On September 21, 2020, Ontario Regulation 520/20 (the “Amending Regulation”) which amends Regulation 909 under the Pension Benefits Act (Ontario) (the “PBA”) came into force. The Amending Regulation provides temporary relief from pension funding obligations to employers of certain Ontario-registered defined benefit plans in two respects, as discussed below.
Extension to make Catch-up Contributions
The Amending Regulation provides employers of Ontario-registered defined benefit plans with a temporary extension of time to make contributions that are due under a valuation report (“Catch-up Contributions”) that is filed or submitted to the Financial Services Regulatory Authority of Ontario (“FSRA”).
In the normal course, employers are required to remit such Catch-up Contributions to the pension fund within 60 days after the valuation report is filed or submitted. The Amending Regulation provides that where a valuation report is filed or submitted during the period from September 22, 2020 to April 1, 2021, the employer has 120 days following the filing or submission of the report to remit the required catch-up contributions to the pension fund.
Election to defer contributions
The Amending Regulation also permits an eligible employer to make an election to defer one or more required monthly payments to a pension fund in respect of the 6-month period from October 1, 2020 to March 31, 2021 (a “Funding Relief Election”).
Eligibility for Funding Relief Election
In order to make a Funding Relief Election, an employer must satisfy three eligibility requirements. First, only employers of certain Ontario-registered defined benefit pension plans are eligible to make a Funding Relief Election. Second, in order to make a Funding Relief Election, an employer must have made all contributions that were required to be made before the day the Funding Relief Election is filed, based on filed actuarial reports. Third, prior to making a Funding Relief Election, an employer must not have engaged in certain activities or transactions on or after September 21, 2020 (the “Restricted Activities”) unless the employer had a contractual obligation under an agreement that was executed before September 21, 2020 to engage in the Restricted Activities before the Funding Relief Election is made. The Restricted Activities include:
- the declaration or payment of any amount as a dividend or a return of capital on issued or outstanding shares of the employer,
- the purchase or redemption of any issued and outstanding share capital of the employer,
- the payment of bonuses to any executives of the employer,
- increased compensation for any executives of the employer,
- the repayment of the principal amount of a debt or other obligation (in excess of amounts previously scheduled and agreed to before September 21, 2020),
- the payment or credit of any amount as a loan or advance to, or for the benefit of, an executive of the employer or any related person or entity of the executive,
- the payment or credit any amount as a loan or advance to, or for the benefit of, any person or entity that beneficially owns any issued and outstanding share capital of the employer or of any related person or entity of the beneficial owner, and
- entering any transaction with a related person or entity in the normal course of business and under terms and conditions that are less favourable to the employer than market terms and conditions.
How to make a Funding Relief Election
A Funding Relief Election must be filed prior to date on which the payments for the first deferred month are due. Where more than one monthly payment is being deferred, the deferred payments must be in respect of consecutive months within the 6-month period. An employer must specify which monthly payment is being deferred and file a payment schedule, prepared by an actuary in accordance with prescribed requirements, which outlines the dates on which the employer will remit the deferred monthly payment(s) plus interest thereon, to the pension fund.
FSRA has published guidance which indicates that employers should use a FSRA approved form when filing the Funding Relief Election and initial payment schedule.
Practical implications for employers - Funding Relief Election
Following the filing of the initial payment schedule, an employer is required to file updates to the payment schedule at specified intervals, the first of which is due three months following the date on which the first deferred payment was due. Each update to the payment schedule must also include a statutory declaration from an officer of the employer which confirms that the employer has complied with the payment schedule and has not engaged in any Restricted Activities.
Deferred payments must be made from April 30, 2021 to March 31, 2022, depending on which monthly payment is being deferred. In addition to making deferred payments based on its individualized payment schedule, an employer must also make its required monthly contributions to the pension fund as they become due from April 30, 2021 to March 31, 2022.
In addition, employers considering a Funding Relief Election should note the following:
- Restricted activities: Employers are not permitted to engage in Restricted Activities during the period from the filing of the Funding Relief Election to the day on which all deferred payments and interest thereon have been remitted to the pension fund (the “Deferral Period”).
- Events triggering immediate payment of deferred payments: Where an employer does not comply with a payment schedule, fails to provide a statutory declaration, engages in a Restricted Activity during the Deferral Period, or fails to make its regular required contributions during the period from April 1, 2021 to March 31, 2022, the total amount of deferred payments, plus interest become immediately due and payable.
- Restricted plan amendments: During the Deferral Period, an administrator is not permitted to file a plan amendment that increases pension benefits or ancillary benefits until after all the deferred payments plus interest thereon have been paid.
- Enhanced disclosure to members: During the Deferral Period, annual and biennial statements to members and former members must disclose that the employer has elected to defer pension payments, and indicate the date by which all the deferred payments will be made.
- Administrative penalties: Concurrent with the filing the Amending Regulation, Ontario Regulation 521/20 under the PBA was also filed. Ontario Regulation 521/20 expands the scope of Ontario Regulation 365/17 to include provisions related to the Funding Relief Elections. Consequently, employers could face general administrative penalties for failing to comply with various provisions of the Amending Regulation that relate to Funding Relief Elections.
The extension of time for employers to make catch-up contributions provides immediate practical relief for employers who would otherwise be challenged to make catch-up contributions within 60 days of filing a valuation report.
In addition, the option to make a Funding Relief Election is a significant relief measure which could provide relief to eligible employers facing short-term financial challenges. Although temporary, the opportunity to defer pension contributions provides the opportunity for eligible employers to direct their financial resources to critical business operations at a challenging time, without running afoul of the pension funding rules in the PBA. Employers should consult with their legal and actuarial advisors to discuss their circumstances, including whether a Funding Relief Election is permitted or advisable in their circumstances.