Ontario will replace the temporary solvency funding exemption in place for specified multi-employer pension plans with a new target-benefit framework, the government announced Thursday.
The interim exemption will extend to August 2018 as the government looks to introduce legislation in the fall and regulations next year.
While Ontario’s new framework will permanently exempt collectively bargained target-benefit multi-employer pension plans from solvency funding, it will also bring other obligations, says Jana Steele, a pension and benefits lawyer at Osler Hoskin & Harcourt LLP in Toronto. “The solvency funding is only one element contained in the new framework. Other things are looking at requiring a funding and governance policy that’s consistent with what Alberta and British Columbia did for their multi-employer pension plan regimes.”
Read: Ontario extends SOMEPP solvency funding exemption
The government’s new framework will require target-benefit multi-employer plans to provide opportunities for retirees to participate in governance and offer more disclosure to members on the status of their plans.
The target-benefit plans will also have to meet new standards that accompany a going-concern funding requirement, including addressing any deficiencies during an amortization period of 15 years; following a new basis for calculating benefits when a member stops participating or upon windup; reducing plan benefits in the event of a funding shortfall; and setting aside a reserve called a provision for adverse deviation.
Read: Ontario Budget: Government continues to consult on target benefit plans
Steele notes that if Ontario follows the B.C. and Alberta regulations, a plan’s risk profile will drive the size of its reserve. “The riskier the plan investments, the greater the provision for adverse deviation. But Ontario hasn’t said what theirs is going to look like.”
In its release, the government said it plans to work out the framework’s details, such as the reserve’s design and how plans can transition to the new requirements, through consultations.
Read: A primer on multi-employer pension plans
“It’s fantastic to see the government moving forward with target benefits,” says Steele, noting the framework excludes single-employer pension plans.
The government had indicated it would look first at a framework for multi-employer pension plans before proceeding to single-employer ones, says Steele. “So I’m hopeful that this means they’re moving in that direction, and we’ll soon see something for single-employer pension plans.”