On April 30, the Ontario government released a draft regulation to amend Ontario Regulation 909—the Pension Benefits Act (PBA) General Regulation—and a consultation document seeking “constructive feedback” regarding yet-to-be-released regulations.
Both the draft regulation and the consultation document relate to amendments made to the PBA by Bill 236, the Pension Benefits Amendment Act, 2010; Bill 120, the Securing Pension Benefits Now and in the Future Act, 2010; and Bill 173, the Better Tomorrow for Ontario Act (Budget Measures), 2011. Regulatory amendments are needed to implement many of the changes made by the amending statutes, which received royal assent on May 18, 2010, Dec. 8, 2010, and May 12, 2011, respectively.
The draft regulations would make the following changes to Regulation 909:
Bill 236 added the new definitions “retired member” and “former member” to the PBA. In general terms, a “retired member” is a person who is receiving, is immediately entitled to receive or has elected to receive a pension from a plan, whereas a “former member” is a person entitled to a deferred pension or other payment. The draft regulation makes changes necessary to give effect to these new definitions.
Immediate vesting/small pension unlocking
The draft regulation makes changes necessary to give effect to Bill 236 amendments that introduced immediate vesting and increased the threshold for cash settlement of small pensions from 2% of the year’s maximum pensionable earnings (YMPE) to 4% of the YMPE or 40% of the YMPE for a commuted value.
Bill 120 amended the PBA to permit payment of windup surplus to employers where plan documents support the claim and to allow employers and members to share windup surplus where they do not. The draft regulations make changes to clarify disclosure rules related to surplus withdrawals and plan windups.
Individual pension plans
The 2011 federal budget introduced minimum-withdrawal requirements for individual pension plans (IPPs), as well as rules to require that past-service IPP contributions be funded from RRSP assets or applied to reduce accumulated RRSP room. The draft regulation introduces the new definition “individual pension plan” to Regulation 909. It also exempts IPPs from funding requirements inconsistent with federal tax rules and from the requirement to file a Pension Benefits Guarantee Fund (PBGF) assessment certificate.
From 1992 to 2002, the PBA permitted sponsors of “qualifying plans”—plans with at least $500 million in assets—to elect not to fund solvency deficiencies. The draft regulation revokes provisions in Regulation 909 that apply to qualifying plans.
The draft regulation introduces new provisions to clarify how interest is to be credited on member contributions and lump sums payable to terminated members.
The draft regulation makes changes to disclosure requirements relating to windup, termination, death/survivor and retirement statements, as well as prescribed criteria for determining shortened life expectancy.
Effective July 1, 2012, amendments to Section 74 of the PBA will eliminate partial plan windups and require that grow-in benefits be provided to all employees on the occurrence of an “activating event,” which includes plan windup, involuntary termination without cause and events prescribed in regulation.
The consultation document describes proposed “activating events” that would trigger grow-in benefits as well as circumstances in which a termination of employment would not be regarded as an “activating event.” Stakeholder feedback is requested for each. As proposed, an “activating event” would include a voluntary termination within 60 days of a member receiving notice of termination by the employer. Proposed circumstances that would not be regarded as an “activating event” include the following:
- termination of an employee who was hired for a definite term or to complete a specific task;
- termination of a “construction employee” as defined in regulations to the Employment Standards Act, 2000 (ESA, 2000); and
- termination of an employee on a temporary layoff described in Subsection 56(2) of the ESA, 2000.
Noting that new PBA Section 74.1 will allow jointly sponsored pension plans and multi-employer pension plans to elect not to provide grow-in benefits, the consultation document proposes regulatory changes for making and rescinding such elections. An election to opt out of grow-in filed with the superintendent would be required to contain the effective date of the election and identification information for the plan or plan administrator. Rescinding an election would require the same information to be filed, in addition to the effective date of rescission. In either case, plan administrators would be required to give notice to members, trade unions and pension advisory councils, as applicable, and to certify to the superintendent that such notice has been given.
As amended by Bill 236, Section 68 of the PBA allows the superintendent to order a pension plan windup in a number of circumstances, some of which include employer bankruptcy, cessation of employer contributions, termination of all or substantially all members, where there is a risk of increased liability for the PBGF and prescribed circumstances. The consultation document proposes that Regulation 909 be amended to permit the superintendent to order a windup where a plan has no active members or where no benefits are accruing in a plan closed to new members.
It is expected that most changes proposed in the draft regulation and in the consultation document will come into effect on July 1, 2012; others come into effect when proclaimed by order of the lieutenant-governor. However, most changes proposed in the draft regulation and in the consultation document will come into effect on July 1, 2012. Comments regarding the proposed changes are due June 1, 2012. This means that the Ontario government will have a tight time frame to consider stakeholder comments and release final regulations.
While the consultation document suggests that superintendent-ordered windups may enhance benefit security, it is expected that the superintendent will need to balance benefit security with other considerations, such as the risk that funding obligations resulting from a windup could create liquidity challenges for a sponsoring employer or even trigger an insolvency.