Employers permitted to suspend DC pension contributions, says FSRA

The Financial Services Regulatory Authority of Ontario has confirmed it will permit a suspension of employer contributions to defined contribution pension plans on a temporary basis.

However, any change to either employer or employee contributions can only be on a go-forward basis and must be supported by an amendment to the plan text, said the regulator.

“If an employer wanted to decrease employee or employer contributions, that has to be done pursuant to a plan amendment because a plan text now always sets out the contribution rates,” says Terra Klinck, partner at Brown Mills Klinck Prezioso LLP. “That’s why it has to be prospectively, because if you were to try to do it retroactively, it would be a void amendment under . . . legislation.”

Read: Are CAP sponsors changing contribution rates amid coronavirus?

The regulator also noted the provisions of a pension plan text requires careful consideration and analysis of a number of factors, including the plan-specific amending provision and any collective agreements that govern the plan, as well as potential employment law implications and member notice requirements.

“If a DC plan is collectively bargained, an employer would need to obtain union consent,” says Klinck. “The employer always needs to be mindful of changing terms and conditions of employment — this would be a change, arguably, to the terms and conditions of employment. So they are going to need to look at the broader employment law perspective.”

Where plan member contributions are optional, members can choose to reduce or eliminate these contributions in accordance with plan rules — and any matching employer contributions will be reduced accordingly, said the FSRA.

It also said plan sponsors will be required to determine if contributions must continue when an employee is on a form of leave or layoff where there are reduced earnings or no actual earnings being paid.

Read: Legal considerations for pension plan sponsors on design changes amid coronavirus

In the case of other capital accumulation plans — such as group registered retirement savings plans or deferred profit-sharing plans — employees are already able to reduce contributions, notes Klinck. “So to me, the regulators are recognizing, obviously, the severity of the situation, and affording the same kind of overall cost-reduction measures, making them available under defined contribution plans, which is not ordinarily the case.”

In addition to the Ontario regulator, Brown Mills Klinck Prezioso LLP confirmed to Benefits Canada that British Columbia and Newfoundland and Labrador are also permitting a suspension of employer contributions on a temporary basis. And in Alberta, a full suspension is permitted with regulatory consent.