The Ontario government is moving forward with legislation around variable benefits from defined contribution plans, facilitating mergers into jointly sponsored pension plans and enabling the electronic designation of beneficiaries in pension plans.
In its 2018 economic outlook and fiscal review, released on Thursday, the province said it will move forward with the change, which was initially announced in the former Liberal government’s 2017 budget. “The introduction of variable benefit accounts will expand the options available and reduce red tape for retirees with defined contribution pension plans,” noted the review.
Currently, DC plans can pay variable benefits to members at retirement in British Columbia, Alberta, Saskatchewan, Manitoba, Quebec and Nova Scotia. “This is a change that people have been asking for in terms of making the Ontario legislation such that variable benefits can be paid out of DC accounts,” says Jana Steele, a pension lawyer at Osler Hoskin & Harcourt LLP.
“Ultimately, to the extent that employers determine to amend their plans to offer it . . . the question will be, how many DC sponsors will amend their plans to provide the option? Assuming that some do, it would be, from the members’ perspective, a welcome change, because it would assist with the decumulation phase that’s provided under the plan.”
The government also said it’s committed to improving the pension system for the university sector, referring to several universities’ move to combine their respective pension plans into one jointly sponsored defined benefit plan. It called a new JSPP a means of obtaining efficiencies of scale, improved investment opportunities and savings in plan administration.
“Based on the shared risk structure between plan members and employers, it is expected that this newly established plan would be treated similarly to other broader public sector, solvency exempt JSPPs following a successful conversion and a request from the newly established university plan.”
Philosophically, this development is interesting, says Steele. “Whether or not it impacts one particular person or entity directly is not as important as the more holistic look at what’s happening. We have seen significant interest and activity in the industry around plan consolidations, transfers . . . and consolidation, as we all know, can provide economies of scale and other benefits.”
As well, the government is proposing amendments to the Pension Benefits Act that, if passed, would allow administrators of pension plans to permit electronic beneficiary designations rather than paper-based processes.
“It’s been a bit of a question market whether it’s been strictly allowed, when you read the existing legislation,” says Steele. “Because with beneficiary designations, you’re also looking at the Succession Law Reform Act. I think, if nothing else, this will clarify the rules around this.”