FSCO publishes description of proposals for variable payments from DC plans

Ontario has published a description of its proposed regulations around the payment of variable benefits from defined contribution pension plans one year after announcing its intention to permit the option.

The provincial government announced its plans in its 2017 budget. Once passed, Ontario will follow in the footsteps of other jurisdictions allowing the option, including British Columbia, Alberta, Manitoba, Saskatchewan, Quebec, Nova Scotia and the federal government.

Read: Ontario budget touts variable benefits from DC pension plans

Jeff Sommers, a partner in the pension and benefits group at Blake Cassels & Graydon LLP, notes Ontario published similar descriptions in 2014. “There’s more detail, but not a whole lot substantially has changed from where we were before,” he says.

The proposals, published by the Financial Services Commission of Ontario in March, address:

  • The requirements and restrictions in a defined contribution plan in order to authorize a variable benefit pension;
  • The requirements and restrictions regarding transferring in and out of a variable benefit account;
  • The timelines related to the death benefit; and
  • The plan administrator’s disclosure obligations.

“There are very prescriptive requirements for what you have to put in notice to people who have a variable benefit account under your plan,” says Sommers. “You do need spousal consent, so that’s consistent with what we’re seeing in other provinces. The concept of the minimum amount coming out is the Income Tax Act-required amount, and then there’s the maximum amount under pension legislation. We knew that before.”

Read: The pension industry’s wish list for tax reform

The description of the proposals also includes details about statements, either for when a member dies or leaves the plan, he adds. “Those nitty-gritty details are summarized . . . so that’s somewhat helpful in understanding what the rules are ultimately going to look like.”

As in other jurisdictions, Ontario’s option would be voluntary. “Since these benefits would be optional, administrative costs to business would not increase as a result of this regulatory proposal unless a business chooses to offer variable benefits and the retiree elects to receive a variable benefit pension,” noted FSCO.

“Retired members who elect to receive a [variable benefit] pension could continue to benefit from the investment expertise of pension fund managers and from cost efficiencies due to the pension plan’s economies of scale,” FSCO added.

The proposals are open for consultation until May 4, 2018.

Read: Learn about the benefits of a multi-employer DC plan at 2018 Benefits and Pension Summit