Ontario’s defined benefit pension plans will have to fund themselves on a solvency basis only if their funded status falls below 85 per cent, the government announced this morning.

That was one of the key elements of the provincial government’s long-awaited reforms to pension funding requirements. The highlights of the changes include:

  • Requiring funding on an enhanced going-concern basis. Changes to the going-concern funding rules include shortening the amortization period to 10 years from 15 years for funding a shortfall in the plan and consolidating special payment requirements into a single schedule.
  • Requiring funding of a reserve within the plan, called a provision for adverse deviation.
  • Requiring funding on a solvency basis if a plan’s funded status falls below 85 per cent. The government suggests that according to the most recent estimates, 15 per cent of plans would still need to fund on that basis under the new framework.

“They’re following the Quebec model,” says Michel St-Germain, vice-chair of the Association of Canadian Pension Management’s national policy committee. While Quebec, which eliminated the solvency requirement last year, doesn’t have the 85 per cent threshold Ontario is proposing, the overall thrust is towards emphasizing going-concern funding with a provision for adverse deviations, he notes.

Read: 2016 Top 100 Pension Funds Report: Solvency reform on the agenda

“There’s a clear signal that they have listened to concerns . . . that the solvency rules . . . do not work,” says St-Germain.

“It will make a huge difference in terms of the stability of contributions,” he adds, suggesting contributions will nevertheless be higher over the long term. “Long-term contributions will be higher. But that’s acceptable,” he says, noting the big concern was ensuring contributions are less dependent on market interest rates.

Besides the solvency changes, the government is planning to boost the monthly guarantee provided by its pension benefits guarantee fund to $1,500 a month from the current $1,000. That move “was expected,” says St-Germain, noting the monthly amount hasn’t changed in a long time.

The government is planning to introduce legislation in the fall to enact the changes and will be consulting on the regulations it will be implementing. St-Germain notes there are still lots of details to come, including how the funding reserves will work. He adds it will also be important to see how union and retiree groups react to the changes.

Read: A look at Quebec’s pension solvency changes one year on

Already, however, at least one retiree group has reacted positively. “We are pleased to see that the government has taken a balanced approach to funding reform by providing welcome relief to plan sponsors while also improving plan security for pension recipients,” said Wanda Morris, vice-president of advocacy and and chief operating officer at Canadian Association of Retired Persons.

Other changes include restricting contribution holidays and requiring plans to develop funding and governance policies. The government is also planning to review the rules dealing with pension windups, which includes looking at setting up an agency to administer the benefits of wound-up plans.

“By providing more flexibility, defined benefit pension plans will remain a vital part of our retirement income system in Ontario. With these changes, we are also ensuring that pension plans are affordable for businesses and benefit security for workers and retirees is protected,” said Ontario Finance Minister Charles Sousa.

Copyright © 2017 Transcontinental Media G.P. Originally published on benefitscanada.com

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