Ontario budget: Pension announcements
On April 27, 2017, Ontario released its 2017 Budget. The Budget includes a number of important announcements of future changes to Ontario pension legislation and regulation. The government also introduced Bill 127, which would implement some of the measures announced in the Budget.
Solvency funding framework
The government intends to announce the guiding principles of the new solvency funding framework later this spring, with draft regulations released for public consultation this Fall. Measures to support transition to the new framework should also be implemented this spring.
Target benefit MEPP framework
The government intends to announce its proposed target benefit multi-employer pension plan (MEPP) framework for Specified Ontario Multi-Employer Pension Plans (SOMEPPs) later this spring. It intends to release draft regulations for public consultation this Fall. The new framework will provide a transition period for plans to make necessary adjustments.
The government will also continue to explore options for a target benefit MEPP framework for plans that do not currently meet the SOMEPP criteria. SOMEPPs are typically unionized pension plans in the private sector in which contributions are made pursuant to collective agreement.
DC plan rules
The government intends to develop regulations later this spring to facilitate the implementation of variable benefits from defined contribution (DC) pension plans. Variable benefits allow retired members to withdraw retirement income directly from the DC pension plan, rather than transferring their benefits to a Life Income Fund or purchasing an annuity. A DC pension plan would not be required to permit variable benefit accounts.
Bill 127 includes a number of measures to facilitate variable benefit accounts. A spouse’s consent will be required to establish a variable benefit account, and the spouse at the time of account establishment would be entitled to receive the balance of the account upon the member’s death, subject to waiver by the spouse. Valuation and transfer rules upon marriage breakdown are also set out.
The government will engage DC plan sponsors, the financial services industry and pension experts on potential changes to the annual statements that could help DC plan members prepare more effectively for retirement, such as requiring projected retirement income. The government will also explore other options to enhance transparency that would modernize member communications and create regulatory efficiencies.
More broadly, Ontario will examine new approaches to managing the payout phase in retirement, often referred to as the “decumulation phase,” when retirees are drawing down their savings in order to produce retirement income. Ontario will engage the federal government, the financial services industry and pension experts to explore new avenues for plan members to manage investment and longevity risk. These would include new tools for members to draw down their savings in an efficient and cost-effective manner during the decumulation phase of their retirement.
The government will also explore other options to strengthen DC participation and performance.
New powers for the Ontario Superintendent
Legislation to permit administrative monetary penalties was passed in late 2016. Regulations required to implement administrative monetary penalties will be posted this Spring for public consultation. This will allow penalties to be levied on plan administrators and others without requiring a prosecution and conviction for a provincial offence.
Additional amendments are introduced in Bill 127 to further enhance the powers of the Superintendent of Financial Services. These amendments will give the Superintendent the authority to direct a plan administrator to provide plan beneficiaries with information specified by the Superintendent, and to hold a meeting with the Superintendent and anyone else designated by the Superintendent to discuss matters specified by the Superintendent.
Missing plan beneficiaries
The government will instruct the Superintendent to develop a policy to provide direction to administrators on steps they should take to locate beneficiaries. Since some individuals may be difficult to locate, which can mean both increased cost and the risk of privacy violations, Bill 127 includes amendments to the Pension Benefits Act providing authority to the Superintendent to waive the requirement of providing periodic pension statements in situations where a plan administrator can demonstrate that the inactive member or retired member should be considered missing.
The government will consider further changes to assist employers in dealing with missing beneficiaries and help individuals in locating pension benefits. These changes may include, for example, a registry where employers or administrators could post information regarding missing beneficiaries and individuals could search for missing benefits. The government will also explore options to allow the wind-up of pension plans in cases where missing beneficiaries remain, while continuing to protect the benefits of those who are missing.
The Budget indicates an ambitious agenda to adopt solvency funding and target benefit MEPP frameworks in the near future, while promoting DC pension plan efficiencies and developing new decumulation options. Measures to facilitate the payment of benefits to inactive members will also be welcome.
The introduction of variable benefit accounts will be of interest to some DC plan sponsors who may wish to offer retirement income options to former plan members, including multi-jurisdictional plans which have been waiting for Ontario to move forward on such regulations.