The Ontario Budget was released on March 28, 2018, in advance of the provincial election scheduled for June 7, 2018. The Budget includes several updates and announcements relating to pension plans, with a focus on underfunded pension plans sponsored by financially distressed employers. The Budget also includes a number of significant announcements relating to publicly funded drug and dental coverage for Ontarians, as well as new investments in mental health initiatives, and new restrictions on the Employer Health Tax exemption.
Ontario pension funding reform measures
The Budget simply states that public feedback on the proposals released in December 2017 is being considered. Our understanding is that the government intends to adopt new regulations prior to the election.
Target benefit multi-employer pension plans
In June 2017, the government announced a new framework for collectively bargained multi-employer pension plans (MEPPs) to offer target benefits. The government is planning to consult on key design features of the new framework this spring. Additionally, to allow time for plans to transition to the proposed new framework, the government intends to extend the temporary funding rules currently in place for specified Ontario MEPPs.
Pension Benefits Guarantee Fund
The government has passed, but not yet proclaimed into force, Pension Benefits Act amendments to increase the Pension Benefits Guarantee Fund (PBGF) guarantee by 50 per cent from $1,000 to $1,500 per month, and eliminate the age and service eligibility requirements for PBGF coverage. The government will introduce legislative amendments that would make these changes retroactive to plans with a wind-up date on or after May 19, 2017, when the new funding framework was first announced. As a result, pension benefits from these plans would be covered under the increased $1,500 per month PBGF guarantee. This amendment is intended to apply to pension benefits provided to former Sears Canada employees.
Also, the government will introduce legislative amendments that would require a periodic review of the provisions governing the PBGF.
Financially distressed employers and pension plans
In order to improve the protection of pension plans and their beneficiaries, Ontario will be proposing a number of legislative amendments which will provide them with additional tools. The government intends to:
- Continue to take steps to transition to a new pension regulator, the Financial Services Regulatory Authority (FSRA). As part of the new structure, the government will establish an advisory committee within FSRA that would be dedicated to overseeing issues related to the PBGF and pension plans with distressed sponsors.
- Implement a disclosable events regime, similar to comparable regimes in the United Kingdom and the United States. Mandatory disclosure of certain corporate or plan events would increase transparency and alert the pension regulator to potential issues, such as significant asset stripping or the issuance of extraordinary dividends.
- Introduce a distressed pension plan workout scheme, giving the pension regulator the appropriate tools to respond to pension plans with a distressed sponsor.
The government will be consulting on the details of necessary regulatory amendments to support the proposed legislative measures.
OHIP+ expanding to include seniors
Starting in August 2019, OHIP+ will be extended to seniors (Ontario residents age 65 and over), eliminating the existing co-payments and deductibles under the Ontario Drug Benefits (ODB) program. Effectively, prescription medications would become completely free-of-charge, regardless of income, for those age 65 and older. This change may reduce costs for private retiree health care plans that currently cover these deductibles and co-payment charges.
New Ontario Drug and Dental Program
The government will introduce a new Ontario Drug and Dental Program for individuals and their families who do not have coverage from an extended health plan, starting in the summer of 2019. This program would reimburse participants for up to 80% of eligible prescription drug and dental expenses, up to an annual maximum of $400 for singles and $600 for couples, plus $50 for each child in the family. The program’s impact is difficult to determine without more detail, and consultation will take place to determine the final design of the program, but the annual maximums are such that this plan would not nearly provide coverage equivalent to most private plans.
Expanding access to mental health and addiction services
A new investment of $2.1 billion over four years is proposed for a more integrated mental health and addictions system for all residents. This builds on the government’s commitment in the 2017 budget to spend $6 million per year on efforts to support the development and/or expansion of mental health services on campus. The government intends to:
- Increase access to publicly funded psychotherapy;
- Improve community based services for youth and children;
- Provide mental health support in all high schools within two years, including professional development in mental health literacy to educators and school staff;
- Provide additional funding to implement a strategy to combat the opioid crisis;
- Expand supportive housing for mental health.
Limitations on the employer health tax exemption for small employers
Changes to the employer health tax (EHT) exemption are proposed that will result in over 20,000 Ontario employers paying $2,400 more EHT per year on average. Ontario would begin to follow the eligibility criteria for the small business deduction (SBD) for the EHT exemption. As a result, the EHT exemption would only be available to individuals, charities, not-for-profit organizations, private trusts and partnerships, and Canadian-controlled private corporations. Ontario would also incorporate federal anti-avoidance rules related to the multiplication of the SBD into the Employer Health Tax Act.
These changes would take effect on January 1, 2019. The government will seek public comments on the proposed anti-avoidance changes before introducing legislation.
The pension proposals would not directly affect most Ontario employers, although financially distressed employers may find themselves facing more regulatory scrutiny. Former Sears employees located in Ontario will welcome the proposed expansion of PBGF coverage in respect of the Sears bankruptcy. The Budget confirms that the government continues to work on the implementation of its new funding framework, which should be in place prior to the June election.
The expansion of drug and dental coverage for seniors and persons not covered by employer health plans is potentially far reaching, as would be the expansion of mental health coverage. The proposed restrictions on EHT exemptions will be of concern to many small businesses.
Ontario’s provincial election will take place on June 7, 2018, so the implementation of many of these proposals will be subject to the decisions of the post-election government.