On December 9, 2009, the Ontario Government introduced Bill 236, an Act to amend the Pension Benefits Act ("PBA"), introducing significant changes for the first time in over 20 years.
The proposed amendments attempt to strike a balance among pension plan sponsors, plan members and pensioners, and are primarily the result of recommendations of the Ontario Expert Commission on Pensions. Here are some of the key changes which will be of interest to different stakeholders.
Elimination Of Partial Wind Ups
Bill 236 eliminates the concept of partial wind ups, following a transition period. No partial wind ups could be initiated by the plan sponsor or declared by the Superintendent of Financial Services. The elimination of partial wind ups will be a welcome change for plan sponsors, and will also eliminate the surplus distribution problem created by the Supreme Court of Canada's decision in Monsanto.
The proposed amendments authorize the Superintendent to consent to the payment of surplus to the employer out of a pension plan that is being wound up, where the pension plan text permits surplus refund, or where the employer, members, pensioners and other beneficiaries enter into a written surplus-sharing agreement that complies with the prescribed rules. This will be welcome news for plan sponsors who are currently forced to pursue costly Court proceedings where the language respecting surplus refund is unclear, and requiring the parties to share surplus even where the language is clear.
Benefits For Members And Others
- Vesting: The amendments provide that all pension benefits will vest immediately.
- Grow-In Benefits: Commencing January 1, 2012, grow-in benefits would be extended to all eligible members whose employment is terminated by the employer, other than for cause, and would continue to be provided on full wind up of a pension plan. Multi-employer pension plans and jointly sponsored pension plans could elect not to provide grow-in. This expansion in the application of grow-in benefits will mean additional costs for employers.
- Consolidating Benefits: The amendments permit pension plans affected by past restructurings to enter into agreements that would allow current individual plan members to consolidate their pension benefits in a single plan. Such transfers would be permissible until July 1, 2013.
More Flexibility for Plan Members
- Unlocking For Small Amounts: The proposed amendments increase the amount for small pension payouts in a lump sum.
- Phased Retirement Option: The amendments allow pension plans to provide a phased retirement option for members if certain eligibility criteria are met. If the plan is amended, eligible members could continue working while receiving a pension from their pension plan, and continue to accrue pension benefits under the pension plan if the member continued to make contributions to the plan.
Where a transaction involves the transfer of a portion of the membership from one employer's plan to another employer's plan, the amendments permit plan administrators to agree to give individual plan members the option of transferring or not transferring their pension benefit to the successor plan. Any entitlement to surplus on full wind up of the plan would remain unless the pension benefits are fully annuitized such that the plan has no continuing obligation in respect of the transferred members. Bargaining agents could also exercise this choice on behalf of their members.
If the successor pension plan provides different benefits for members than the original plan provided, the amendments require that the commuted value of the benefits under the successor plan to be at least equal to the commuted value of the benefits under the original pension plan, subject to limits in the Income Tax Act (Canada). These amendments simplify the rules and make transfer of pension benefits easier for employers and members.
Bill 236 includes a number of provisions to simplify plan administration and increase transparency and access to information by members. For example, the proposed amendments expand notice requirements, and require all pension plans to provide members, retired members, and former members with prior notice of all plan amendments before they are registered with the regulator, with some prescribed exceptions.
Plan administrators and the Superintendent of Financial Services are required to provide to members, former members, and retired members copies of specified documents, electronically or by mail, on written request. Plan administrators will also be required to give all members, including retired members, information about the funded status of the plan at prescribed times.
Increased Regulatory Oversight
The proposed amendments permit the Superintendent of Financial Services to require valuation or other reports, and to make interim orders in specified circumstances, for example, to order special valuations when there is evidence that a plan is at risk. These orders would not be subject to the notice of proposal process and could be appealed directly to the Financial Services Tribunal.
The Superintendent of Financial Services is also authorized to approve arrangements as provided for under the federal Companies' Creditors Arrangement Act (Canada) and Bankruptcy and Insolvency Act (Canada), subject to prescribed conditions.
Bill 236 underwent its second reading on February 17, 2010. It is likely that some of the proposed amendments will be revised before the Bill becomes law. That being said, it is important for stakeholders to continue to monitor the progress of the Bill.
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.