On May 19, 2017, the Ontario government announced that it is implementing a new funding framework for defined benefit pension plans, which includes:
- Requiring funding on a solvency basis in the event that a plan’s funded status falls below 85 per cent. That is, the new funding framework will not require funding on a solvency basis where the plan’s funded status is 85 per cent or higher.
- Changes to the going concern funding rules, including shortening the amortization period from 15 years to 10 years for funding a shortfall and consolidating special payment requirements into a single schedule.
- Requiring funding of a reserve within the plan, called a Provision for Adverse Deviation or PfAD.
- Providing funding rules for benefit improvements and restricting contribution holidays to improve benefit security.
The following additional changes were also announced in conjunction with the new funding framework:
- Providing a discharge of liabilities when annuities are purchased for retirees or deferred plan members.
- Requiring the development of funding and governance policies.
- Increasing the monthly guarantee for a member’s pension guaranteed by the Pension Benefits Guarantee Fund by 50 per cent, from C$1,000 a month to C$1,500 a month.
The Ontario government stated that it intends to introduce legislation in the fall to enable these changes and will be consulting on the details of new regulations.
In addition, the Ontario government indicated that it will be reviewing the rules governing the wind-up of defined benefit pension plans and studying a proposal to establish an agency to administer pension benefits of wound-up plans on an ongoing basis.
Interim measures will be implemented to assist plans that are required to file new valuation reports dated on or after December 31, 2016, and before December 31, 2017, and would otherwise be subject to new solvency funding obligations as a result.