Copyright 2010, Blake, Cassels & Graydon LLP

Originally published in Blakes Bulletin on Pension & Employee Benefits, March 2010

I. TRANSFORMING THE PENSION SYSTEM

The Budget summarized some of the previously announced pension changes, including Bill 236, which was introduced on December 9, 2009, and the temporary funding relief.

The Budget noted that in 2010: (i) the government will also consult on regulations related to Bill 133, the Family Statute Law Amendment Act, 2009, which introduced new rules for the division of pensions on marriage breakdown; and (ii) to improve the regulation and administration of multi-jurisdictional pension plans, legislative amendments will be introduced that would enable Ontario to become a signatory to a multilateral agreement, joining Quebec and Alberta as jurisdictions with the legislative authority to enter into the proposed agreement.

Further, the Budget documents noted that the government will consider additional temporary funding relief measures for public sector and broader public sector pension plans – including universities – if certain conditions related to greater sharing of risk and governance are met.

II. VISION FOR FURTHER REFORM

The government stated that it will continue the pension reform building on recommendations from the Expert Commission, feedback from stakeholder consultations, advice from the Minister's Advisory Council on Pensions and Retirement Income, and ongoing discussions with the Canadian Institute of Actuaries. It also stated that the next stage of reforms will be informed by some general principles: (i) all plan benefits should be funded; (ii) risk and responsibility should be shared; and (iii) "funding rules should match benefit and governance structures".

In the Budget, the government also indicated that it would:

  • "strengthen the requirements for taking contribution holidays to ensure greater benefit security and require disclosure of contribution holidays to plan members and retirees;
  • enhance the requirements for funding benefit improvements when existing benefits are not fully funded and require that all benefit improvements be funded more quickly;
  • limit the extent to which funding can be based on going-concern and solvency valuations that exclude the value of certain benefits, employ asset values that significantly depart from market values, or smooth interest rates;
  • further encourage innovative plan design by providing a framework for "flexible pension plans," as permitted under the federal Income Tax Act;
  • permit letters of credit to be used to partially satisfy solvency funding requirements;
  • clarify procedures for determining surplus entitlement when a pension plan winds up; and
  • set a uniform funding threshold at which annual actuarial valuations would be required."

As recommended by the Expert Commission, the government also committed to examine an updated framework for the funding, governance and regulation of plans that meet specified criteria. These rules might apply, for example, to certain multi-employer pension plans and jointly sponsored pension plans.

Ontario also stated that once the investment rules contained in the federal pensions act are amended, it will decide whether further investment rule changes, including the 30% rule, are appropriate for Ontario-registered pension plans.

III. PENSION BENEFITS GUARANTEE FUND

Responding to the increasing challenges faced by the PBGF, the government is providing a C$500-million grant to the Fund for 2009-10. This grant will help ensure the PBGF has sufficient assets to cover claims in the near term.

The government commissioned the first independent actuarial projection study of PBGF premiums and benefits in 2009 and once the results of this study are available (expected sometime in the spring of 2010), the government will decide what reform of the PBGF is appropriate.

IV. TOMORROW'S RETIREMENT INCOME SYSTEM

Finance ministries are assessing a range of options to address the possible future challenges facing the system and expect that the preliminary options will be available for the May 2010 finance ministers' meeting.

The options under consideration are summarized as:

  • expansion of public pensions through the Canada Pension Plan;
  • supplementary defined contribution pension plans;
  • pension innovations, such as target benefit plans; and
  • reforms to tax assistance to facilitate higher levels of retirement savings and additional pension options.

Once these pan-Canadian consultations are completed, the Province of Ontario looks forward to a national pension summit led by the federal government in 2010.

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