The Ontario government introduced several measures for pension reform in the budget released on March 26.1 Of importance, we note that the government reiterated2 its proposal to provide temporary solvency funding relief for all Ontario regulated pension plans. Specifically, plan administrators may elect to (i) consolidate any existing solvency payments into a new five-year payment schedule; (ii) defer, for one year from the valuation date, the start of new going-concern and solvency special payments; and (iii) subject to consent,3 extend the amortization period for new solvency deficiencies to ten years, from five years. These measures would apply to the first scheduled valuation report dated on or after September 30, 2008. If an election is made, active, deferred and retired members must receive an enhanced notice of the plan’s funded status and the effect of the election. In addition, if solvency payments are consolidated or extended, all future benefit improvements must be funded over five years on both going-concern and solvency bases.
The government also proposed a prohibition on contribution holidays4 for fiscal years “ending in 2010 to 2012.” The prohibition applies to all pension plans unless the plan is a designated plan under the Income Tax Act (Canada) or the plan sponsor files an annual actuarial cost certificate with the Financial Services Commission of Ontario that confirms that the plan was in a surplus position at the start of the fiscal year.
Other key points include the introduction of amendments to permit the pension plan to offer phased retirement programs and legislation that would expand the Ontario Teachers’ Pension Plan Board’s mandate to allow it to provide administrative and investment services to other pension plans and institutional investors in the public sector. The expansion of the board’s mandate is intended to lower administrative costs and improve investment returns, and is in line with the recommendations made by the Ontario Expert Commission on Pensions.
The budget also clarified the scope of the Pension Benefits Guarantee Fund (the PBGF).5 The government confirmed that the PBGF’s liability is limited to its assets and that it is not required to make grants or loans to the PBGF. The PBGF will undergo its first independent actuarial study to determine its stability and financial status6 and assist with long-term policy development.
The government will establish a Pension Reform Advisory Council to consult on specific legislative proposals relating to its planned legislative reform. The council will comprise individuals with a wide variety of backgrounds and interests to ensure a balanced approach.
We view the budget as a promising step forward since it shows that the government is committed to resolving important pension issues. We expect (and eagerly await) legislation reform in the fall of 2009.