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Ontario adopts buy-out annuity regulations

On April 3, 2018, the Ontario government filed O. Reg. 193/18, setting out rules for the purchase of buy-out annuities from an insurance company. The Ontario Pension Benefits Act (PBA) allows a single-employer pension plan to provide a pension to a former or retired member by purchasing an annuity that meets prescribed conditions. Upon such a purchase, the plan administrator will receive a full discharge of the obligation to pay a pension to such members.

Notice and regulatory filings

The regulation outlines the requirements for notice of the annuity purchase to former and retired members. Notice must also be provided to the former spouse of a retired member if, due to the breakdown of a spousal relationship, the former spouse is receiving a portion of the retired member’s pension.

The regulation also outlines the required regulatory filings in respect of the annuity purchase that must be filed by the plan administrator in order to receive the discharge.

Solvency funding requirements

On the day after the annuity purchase, the pension plan must be fully funded on a solvency basis if the plan was fully funded on a solvency basis in the most recently filed actuarial valuation report (AVR) before the purchase.

If the plan was less than fully funded on a solvency basis in the most recently filed AVR, the solvency ratio of the pension plan after the annuity purchase must be equal to the greater of 0.85 and the solvency ratio outlined in the AVR. In other words, the plan administrator must ensure that the plan is at least 85% funded on a solvency basis and, furthermore, that the funding position of the plan is not worsened as a result of the annuity purchase.

If the plan’s solvency ratio after the purchase does not satisfy the solvency funding requirements, the employer must make an additional contribution into the plan fund to raise the solvency ratio to meet the applicable requirement within 90 days from the date of the annuity purchase.

In order to readjust regular plan contributions, a plan administrator may elect to file an actuarial cost certificate after the annuity purchase. The cost certificate must be filed within 90 days after the date of purchase.

Obtaining discharge of liability for past annuity purchases

Plan administrators who purchased annuities prior to the enactment of the regulation may also qualify for a discharge of liability provided the following conditions are met:

  • The terms and conditions of the annuity contract must already meet or must be amended to meet the regulatory requirements;
  • A pension plan may make a payment to an insurer to facilitate the amendment of a prior purchase so that it meets the regulatory requirements (the adjustment payment). In such circumstances, the solvency ratio of the pension fund after the adjustment payment is subject to the same rules that would apply to a new annuity purchase.
  • Where no adjustment payment is required to update the prior purchase, the solvency ratio in the plan’s most recently filed AVR before the submission of the actuary’s certificate of compliance for the past annuity purchase must be at least 0.85.

Effective date

The regulation will come into force on July 1, 2018.


The new regulation will be of interest to Ontario defined benefit pension plan sponsors who may have been interested in buy-out annuities as a de-risking option, but delayed purchasing such annuities until a full legal discharge from obligation became available. Ontario employers who have already purchased buy-out annuities may be interested in fulfilling the steps required to obtain the legal discharge.

Ontario joins a number of other provinces, including British Columbia and Quebec, in providing legislative discharges for purchases of buy-out annuities. Federal Bill C-27, which would provide for a similar discharge, was introduced in Parliament on October 19, 2016, but is still pending.

News & Views - May 2018 (PDF)