2012 Ontario Budget
The 2012 Ontario Budget, brought down on March 27, 2012, included some measures that affect pension plans. In the Budget, the government announced measures related to the broader public sector and a few that address private-sector pension challenges that continue from the recent economic downturn. The Budget also contains some measures related to drug benefits and some measures intended to promote healthy living.
SOLVENCY FUNDING RELIEF
The government is proposing to extend solvency funding relief to sponsors of private-sector defined benefit pension plans. Declines in long-term interest rates during 2011 increased the solvency liabilities of many pension plans. Temporary solvency relief measures introduced in 2009 will be extended. Consistent with the 2009 solvency funding relief, when filing the first actuarial valuation report dated on or after September 30, 2011, a plan administrator would be able to:
- consolidate existing solvency payment schedules into a new five-year payment schedule, and
- extend the solvency payment schedule to a maximum of 10 years for a new solvency deficiency determined in the report, subject to the consent of plan beneficiaries.
LETTERS OF CREDIT
Regulations that permit employers to use irrevocable letters of credit from financial institutions to cover up to 15 per cent of pension plans’ solvency liabilities will be put in place this spring. These regulations were announced by the government in August 2010.
Solvency and going concern special payments will be able to be amortized beginning one year after a plan valuation date. These regulations were announced by the government in August 2010.
ONGOING PENSION REFORM
Later this spring the government intends to introduce draft regulations that would do the following:
- clarify pension surplus rules;
- implement many of the asset transfer provisions — including the "split pension" provisions — that would apply when organizations providing pension benefits to employees are restructured;
- implement provisions that specify the rights and responsibilities of "retired members".
Additional regulations scheduled for later in 2012 include amendments that would provide the following:
- a "funding concerns" test for plans not required to fund on a solvency basis;
- stronger rules for defined benefit pension plans, including eligibility conditions for "contribution holidays" and accelerated funding of benefit improvements.
The government is announced its intention to proclaim the following provisions effective July 1, 2012:
- future partial plan wind-ups would no longer be permitted;
- pension benefits would be immediately vested;
- multi-employer pension plans and jointly sponsored pension plans would be able to elect not to provide grow-in benefits;
- "grow-in" benefits would be available to all eligible members terminated other than for cause.
Ontario permits locked-in account owners to withdraw funds in cases of financial hardship. The government intends to restructure the program to create a simpler process to access locked-in funds. Consent of the regulator would no longer be required to withdraw money for reasons of financial hardship. Instead, applicants would be able to request withdrawals directly from their financial institutions. This procedure will be consistent with federally regulated locked-in accounts.
JOINTLY SPONSORED PUBLIC PENSION PLANS
Following consultations, the government will develop a legislative framework involving the following for jointly sponsored pension plans:
- in case of a deficit, plans would be required to reduce future benefits or ancillary benefits before increasing employer contributions;
- in exceptional circumstances, a limit would be set on the amount or value of benefit reductions before additional contribution increases could be considered;
- any benefit reductions would involve future benefits only, not those that have already been accrued - current retirees would not be affected;
- where employee contributions are currently less than employer contributions, increased employee contributions will be available as a tool to reduce pension deficits;
- where plan sponsors cannot agree on benefit reductions through negotiation, a new third-party dispute resolution process would be invoked;
- the framework would be reviewed after the budget is balanced.
SINGLE-EMPLOYER PUBLIC-SECTOR PENSION PLANS
The government expects that single-employer public-sector pension plans will change as follows:
- move to a 50–50 cost sharing formula for ongoing contributions within five years;
- adjust temporary solvency relief measures to encourage these plans to implement 50–50 cost sharing within the five-year transition period, while employers would continue to be responsible for plan deficits;
- support efforts to convert current single-employer defined benefit public-sector pension plans to jointly sponsored pension plans with equal cost-sharing.
PUBLIC SECTOR PENSION ASSET MANAGEMENT
The government intends to introduce legislation in the fall of 2012 that would pool investment management functions of smaller public-sector pension plans in Ontario. Management of assets could be transferred to a new entity or to an existing large public-sector fund. The government will appoint an adviser to work with affected stakeholders.
CPP ENHANCEMENT AND POOLED REGISTERED PENSION PLANS
The budget papers reiterate that the Ontario government continues to support a modest, phased-in and fully funded enhancement to the CPP. The Ontario government would like pension innovation to be tied to CPP enhancement in a comprehensive approach.
PROMOTION OF HEALTHY LIVING
To reduce future costs associated with preventable illnesses, the government has proposed the following:
- setting up a panel of advocates, health care leaders, non-profit organizations and industry partners to develop a Childhood Obesity Strategy to reduce childhood obesity by 20 per cent over five years;
- providing all Ontarians with access to an online Personalized Cancer Risk Profile that will use medical and family history to measure cancer risk and link those at higher risk to prevention supports, screening or genetic testing;
- continuing to expand comprehensive screening programs for cervical, breast and colorectal cancer, where participants will be notified and reminded when they are due for their next screening.
ONTARIO DRUG BENEFIT
The Ontario Drug Benefit (ODB) program provides assistance to seniors for the cost of their prescription drugs. The government will have highest-income seniors pay more of their own prescription drug costs. About five per cent of ODB recipients will pay more under this change.