In late August of this year, the Ontario government announced the second stage of pension reform. While we were pleased to see that the government was continuing to move forward with its reforms to the Ontario pension system, we were concerned that these proposals did very little to encourage employers in the private sector to establish or maintain defined benefit pension plans. (Please see our August 25, 2010 post for a summary of the government’s announcement.)
As a result, we made a submission in response to the Ontario government’s announcement, which included the following recommendations:
- implement measures to address funding concerns of single employer pension plans (e.g., extending the amortization period for solvency funding);
- permit pension security funds;
- permit contribution holidays so long as the current version of the plan text does not prohibit them – in other words, do not require a historical analysis of the plan documents;
- clarify the surplus withdrawal rules; and
- provide flexible funding rules based on risk profile, rather than inflexible rules based on plan design models.
Subsequently, on September 20, 2010, the Financial Services Commission of Ontario (FSCO) posted a question and answer on its website, which outlined its interpretation of the surplus withdrawal rules as amended by Bill 236. Briefly, FSCO stated that when making an application to withdraw surplus from a pension plan, an employer is required to do one of two things: (i) demonstrate entitlement to surplus under the historical terms of the plan and obtain the agreement of 2/3 of the members (or the agreement of the collective bargaining agent) and 2/3 of the former members and others entitled to payments under the pension plan; or (ii) obtain the consent of all the members, former members and other persons entitled to payments under the pension plan.
As we noted in an earlier post, FSCO’s interpretation runs contrary to the clear intention behind the Bill 236 amendments. It was apparent to most industry observers that the intention behind the amendments was to facilitate the sharing of surplus between employers and employees where a surplus sharing agreement could be negotiated. FSCO’s interpretation of the new provisions, however, imposed even more onerous conditions on parties seeking to withdraw surplus. In light of FSCO’s position, we felt it was necessary to make another submission to the government, requesting that the legislation be amended to be make it clear that the intention is to facilitate distribution of surplus where the parties have reached an agreement.