Ontario adopts new funding regulations
On April 20, 2018, new Ontario funding regulations were filed by the Ontario government. Overall, the new regulations reflect the proposed rules that were previously discussed in the January 2018 News & Views with respect to reduced solvency funding requirements, enhanced going concern funding requirements, the provision for adverse deviations in respect of the normal cost and going concern liabilities and transition rules. They also set out additional required disclosures for annual and biennial statements to members, former members and retired members.
In addition, the following announcements and changes were made:
- A valuation report with a valuation date that is on or after December 31, 2017 and before March 1, 2018 shall be filed on or before November 30, 2018;
- Contribution holiday rules are less stringent than originally proposed. An employer will be able to use all available surplus (rather than being limited to 20% of surplus each year) to reduce normal cost contributions and then, if there is any surplus remaining, pay PBGF assessment fees;
- A benefit improvement that reduces the plan’s funded status only needs to be fully funded by the employer if, after the improvement is made, either the solvency or going concern ratio falls below 80%, as opposed to the originally proposed 85% or 90%, respectively;
- A plan text must set out the obligation of the employer or any person or entity required to make contributions on behalf of the employer to contribute in respect of,
(a) the provision for adverse deviations in respect of the normal cost;
(b) any plan amendment that increases going concern liabilities; and
(c) any reduced solvency deficiency under the plan;
If a plan amendment is required to satisfy this requirement, it must be made within 12 months after the date the first actuarial report for the pension plan with a valuation date on or after December 31, 2017;
- A statement of investment policies and procedures (SIPP) must set out the target investment allocation for the investment categories as must already be reflected on the financial statements. The regulations do not specify a deadline for SIPP amendments.
These regulations generally take effect on May 1, 2018. However, the new disclosures on annual/biennial statements only take effect on January 1, 2019. In addition, the changes to PBGF Assessment Fee increases take effect for assessment dates (i.e., nine months following fiscal year end) on and after January 1, 2019. For plans with calendar year ends, the new PBGF fees will be reflected in their 2018 PBGF assessment payable in 2019.
Employers with Ontario-registered defined benefit pension plans will welcome the release of new funding rules and the extension of the filing deadline for certain valuation reports to November 30, 2018. They will also welcome the changes to benefit improvement and contribution holiday restrictions, compared to the proposed rules. Although not all pension plans will require amendments to the plan text and SIPP, the plan text and SIPP should be reviewed to determine whether such amendments are required. Further guidance from the Financial Services Commission of Ontario on the contents and requirements of such amendments is expected.
Employers contemplating benefit improvements should be aware that amendments filed on and after May 1, 2018 are subject to the new restrictions, unless the benefit improvement is required pursuant to a collective agreement made before May 1, 2018.
Additional regulations that set out rules on funding and governance policies were not adopted prior to the writs of election being issued on May 9, 2018. As a result, the regulations can only be adopted by the new, post-election government.