Ontario PBA to permit variable benefits

In the Ontario budget [PDF] released on April 27, 2017, the government indicated that it will be taking steps to address the regulatory framework related to defined contribution (DC) pension plans. Currently, the Pension Benefits Act (PBA) does not contain a separate framework governing defined contribution pension plans, and many of its provisions are tailored to traditional defined benefit plans. One example of this is the fact that the PBA does not contemplate the payment of periodic benefits from a DC plan upon the termination or retirement of a plan member. Instead, the member’s account balance is currently required to be either transferred to a prescribed retirement savings arrangement, or used to purchase an annuity on behalf of the member.

Despite the fact that the Income Tax Act has since 2005 permitted DC plans to pay “variable benefits” to members upon their retirement, the PBA has to date not been amended to permit this type of payout. Echoing earlier announcements from the Ministry of Finance (in 2014), the government has once again indicated that it will amend the PBA to permit DC plans to pay variable benefits to members, an important step in addressing the often-overlooked “decumulation” phase in DC plans. It is expected that regulations will be drafted under the PBA that will prescribe how such payments may be made.

Dealing with missing plan members

Another welcome announcement in the 2017 budget relates to missing plan members. It is not uncommon for plan administrators to lose contact with pension plan beneficiaries, for example when a plan member terminates employment but is not yet eligible to commence a pension, and the member elects to leave his or her benefits in the plan. By the time the pension is due to be paid, the member may have moved, perhaps outside Canada, and the administrator may have difficulty locating the member in order to commence the pension.

The government is considering several options to address missing beneficiaries, including the establishment of a registry where administrators could post information about missing beneficiaries, and options to allow a pension plan to be wound up despite the fact that benefits are still owing to missing beneficiaries. Administrators have long hoped that the government would establish a fund or account into which they could pay amounts owing to missing beneficiaries, allowing the administrator to remove the liability from its books and proceed with a plan termination. It is not yet clear whether the government is in fact considering establishing such a fund.

It may soon become less common for beneficiaries to go missing since, as we mentioned in an earlier post, administrators must now send all former members a pension plan statement at least once every two years. Maintaining regular contact with former members in this way may make it less likely that members will forget to inform the administrator of a change of address. We note that for plans that were registered on or before January 1, 2015, the first such statements must be sent no later than July 1, 2017.