintained; (b) the new plan is funded at not less than 100% from its inception by sponsor contributions, if necessary; and (c) the security margin in the new plan is funded within five years.

CONVERSIONS TO DC

Recommendation 5-21 Following conversion from a defined benefit to a defined contribution plan, or a hybrid plan with elements of both, surplus carried over from the original plan should first be used to provide the required security margin for defined benefits earned under either plan. If additional surplus remains, it should be available to fund contribution holidays or other expenses of the converted plan.

Recommendation 5-22 A sponsor considering the conversion of a defined benefit plan to a defined contribution or other type of plan must give notice of the proposed conversion to active and retired plan members and to any union or other organization representing them. The notice should be accompanied by an accurate, readily understood explanation of its implications, as well as technical data relating to the new plan in a form approved by the regulator.

If the union or representative organization approves of the proposed conversion or, in the absence of such an organization, if the conversion is approved by two-thirds of the active members and retirees voting in a secret ballot, the approval shall be filed with the regulator. Upon receiving the approval and ensuring that the transaction is otherwise in accordance with Recommendation 5-21, the regulator may, without further delay, issue an advance ruling approving the conversion.

In the absence of approval from the union, organization or plan beneficiaries, the sponsor must give 90 days' notice to all interested parties and to the regulator. After expiry of the 90-day notice, the regulator should process the proposed transaction in the normal manner.

Where a split or merger is proposed by any plan on whose governing body at least 50% of the members are nominated by active plan members and/or retirees, approval by that governing body should serve in lieu of the approval process set out in this recommendation.

LIMITATION ON THE EFFECT OF RECENT BENEFIT IMPROVEMENTS IN THE CASE OF INSOLVENCY

Recommendation 6-5 When a plan fails and is being wound up, payments attributable to benefit improvements initiated up to five years prior to the date of the wind-up should only be paid after all pre-existing benefits are paid in full. (See also Recommendation 6-9).

THE PROTECTION OF PENSION FUNDS UNDER FEDERAL INSOLVENCY LEGISLATION

Recommendation 6-7 The government of Ontario should support recent federal legislation that gives priority to unpaid current pension service costs in the event of bankruptcy. It should also initiate discussions with the federal government concerning the possibility of extending similar priority to all special payments to fund both solvency deficiencies and unfunded liabilities owing to the plan by the sponsor at the time of insolvency.

INSOLVENCY – SUPERINTENDENT TO HAVE POWERS TO MAKE ARRANGEMENTS

Recommendation 6-1 The Superintendent should have the power to establish benchmarks that identify plans "at risk of failure;" to order additional valuations and reports by such plans, if the benchmarks are met; and to require such valuations and reports to be conducted or reviewed by independent auditors and actuaries, or by auditors, actuaries or other staff of the pension regulator, at the cost of the sponsor.

Recommendation 6-4 When a pension plan has been identified as "at risk," the Superintendent should have power to approve the arrangements identified in Recommendations 6-2 and 6-3, conditional upon the suspension or cancellation of any agreement to improve plan benefits, and/or a prohibition on plan benefit improvements, until funding is restored to a specified level.

Recommendation 6-8 The Pension Benefits Act should be amended to permit the Superintendent to approve arrangements and changes in arrangements that involve the claims of pension plans under federal bankruptcy legislation.

INSOLVENCY – RIGHT TO REPLACE THE ADMINISTRATION IN AN AT RISK PLAN

Recommendation 6-11 The regulator should be specifically empowered to replace the administrator of a plan whose sponsor is involved, or is deemed at risk of being involved, in bankruptcy or insolvency proceedings. The Ontario government should ask the federal government to amend the relevant legislation to ensure that the new administrator so appointed can participate in all proceedings on behalf of the plan.

PBA TO BE EXCLUSIVE SOURCE OF PENSION LAW

Recommendation 7-1 So far as possible, substantive rules intended to define the rights and responsibilities of participants in the pension system should be set out in the Pension Benefits Act or rules and regulations made pursuant to it. If feasible as a matter of statutory drafting, the Act should convey the intention of the legislature that the Act should be treated as the exclusive source of pension law.

POLICY STATEMENT TO BE ISSUED

Recommendation 7-9 The pension regulator should issue policy statements indicating how it views and intends to process all standard pension transactions. Before doing so, it should give notice of its intention to issue such statements, and provide stakeholders with an opportunity to submit comments. After doing so, while not bound by such statements, the regulator should depart from them only for good reason and, preferably, by way of an amending statement rather than in the context of a particular proceeding.

ADVANCED RULINGS

Recommendation 7-10 The pension regulator should have power to provide opinion letters and advanced rulings in connection with proposed or pending transactions. The regulator should feel free to disregard such letters or rulings in subsequent proceedings if the applicant has not made full disclosure of relevant facts; if they adversely affect other parties who have not had a prior opportunity to be heard; or if they contravene legal rules or regulatory policies that were not in force when the letter or ruling was issued.

POWERS OF THE SUPERINTENDENT

Recommendation 7-15 The Pension Benefits Act should clearly grant the Superintendent power to:

  • hold hearings, require the production of documents and the giving of testimony, receive and rely on valuations and reports submitted in the regular course of his or her oversight functions, and order the preparation of and rely upon special valuations and reports;
  • make interim orders with effect for not more than 30 days - unless extended by the proposed Pension Tribunal of Ontario - on the basis of written documents, valuations, reports and submissions, where necessary to preserve the assets of a pension plan; and
  • make any final order necessary to secure compliance with the Act or with regulations and rules made pursuant to the Act.

The Superintendent should provide all affected parties with as full a right to be heard as is feasible given the urgency of the situation. Orders of the Superintendent should be enforceable by the Pension Tribunal of Ontario. All decisions and orders of the Superintendent should be subject to appeal to the Tribunal.

NEW PENSION REGULATOR

Recommendation 7-18 An independent pension regulator — the Ontario Pension Regulator —should be established with budgetary, staffing and other powers of self-management comparable to those of the Ontario Securities Commission.

Recommendation 7-19 The Ontario Pension Regulator should comprise five commissioners – the Superintendent of Pensions and four independent, part-time commissioners with extensive experience in pensions regulation or policy. The commissioners should act as a board of directors with general power to:

  • oversee and direct the functions of the Ontario Pension Regulator;
  • approve its budget and administration;
  • approve policies and issue policy statements relating to regulatory approaches;
  • adopt procedural rules; and
  • report annually to the Minister of Finance concerning the operations of the Regulator.

The Commissioners should not perform operational regulatory functions involving individual plans.

Recommendation 7-20 The Ontario Pension Regulator and the Superintendent of Pensions should exercise all pension-related functions now exercised by the Financial Services Commission of Ontario and the Superintendent of Financial Services, respectively, together with the additional functions recommended in this Report.

Recommendation 7-22 The Ontario Pension Regulator should have greater control over its budget and hiring practices so that it can recruit, train and retain the professional and expert staff it needs to discharge its enhanced regulatory functions. With the approval of the Lieutenant Governor in Council, the Regulator should be able to fix levies on plans according to plan size or type, to charge user fees for particular regulatory transactions and to retain for its own purposes administrative fines levied by the new Pensions Tribunal of Ontario.

Recommendation 7-25 The new Ontario Pension Regulator should have power to make rules, in order to define and lend greater specificity and clarity to its governing statute and regulations. It should exercise this power only after giving stakeholders notice of, and an opportunity to comment on, proposed rules. Rules adopted pursuant to the use of this power should have the force of law, so long as they are made in accordance with the statute and regulations and do not purport to contradict or derogate from them.

NEW PENSION TRIBUNAL OF ONTARIO

Recommendation 7-26 The pension jurisdiction of the Financial Services Tribunal should be transferred to a new Pension Tribunal of Ontario. The Tribunal should have power to hear and decide specified matters at first instance and to enforce, and to hear and decide all appeals from orders made by the Superintendent.

Recommendation 7-27 The Pension Tribunal of Ontario should comprise a Chair who is a jurist of stature, two members with a background in law (or equivalent), and two members with a background in actuarial science (or equivalent). Appointments to the Tribunal should be recommended by a bipartisan nominating committee with a view to ensuring that the Tribunal enjoys the confidence of both sponsor-side and member-side stakeholders and is perceived to be balanced and neutral.

Recommendation 7-30 The Pension Tribunal of Ontario should exercise exclusive and ultimate jurisdiction over all matters arising out of or incidental to the interpretation of the Pension Benefits Act. Decisions of the Tribunal should be final and binding, subject to appeal to the Divisional Court only if they involve a denial of natural justice, a misinterpretation of the applicable law so serious as to amount to jurisdictional error, or a violation of the constitutional rights of a party.

FIDUCIARY DUTIES CONSULTATION

Recommendation 8-13 The pension regulator and/or the proposed Pension Champion should initiate consultations with stakeholders and with representatives of the relevant professional governing bodies in order to clarify:

  • which participants in the governance of pension plans are bound by fiduciary duties;
  • the scope of such duties;
  • whether such duties can be assigned to professional advisors and agents;
  • whether advisors and agents are themselves bound by the same duties; and
  • whether fiduciaries, their advisors and agents can enter into exculpatory contracts and indemnification agreements in order to limit their liability to the client or third persons.

Recommendation 8-14 Following such consultations, the pension regulator should draw up codes of best practice for the guidance of all participants in the governance process. The regulator should urge the governing bodies of professions whose members are involved in the pension field:

  • to adapt this code to the particular circumstances confronted by their members;
  • implement the code, as adapted, through revision of their own professional standards, if required; and
  • educate – and if necessary, discipline – their members in order to ensure compliance with the new standards.

BEST PRACTICES TO BE DISSEMINATED

Recommendation 8-18 The regulator should develop codes of best practice to guide plan governors, administrators and their agents These codes of best practice should be based on the experience of successful plans, disseminated across the pension system and used to give meaning to the general statutory requirements for "prudence", "care", "diligence" and "skill".

ONLINE ACCESS

Recommendation 8-19 The regulator should make available online to active and retired plan members and their authorized representatives – without charge but subject to security arrangements – all plan documents as well as triennial, annual or other valuations and reports required to be filed with the regulator.

EXPANDED ANNUAL INFORMATION STATEMENT

Recommendation 8-21 Plan administrators should provide an annual information statement to active and retired plan members in easily understood language or languages. The statement should include:

  • a simple description of how pensions are funded and benefits are calculated under the plan;
  • information on the plan's funded status (including whether it is in surplus or deficit and whether a contribution holiday is in progress or contemplated);
  • the potential impact of its funded status on active and retired members' pensions; and
  • a telephone number and/or website address where further information can be obtained from the administrator or the sponsor, and similar coordinates for the pension regulator.

GOVERNANCE, FUNDING AND INVESTMENT POLICIES REQUIRED

Recommendation 8-22 Plan board members, governors or trustees should prepare, file with the regulator and make available to active and retired members at three-year intervals (or more often, if material changes have occurred) the plan's detailed governance, funding and investment policies. Particulars of the matters to be addressed by these policies should be developed by the pension regulator in consultation with the stakeholders. Template policy statements should be developed for the assistance of smaller plans.

SOCIALLY RESPONSIBLE INVESTMENTS

Recommendation 8-23 Plan statements of investment policy should reveal whether, and if so, how, socially responsible investment practices are reflected in the plan's approach to investment decisions.

REQUIREMENT FOR A PENSION ADVISORY COMMITTEE

Recommendation 8-24 Except as provided in recommendation 8-26, every pension plan should be required to establish a pension advisory committee (PAC). A PAC should comprise at least five members, including one representative selected by retired members and one by each class or group of active members.

When plan members are represented by one or more trade unions or equivalent organizations, such unions or organizations should nominate their PAC representatives.

Recommendation 8-25 The PAC should:

  • be provided with effective means of communicating with all plan members, including retired members;
  • have access to all information distributed to plan members or filed with the regulator;
  • receive notice of all amendments, applications, proceedings or transactions involving the plan; and
  • be informed of all votes or consultations designed to solicit the views of plan members.

The PAC should present annually to plan members a report on the state of the plan and an account of its own activities during the year. This report should be distributed with other information that the administrator is required to provide to plan members.

Recommendation 8-26 No PAC need be formed when (a) a plan provides for the participation of active and retired member representatives on its governing body, (b) a collective agreement provides for a joint sponsor-member-retiree advisory committee, or (c) a majority of active and retired members vote in a secret ballot not to establish a PAC.

PROMOTION OF LARGE COMMINGLED ARRANGEMENTS

Recommendation 9-2 Pension policy and legislation ought to facilitate the growth and operation of large scale pension plans or to enable and encourage cooperation amongst small and medium sized plans.

Recommendation 9-3 Legislation and regulations should be enacted to enable and promote large commingled target benefit plans which might provide affordable pension coverage to Ontarians who do not presently have pensions, or for whom the costs of obtaining a pension are unnecessarily high.

Recommendation 9-4 The Government of Ontario should investigate the advantages and disadvantages of expanding the mandate of the Canada Pension Plan, or creating a comparable provincial plan, so as to enhance pension coverage, control costs and improve benefit portability.

PROPOSED PENSION CHAMPION

Recommendation 10-5 Ontario should identify an agency or unit of government as its Pension Champion with responsibility for conducting research into the pension system, for working closely with the stakeholders and the proposed Pension Community Advisory Council, for promoting and facilitating innovation in the pension system and for leading policy development efforts in the pension field.

PROMOTION OF NATIONAL PENSIONS DIALOGUE

Recommendation 10-7 The Minister of Finance for Ontario should promote and support a meeting, at the earliest feasible date, of provincial and federal ministers responsible for pension issues with a view to discussing:

  • the possible implications of further divergence in provincial pension policies, legislation and regulatory arrangements if, as and when the recommendations in this report, and in the reports of other provincial pension commissions, come forward for consideration, enactment and implementation by the governments involved;
  • the need for the provinces to act collectively in order to secure changes in federal legislation, particularly the raising of pension contribution limits under the Income Tax Act and the more favourable treatment of pension plans and members under federal bankruptcy and insolvency legislation; and
  • the potential for some greater standardization of procedural and technical requirements in provincial pension legislation, in light of recommendations contained in the reports of the three current pension commissions and an anticipated report from the Canadian Association of Pension Supervisory Authorities.

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