As we mentioned in the November 2010 issue of Business Law Quarterly, the Securing Pension Benefits Now and for the Future Act, 2010 (Bill 120) was introduced by the Ontario government on October 29, 2010. Bill 120 contains a number of amendments to the Pension Benefits Act (Ontario) (PBA). On December 8, 2010, it received Royal Assent.
Bill 120, along with the Pension Benefits Amendment Act, 2010 (Bill 236) which received Royal Assent on May 18, 2010, are legislative responses to the November 2008 Report of the Ontario Expert Commission on Pensions. Many of the provisions in the Bills have not yet been proclaimed into law and regulations for both, which should provide many of the missing details, are still outstanding.
We expect to publish articles on the future regulations and the impact of the amendments on plan sponsors and administrators in upcoming issues of Business Law Quarterly. In this article, we provide a brief review of the highlights of Bill 120. Please refer to our November issue for a review of Bill 236.
1. Payment of Plan Expenses
Bill 120 codifies a pension plan administrator’s right to charge certain fees and expenses to the pension fund. Under Bill 120, the administrator of a pension plan is entitled to be paid from the pension fund its reasonable fees and expenses for the administration of the plan and the administration and investment of the pension fund unless payment to the administrator is prohibited, or payment of the fees and expenses is otherwise provided for, under the plan documents or under the PBA and regulations.
For plan administrators, this is a step in the right direction as it codifies the administrator’s right to charge certain fees and expenses to the pension fund. However, it does not explicitly restrict the plan documents that must be considered to the current documents. This suggests that historical plan and funding documents must still be reviewed in order to determine whether an administrator is prohibited from paying expenses from the pension fund.
2. Contribution Holidays
Bill 120 also codifies an employer’s right to take contribution holidays, subject to prescribed conditions. It is expected that one of the prescribed conditions will be that the contribution holiday not reduce the transfer ratio of the plan below 105 per cent. In addition, an employer may not take contribution holidays if the plan documents prohibit it. Once again, as with the payment of plan expenses, Bill 120 does not explicitly restrict the plan documents that must be considered to current plan documents.
3. Benefit Improvements
In response to the recent pension funding crisis, Bill 120 amends the PBA to provide that a plan amendment that purports to improve benefits will be void if the improvement would reduce the funded status of the plan below the level to be prescribed by regulation. It is expected that this level will be 85 per cent. Consistent with other jurisdictions, Bill 120 also provides for the use of a letter of credit when the pension plan has a solvency deficiency unless the plan is a multi-employer pension plan or public sector pension plan that is not a prescribed public sector pension plan.
4. Surplus Entitlement
Although not an issue for many pension plan sponsors today, the Ontario government has further attempted to clarify the provisions regarding surplus entitlement by defining the preconditions to the distribution of surplus. If the employer can establish entitlement to surplus under the plan documents, subject to regulatory requirements, it will be permitted to withdraw surplus. In addition, the employer will be permitted to withdraw surplus in accordance with a written agreement entered into with the union, if any, and two thirds of current members and an undefined number (likely two thirds) of former members and other persons entitled to payment under the plan. Bill 120 also introduces a new arbitration system for the resolution of surplus entitlement disputes.
5. Types of Pension Benefits
Two new types of benefits, target benefits and optional benefits, may be provided to members under Bill 120. Pension benefits will be considered target benefits if (i) they are not defined contribution benefits; (ii) the employer’s obligation to contribute to the pension fund is limited to a fixed amount set out in one or more collective agreements; and (iii) the administrator has unrestricted authority under the pension plan to reduce benefits, deferred pensions or accrued pensions. A defined benefit plan may provide such optional benefits as will be prescribed by regulation. Target benefits and optional benefits will not be guaranteed by the Pension Benefits Guarantee Fund.