On June 23, 2009, the Ontario Government announced the filing of Regulation 239/09 (the "Regulation") under the Pension Benefits Act (Ontario). The Regulation introduces a number of changes to implement the initiatives first proposed in December 2008 and committed to by the Government in the 2009 Ontario Budget.
Temporary Solvency Funding Relief
The administrator of a pension plan that provides defined benefit pension benefits may elect to use one or more of the following options:
Option 1: A deferral of the start of the period to pay the required special payments to liquidate a new going concern unfunded liability or a new solvency deficiency, up to 12 months.
Option 2: A consolidation of payments remaining under past solvency amortization schedules into a new 5-year schedule.
Option 3: An extension of the 5-year period for liquidating a new solvency deficiency for up to an additional 5 years.
Plan administrators should bear in mind of the following in deciding whether to make an election and in determining which option(s) to be elected:
- The options are available to only those pension plans registered in Ontario or a designated jurisdiction prior to September 30, 2008 (with certain exceptions relating to continued, successor and merged plans) and only if they are up-to-date in making all contributions required under previous valuation reports.
- The options are not available to specified Ontario multi-employer pension plans and other prescribed pension plans. Not all options are available to jointly governed plans and the requirements applicable to them in electing options are different.
- An election can be made only once and only in respect of the first valuation report with a valuation date between September 30, 2008 and September 29, 2011, inclusive (a "solvency relief report").
- For all the options, the plan administrator is required to provide a one-time enhanced notice of election containing the prescribed information to each eligible member and each eligible former member (i.e., members and former members other than those who are no longer entitled to any payments from the plan or in respect of whom notices of death have been received by the administrator) and every collective bargaining agent that represents eligible members, within 60 days of the start of payments required to be made under the solvency relief report.
- For Option 3, in addition to the one-time enhanced notice of election, the administrator must satisfy the prescribed consent requirement (unless it is a jointly governed plan) and must provide an annual progress report containing the prescribed information to each eligible member, each former member and each collective bargaining agent representing the eligible members, within 6 months after the end of each plan fiscal year until the new solvency deficiency has been liquidated. To satisfy the consent requirement, the administrator is required to provide an information statement and a form of notice of objection to all eligible members not represented by a collective bargaining agent, all eligible former members and all collective bargaining agents representing eligible members. Consent is deemed to have been obtained if not more than one-third of the eligible members and eligible former members file notices of objection within 45 days after the mailing of the information statement. The notice of objection and the objection process must be designed in a way to ensure that the administrator cannot identify the persons filing the notices.
- If Option 2 and/or Option 3 is elected and if the plan is amended to increase pension or ancillary benefits, any resulting increase in the going concern unfunded liability must be liquidated over a 5-year period.
Apart from the temporary solvency funding relief measures, the Regulation also introduces the following changes:
- Commuted Value. The revised CIA Standard of Practice for Pension Commuted Values, effective April 1, 2009, may be used for a solvency valuation with a valuation date on or after December 12, 2008.
- Contribution Holidays. For plan fiscal years ending between June 30, 2010 and December 31, 2012, contribution holidays are not permitted unless sufficient funding excess is demonstrated by an actuarial cost certificate containing the prescribed information filed with the Superintendent.
- Transfer Ratio. Prior approval of the Superintendent is required for the transfer of any part of the commuted value where the transfer ratio is less than one and the administrator knows or ought to know that, since the last valuation report, the transfer ratio has declined by 10% or more.
- Locked-In Accounts. Starting January 1, 2010, the owner of a life income fund (LIF) will have a one-time option to unlock up to 50% of the total market value of the assets of the fund in the form of cash withdrawal or transfer to a registered retirement savings plan (RRSP) or a registered retirement income fund (RRIF).
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.