Pension reform has been on the government agenda for over a year and real action so far has been sluggish. But, if you add up all the minor changes and combine that with the items that have been tabled, pending regulation, there is a lot of material to sort through.
This morning (November 16) Fasken Martineau laid out exactly where the industry stands —provincially and federally—with pension reform and what plan sponsors should be preparing for.
In Ontario
Phase one of reform came in May with Bill 236, the Pension and Benefits Amendment Act 2010. The intent of this bill was to balance the interests of plan sponsors and plan members. While signing and dating type items have been passed, much of this bill is not yet in force.
The most interesting items in the bill for plan sponsors include:
• immediate vesting;
• phased retirement;
• notice of all proposed amendments; and
• grow-in benefits on termination of employment
Notice of proposed amendments was one item that presenter Peggy A. McCallum, partner, with Fasken Martineau highlighted. “This hasn’t been followed by plan sponsors very closely,” she said. “All amendments will have to be given notice to all members in the plan, not just the affected members as before.” She also added that to notify members electronically, sponsors require the consent of members.
Phase two
The second phase came late last month when the Securing Pension Benefits Now and for the Future Act, 2010 (Bill 120) was tabled on October 19. It has passed second reading, but is still subject to change. McCallum said that much of this bill deals with the recommendations that came out of the 2008 report from the Joint Expert Panel. “I think it’s satisfying those intentions,” she said.
Some of the items included in that bill include:
• letters of credit may be used to cover up to 15% of solvency deficiencies (but not unfunded liabilities);
• benefit improvements void if they reduce the funded ratios below a specific level;
• multi-employer pension plans must specify consequences of withdrawal of participating employers; and
• public sector plans are exempt from solvency funding.
“I think it’s a shame that this didn’t come into effect before the troubles in the auto sector,” she said, referring the point on benefits improvements.
The changes regarding surplus payments to employers drew a number of questions from those in attendance, as the implementation of these new rules could have a huge impact.
When—and if—this legislation goes into effect, plan sponsors will be able to make these payments while the plan is ongoing and on wind up. And, the payments will be subject to a time limit on wind ups. “This is an attractive option,” McCallum pointed out.
Also, when it comes to surplus disputes there will be an arbitration option and any decisions made will be final and binding. “This is a huge break from tradition and will cut down on the costs of having to go to court,” she said.
“The government seems to be very committed to [this bill] and the most contentious issues [of pension reform] are included in Bill 236, not Bill 120.”
So what needs to happen now? She advised plan sponsors to consider what changes, if any, they need to make in advance of the coming in force of Bill 236, especially amendments that might be sensitive.
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