Several recent developments will be of interest to sponsors and administrators of pension plans in Ontario.
New Funding Rules for Defined Benefit Pension Plans
The current solvency funding rules for defined benefit pension plans have inflicted great financial pain on many employers. On May 19, 2017 the Ministry of Finance announced that a new funding framework would be implemented. Highlights include:
- No solvency funding if a plan's funded status is at least 85 percent.
- Enhanced going concern funding. The amortization period for shortfalls will be 10 years rather than the current 15 years. Special payments will be consolidated into a single schedule.
- Establishment of a reserve within a plan (a Provision for Adverse Deviation or PfAD) in case experience is worse than assumed).
- An increase in the maximum benefit from the Pension Benefits Guarantee Fund from $1,000 to $1,500 per month when a plan has a deficit on wind up and the employer is unable to fund.
There will be transitional measures for plans that are required to file valuation report between December 31, 2016 and December 31, 2017. Details have not been released. Additional changes include:
- To encourage the use of annuities in pension derisking, a statutory discharge when annuities are purchased.
- New funding rules for benefit improvements.
- Restrictions on contribution holidays.
- A new requirement that each plan establish funding and governance policies.
More details will be available when draft legislation is tabled in the fall, at which time it will be necessary to consider the specifics of what changes a plan requires. The proposals build on consultations in 2016 as well as legislative changes in other jurisdictions.
Administrative Monetary Penalties
The Superintendent of Financial Services ("Superintendent") will soon have a new enforcement tool - administrative monetary penalties of up to $25,000 for corporations and $10,000 for individuals - for specified noncompliance.
Proposed regulations have been announced to accompany the 2016 amendments to the Pension Benefits Act (Ontario) ("PBA") that enable administrative monetary. In general terms, an administrative monetary penalty (or "AMP") allows a regulator to impose a monetary penalty for contravention of a statute or regulation, subject to a right of review. An AMP is not the same as a fine which entails a pleading or finding of guilt. Unlike charges that are laid under a statute, there is no criminal or quasi-criminal element in the issuance of an AMP. As such, an AMP is intended to promote compliance rather than be a punishment for wrongful activity.
There are two types of AMPs under the PBA: general and summary. A general administrative penalty may be applied if the Superintendent is "satisfied" that a person is contravening the PBA, an order or an undertaking. There is a long list of general AMPs. It is concerning that some of them are not bright line tests, in particular failure to exercise the statutory standard of care, failure to invest in accordance with the federal investment regulations, and contraventions in financial statements. Others are bright line tests including failure to credit interest, to issue or file various statements and notices, and to make payments.
A penalty may be imposed alone or in conjunction with other regulatory measures authorized by the PBA. The Superintendent has 5 years from the date of contravention to give written notice of the intended decision to the person. The person has 15 days to request a hearing before the Financial Services Tribunal ("FST"). The FST may confirm the Superintendent or substitute its opinion for the Superintendent's.
A summary administrative penalty may be imposed without giving formal notice of an intended decision. As proposed, a summary penalty may be imposed for missing various deadlines, including: application for plan amendment, filing valuation reports, annual information return and financial statements. The AMP is $100 or $200 per day. Before imposing the penalty, the Superintendent must give the person a reasonable opportunity to make written submissions. The person has 15 days from the date the penalty is issued to file an appeal. An appeal stays the order until the matter is finally disposed of. AMPs, whether general or summary, may not be paid from the pension fund.
New Definition of Spouse
For individuals who are unmarried parents of a child, the definition of spouse is amended to include two individuals who are living together in a conjugal relationship of some permanence and who are the parents of a child as set out in s. 4 of the Children's Law Reform Act. The amendment captures an expanded concept of child concept of "child" to account for various reproductive technologies. The result under the PBA is that individuals who did not previously qualify as a spouse under the PBA now do so.
Portability at Age 65
The PBA has been amended to allow portability at normal retirement date if the plan permits. Specifically, effective March 1, 2017 a pension plan may permit a retired member who has reached normal retirement date and is entitled to but has not elected to receive a pension from the pension fund to elect to transfer the lump sum commuted value of his or her pension to a life income fund or locked in retirement account. There is no statutory requirement that the retired member obtain spousal consent.
The budget bill, Bill 127 Stronger, Healthier Ontario Act (Budget Measures) which has been passed but not proclaimed in force gives the Superintendent the authority to direct a plan administrator to provide plan beneficiaries with information specified by the Superintendent and to hold a meeting to discuss matters specified by the Superintendent.
As well, the April 27, 2017 budget contained several announcements of note, including that the government will develop regulations for the PBA provisions concerning variable benefits, i.e., retirement payments made directly from DC plans and consult on potential changes to annual statements concerning adding an estimate of retirement income.
The government will also direct he Superintendent to develop a policy to specify steps to locate missing beneficiaries. The PBA will be amended to give authority to the Superintendent to waive the requirement for periodic pension statements if a plan administrator can demonstrate that the beneficiary is missing.