Ontario pension reform round two: One step forward, three steps back …
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Retirement
Retirement
Ontario pension reform round two: One step forward, three steps back…
By David Blundell
Tuesday morning the Ontario Minister of Finance released a package of proposed pension reforms to be tabled in the Legislative Assembly later this year. This second phase of reform is more contentious than the Bill 236 technical changes adopted (but not proclaimed yet) earlier this year.
Under Tuesday’s proposals, the impact to all defined benefit plans will be:
- Increased Pension Benefit Guarantee Fund (PBGF) assessments with the threat of more increases to come
- More volatile funding with the changes to the asset and liability smoothing rules
- More “rules based” funding with the government regulating actuarial methods and assumptions
The main features of the latest proposals are:
Funding rules
- The asset smoothing (averaging) methods and limited “excluded benefit” rules will be tightened and the smoothing of liabilities will no longer be allowed.
- The deficit amortization funding period on an on-going basis will be reduced from 15 years to 8 years for plan improvements, and in some instances 5 years.
- Amortization of going concern and solvency special payments will be permitted over a time period beginning up to one year following the valuation date.
- The government will regulate acceptable actuarial methods and assumptions.
Contribution Holidays
- Contribution holidays, unless the plan documents specifically prohibit, will be permitted provided they do not reduce the Plan’s transfer ratio below 105%.
- Written disclosure to plan stakeholders and the filing of annual statements with FSCO to confirm the contribution holiday eligibility will be required.
Multi-employer Pension Plans (MEPPs) and Jointly Sponsored Pension Plans (JSPPs)
- “Target Benefit” MEPPS will be exempt from solvency funding as well as being permitted to reduce accrued benefits.
- JSPPs will be exempt from solvency funding.
- Target Benefit” MEPPs can reduce an individual’s benefit level to the greater of the transfer ratio or going concern ratio when the individual elects the portability option.
- Target Benefit MEPPs or JSPPs that make benefit improvements will be required to fund those improvements over five years if the improvement reduces the going concern funding to less than 85%.
Pension Benefit Guarantee Fund
- Assessment fees will be increased by
- implementing a minimum $250 assessment fee per pension plan
- raising the maximum assessment fee from $100 to $300 per member in underfunded plans
- raising the base per member assessment fee from $1 to $5
- eliminating the overall assessment cap for underfunded pension plans
- extending the exclusion period for new plan and benefit improvements from 3 years to 5 years
- The maximum payment from the PBGF will be maintained at $1,000 per month at this time.
Target Benefit Pension Plans
- Explore with interested stakeholders the feasibility, design and implementation of jointly-governed, single employer target benefit plans for employees represented by union or “union–like” organizations.
Modernization
- Irrevocable letters of credit will be permitted to a maximum of 15% of solvency liabilities.
- “Flexible” defined benefits plan as permitted under the Income Tax Act will be allowed.
- Parallel changes to the federal pension plan investment rules will be adopted.
- The appropriateness of the 30% rule for pension investments will be reviewed.
- Life income fund-like benefits payments will be permitted from defined contribution plans;
While this package is good news for JSPP and MEPPS, many of the proposed measures fall short of addressing critical issues. And it is difficult to find the silver lining for those sponsors of single employer plans who still believe in the defined benefit model. In our Advisory we will provide a more detailed analysis of the proposals. In the meantime, if you have any questions, please contact your Buck consultant.
