Ontario’s minority government released its budget for the 2012/13 fiscal year on March 27.

The budget announces a number of measures that are expected to have a significant effect on pension plans and retirement saving—particularly in the public sector—if the budget is passed by the Ontario legislature.

Public sector pensions
The budget states that public sector pensions are “one of the fastest-growing expenses” of the Ontario government and proposes a number of measures to make these pensions “more affordable for taxpayers and sustainable for pension plan members.” The announced measures, which would affect both jointly sponsored pension plans (JSPPs) and single-employer pension plans (SEPPs) in the public sector, are as follows:

• All JSPPs—plans in which members and employers share funding risk—in which member contributions are currently less than employer contributions would be required to move to a fifty-fifty funding formula.

• Plans in deficit would be required to reduce “future benefits or ancillary benefits” before increasing employer contributions. Accrued benefits of active and retired members would not be affected, and increased member contributions would be an option for addressing deficits for plans in which member contributions are less than employer contributions. For “exceptional circumstances,” the budget states that there would be a limit on benefit reductions required before contributions could be increased.

• Public sector SEPPs in which employers are solely responsible for deficits would be expected to convert to JSPPs with a fifty-fifty cost-sharing formula within a five-year transition period, with conversion to be facilitated by new temporary solvency relief measures.

• Noting that approximately 50 public sector pension plans currently hold assets of less than $1 billion each, the budget states that in the fall of 2012, the Ontario government will introduce new legislation to facilitate the pooling of pension fund assets for smaller public sector DB plans, in order to reduce investment management costs and improve investment returns. The budget also states that the Ontario government will appoint an advisor to “lead the implementation process” for pooling pension fund assets.

Ongoing pension reform

New regulations to be released
The budget announces that new regulations to the Pension Benefits Act (PBA) will be introduced this year to give effect to legislative amendments to the PBA made by Bill 236, the Pension Benefits Amendment Act, 2010, and Bill 120, the Securing Pension Benefits Now and for the Future Act, 2010.

  • In the spring of 2012, draft regulations will be released that clarify pension surplus rules, implement new PBA rules for pension asset transfers and implement new PBA rules addressing retired pension plan members’ rights and responsibilities.
  • Other regulations, to be released “later in 2012,” would provide for a “funding concerns” test for plans not required to fund on a solvency basis, to establish eligibility conditions for contribution holidays and to provide for accelerated funding of benefit improvements.

Effective date for PBA amendments
Bill 236 introduced a number of changes to the PBA not yet in effect because they have not been proclaimed. The budget announces that these provisions of Bill 236 will be proclaimed on July 1, 2012. These changes include the following:

  • the elimination of partial plan windups;
  • immediate vesting of pension benefits;
  • the extension of grow-in benefits to all pension plan members terminated without cause; and
  • the option for multi-employer pension plans and JSPPs to elect not to provide grow-in benefits.

Financial hardship unlocking
The budget announces that new regulations will be released to streamline the application process for unlocking pension benefits that have been transferred from a pension plan to a personal locked-in vehicle. Rather than making an unlocking application to the pension regulator, account holders will be able to be apply directly to financial institutions.

Solvency funding relief and letters of credit
The budget proposes to extend solvency funding relief measures first announced in 2009. For the first actuarial valuation report with a valuation date on or after Sept. 30, 2011, plan administrators would be permitted to consolidate existing solvency schedules into a new five-year schedule and/or extend the solvency payment schedule for any new solvency deficiency disclosed in the report to a maximum of 10 years—subject to the consent of plan beneficiaries.

The budget also announces that the amortization period for special payments in respect of going-concern and solvency deficiencies will be permitted to begin one year after a plan valuation date. In addition, new regulations will be “put into place” in the spring of 2012 to allow employers to use irrevocable letters of credit to secure up to 15% of a pension plan’s solvency liabilities.

New program for unclaimed property
The budget announces the Ontario government intends to establish an Unclaimed Intangible Property Program to administer unclaimed insurance policies, securities, bank deposits, unpaid wages and unclaimed pension benefits.

Future pension reforms
The budget contains a number of statements that provide insight into the Ontario government’s views on future pension reforms and increasing pension coverage, stating that the government is committed to a “two-track strategy,” which includes the following elements:

  • a “modest, fully funded enhancement” to benefits provided by the Canada Pension Plan (CPP); and
  • “pension innovation” to expand coverage and promote “lower-cost savings options.”

Regarding CPP expansion, the budget states that full implementation of enhanced benefits would be expected to occur over a 40-year period, with a seven-year phase-in period for increased contributions. The budget does not present any specific new proposals relating to “pension innovation,” but it does express significant concerns regarding the federal government’s proposed legislation to implement pooled registered pension plans (PRPPs), suggesting that the PRPP framework may not be able to provide pension saving at low cost, may not result in any net increase in pension saving, may not adequately protect the interests of plan members and may not be sufficiently flexible to allow contribution rates to be adjusted to respond to “life events” such as divorce or financial hardship.

Comment
The budget’s announcements clearly reflect some of the recommendations in the February 2012 report of the Commission on the Reform of Ontario’s Public Services relating to the funding and administration of public sector pension benefits but leave some questions unanswered. For example, it is not clear whether the fifty-fifty cost-sharing formula proposed for public sector SEPPs converted to JSPPs would apply to benefits earned after the date of conversion or to all benefits (i.e., including benefits accrued before conversion). In addition, there is no indication as to the kind of circumstances in which contribution increases for JSPPs in deficit would be permissible in lieu of benefit reductions.

The announcement of a new Unclaimed Intangible Property Program will be welcomed by pension plan sponsors unable to locate former employees with pension entitlements. The program would be expected to be of considerable help in settling benefits for such members.

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

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See all comments Recent Comments

J. Harrison:

While Bill 236, the Pension Benefits Amendment Act, received Royal Assent a couple of years ago, it only allows for a one-way transfer of assets to the successor employer’s plan… and were employees to consolidate their service under the successor plan “OMERS” their eligibility for insured benefits under the original Provincial plan “OPTrust” would be discontinued. We trust you agree that it is neither fair or reasonable these union employees/pension plan members, who were denied portability of their pensions through no fault of their own, be adversely affected for the rest of their lives.

Reforms to the Pension Benefits Act need to allow eligible employees to transfer / consolidate their existing pension benefits and ancillary benefits and other non-pension post-retirement benefits that they currently have [associated with either or both the original and successor plans] to the one original OPS plan “OPTrust”. More specifically, Section 80.1 (4) and (9) of the Act needs to be updated to include authorizing eligible employees on the day this section comes into force to elect to transfer the value of their accrued pension benefits under the successor pension plan to the original pension plan.

Many affected employees with pensions split between the OPTrust and OMERS plans wish to consolidate their pensions in OPTrust and retire. They simply want fair pension treatment and to rightfully retire one day without unfair financial or post-retirement insurance coverage worries.

Monday, July 02 at 10:05 am | Reply

Helen Herbert:

absolutely right… very well articulated

Sunday, July 29 at 12:12 pm | Reply

Nancy C.:

Over the years numerous union employees working at the Municipal Property Assessment Corporation “MPAC” have previously and repeatedly written the government and various parties about their unfair and unjust split pension situation as a result of a past government divestiture and pension decisions not of their own making or choice. As they have always indicated, in any avenue of resolution for such perspective pensioners its obviously very important to ensure continuation of their existing entitlement to the post-retirement health and dental insured benefits associated through their past OPS service and credit in the OPTrust Plan.

While Bill 236, the Pension Benefits Amendment Act, received Royal Assent in May of 2010, it only allows for a one-way transfer of assets to the successor employer’s plan… and were divested employees to consolidate their service under the successor plan “OMERS” their eligibility for insured benefits under the original Provincial plan “OPTrust” would be discontinued. The Province has advised MPAC on previous occasions that they would not extend the insured benefits to retirees who no longer meet the eligibility criteria. In fact, four years ago in June of 2008 the Minister of Government and Consumer Services had written the Chair of MPAC’s Board of Directors about just such a pension transfer scenario, advising in part “If divested MPAC employees withdraw or transfer their OPS pension assets and thereby terminate OPS pension entitlement status, they will forfeit access to future post-retirement insurance coverage.”

The ultimate test of the regulatory system governing pension plans is how well it works in practice. With respect, under the circumstances it seems to me this only pension transfer option inherently comes with what amounts to an illogical, unfair and hefty penalty being imposed on such workers/perspective pensioners… the forfeiture of their existing entitlement to postretirement
health and dental insured benefits associated through their previous OPS employment and credit in the original plan “OPTrust” ! As such, this is not a viable option for most and, in fact, I wonder if the Superintendent would even actually consent to such a transfer knowing individuals might be so directly or indirectly detrimentally impacted.

Saturday, September 29 at 8:27 am | Reply

Robert:

Yes, the affected stakeholders in this very important longstanding pension issue placing many employees working at MPAC at a financial disadvantage are: the employees at MPAC who transferred from the Ministry of Finance at divestment (December 30, 1998); the Administrators of the OPSEU Pension Trust “OPTrust”; and, the Administrators of the Ontario Municipal Employees Retirement System “OMERS”. The adversely impacted individuals (the “Affected Employees”) are the union employees whose pensions are split between the OPTrust and OMERS plans, and they have for years been seeking a merging/consolidation of their pensions under one plan and which must ensure the retention of their existing entitlement to the post-retirement insured lifetime health care benefits.

Sunday, November 04 at 9:49 am | Reply

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