Ontario announces target benefit framework for collectively bargained multi-employer pension plans
On June 29, 2017, the government of Ontario announced a target benefit framework for collectively bargained Ontario multi-employer pension plans (MEPPs). The target benefit framework will apply to all MEPPs, as opposed to the current time-limited solvency funding exemption applicable to specified Ontario Multi-Employer Pension Plans (SOMEPPs). A SOMEPP is a MEPP that meets certain criteria, including unionization.
The announcement follows the release of a discussion paper in July 2015 and subsequent public consultation (see our News and Views of August 2015).
The new target benefit framework would set out the following rules:
- a permanent exemption from solvency funding;
- a requirement to fund a reserve called a Provision for Adverse Deviation (PfAD) to help manage future risk and help ensure benefits are secure;
- going concern funding deficiencies to be amortized over 15 years;
- a new basis for calculating benefits paid when a member terminates participation in a plan or when a plan is wound up; and
- procedures to ensure that plan benefits are appropriately reduced when funding requirements are not met.
In addition, the target benefit framework will include the following measures to help protect plan beneficiaries:
- a requirement to develop policies on funding and governance;
- opportunities for retirees to participate in plan governance; and
- enhanced disclosure to plan members on the status of their pension plan.
The government will be consulting with stakeholders on the details of the above framework, including how plans transition to the new requirements. The government proposes to introduce legislation in the Fall of 2017, followed by regulations in 2018 to implement the new framework. The government will also continue to explore options for a framework for non-collectively bargained MEPPs.
Temporary funding relief extension for SOMEPPs
As an interim step, while working on the target benefit framework for MEPPs, the government has extended the temporary solvency funding exemption currently in place for SOMEPPs by one year to August 2018.