The Financial Services Commission of Ontario (FSCO) has published its first administrative position concerning one of the recent amendments to the Pension Benefits Act of Ontario (PBA).
As of July 31, 2012, section 74 of the PBA will require, subject to limited exceptions, grow-in benefits to be provided to members terminating employment without cause on and after that date. Briefly, the grow-in benefit rules provide that a member has a right to receive any unreduced or reduced pension provided by the plan, as if the member’s membership in the plan had not terminated.
New section 74.1 of the PBA will permit employers and members of jointly sponsored pension plans (JSPPs) and administrators of multi-employer pension plans (MEPPs) to elect to opt out of this requirement. However, it will not be possible to backdate an opt-out election, and such an election will take effect only when notice of the election is filed with the Superintendent of Financial Institutions or on a later date specified in the notice.
A draft regulation released on May 3 indicates that the opt-out election must be filed by July 1, 2013 for registered pension plans that qualify as JSPPs or MEPPs as of July 1, 2012, and within one year of a plan becoming a JSPP or MEPP after July 1, 2012.
Obviously, the timing of an opt-out election is of concern for existing JSPPs and MEPPs, since any delay in filing such an opt-out election means that grow-in benefits must be provided with respect to any termination of employment occurring between July 1, 2012 and the effective date of the opt-out election. FSCO’s administrative position is in response to concerns expressed by JSPP sponsors and MEPP administrators who have asked to be allowed to make the opt-out election as soon as possible, so as not to have to provide grow-in benefits under the new rules.
In its administrative position, FSCO has specified the contents of an opt-out election and advised that such an election may be filed before July 1, 2012 with an effective date no earlier than July 1, 2012, with the provison that any such election will be invalid if the draft regulation does not come into effect on July 1, 2012, or if it is revised and the timing of the opt-out election is changed so that an opt-out election may not be filed prospectively.
It is therefore recommended that an opt-out election, in respect of any JSPP or MEPP for which opting out of the grow-in benefit rules is being contemplated, be filed now, effective as of July 1, 2012 (even though that day is a statutory holiday), and that JSPP sponsors and MEPP administrators keep an eye on the draft regulation and be ready to file another opt-out election should the draft regulation or the timing of the opt-out election be changed before July 1, 2012.
Of additional concern is what factors MEPP administrators should take into account in filing an opt-out election in light of their fiduciary-like standard of care and, indeed, whether they should file an opt-out election at all. Given this, and the fact that any revision to the draft regulation may require a further opt-out election, JSPP sponsors and MEPP administrators would be well advised to seek legal advice in this regard, ideally before the July 1 “deadline.”
Lorraine Allard is a partner in the Toronto tax group specializing in pensions, benefits and executive compensation at McCarthy Tétrault LLP. lallard@mccarthy.ca