It is often assumed that the financial obligation of an employer which participates in a Multi- Employer Pension Plan (“MEPP”) is limited to making contributions at the fixed rate specified in the collective agreement. To the surprise of some employers, that is not always the case and reality is not as clear-cut as one would expect or like to see.

Employer Beware

The major concern of an employer which participates in a MEPP is its funding obligations which may arise in 3 different situations: when the MEPP is continuing, when the MEPP is wound up and when the employer ceases to participate in the MEPP.

Ongoing MEPP. The Pension Benefits Act (Ontario) (the "Act") and its regulations require employers to make normal cost and solvency contributions when a pension plan is continuing. The only exception is a MEPP where an employer's obligation to contribute is limited to a fixed amount set out in a collective agreement and where the MEPP sets out the obligation of an employer to contribute. If this exception applies, the employer is required only to pay the MEPP contributions received from employees and the required employer contributions set out in the applicable collective agreement. Sometimes a MEPP does not fall squarely within the exception (e.g., it does not expressly set out the funding obligation). The contribution set out in the Act is the minimum statutory requirement. If the MEPP contains a higher funding obligation, the employer is required to comply with the higher funding obligation. Therefore, if a MEPP includes a general funding provision (e.g., it includes a provision which requires employers to fund benefits generally), in addition to, or instead of, fixed rate contributions, it imposes a general contribution obligation on the employers which exceeds the statutory minimum requirement. In such circumstances, a participating employer will be exposed to a general funding obligation which may be different from what it expects.

MEPP Wind-Up. The Act also sets out the obligations of the employer to fund any deficiency when a pension plan is wound up in whole or in part. The Act does not have an exception to this general rule. In practice, when the assets of a MEPP are insufficient to pay all the accrued benefits on the wind-up of the MEPP, the MEPP will be amended to reduce accrued benefits so that there will not be any deficiency which requires additional funding. Such amendment is permitted under the Act (unlike a single-employer pension plan for which amendments cannot reduce accrued benefits) and, as a matter of regulatory practice, the pension regulator in Ontario does not require further funding by participating employers unless the pension plan requires such funding.

Ceasing as Participating Employer. A MEPP may sometimes impose additional funding obligations or other conditions on an employer when it ceases to participate in the MEPP (e.g., requiring the consent of all employees). Some of these conditions or obligations will cause difficulty for an employer in withdrawing its participation.

The rules under the Quebec pension legislation relating to an employer's funding obligations in respect of MEPP are different.

Ask the Right Questions

In light of the above potential issues, an employer should closely review the relevant MEPP plan documents to determine its potential exposure and obligations before participating in a MEPP. The following are various questions that will assist an employer in determining its liabilities:

  • Is the MEPP exempted from the general statutory funding obligations?
  • What are the funding provisions in the MEPP documents (e.g., plan text, participation agreement, trust agreement, collective agreement)? Is there any general funding language?
  • What is the amendment power? Is there a power to amend the MEPP to impose additional contribution obligations on the employers?
  • What are the plan termination and participation cessation provisions? Are there any restrictions on the amendment power which limit the ability to amend the MEPP to reduce accrued benefits?

The above questions are not exhaustive but are helpful in fleshing out potential issues for an employer's consideration.