Ontario: Draft legislation on new solvency funding framework
On November 14, 2017, the Ontario government introduced Bill 177, the Stronger, Fairer Ontario Act (Budget Measures), 2017 (Bill 177). Schedule 33 of Bill 177 contains several proposed amendments to the Ontario Pension Benefits Act (PBA), which will help implement the new solvency funding framework and other proposed reforms announced on May 19, 2017 (see our Special Communiqué of May 2017).
Bill 177 includes technical amendments that are required to implement the proposed solvency funding framework, such as new definitions of the “provision for adverse deviations”, the “available actuarial surplus” and the “reduced solvency deficiency”. The amount of surplus available for distribution from a defined benefit pension plan is restricted to the surplus over and above the sum of twice the normal cost of the pension plan and twice the provision for adverse deviations in respect of the normal cost of the pension plan. However, many of the details of the framework will be found in the regulations that have yet to be released.
Funding and governance policies
Bill 177 would require administrators of Ontario-registered pension plans to establish funding and governance policies for the pension plan; and these policies would have to be filed with the Financial Services Commission of Ontario (FSCO).
Details concerning the requirements for the content of governance and funding policies will be prescribed by regulation.
Registry for missing beneficiaries
A new provision of the PBA would require FSCO to establish, maintain and operate an electronic registry relating to missing pension plan beneficiaries. The registry would help beneficiaries locate benefits or payments owing to them under pension plans.
Plan administrators would be required to notify FSCO, within a reasonable timeframe, if a beneficiary cannot be located. If satisfied that there are reasonable and probable grounds to believe that the beneficiary is missing, FSCO would add the beneficiary to the registry. The administrator would have a duty to notify FSCO if a missing beneficiary is located after the person has been added to the registry.
The registry would not be publically searchable. A person would be able to request confirmation from FSCO as to whether the person is listed in the registry. If FSCO is satisfied that the person is in fact on the registry, it would release the information recorded in the registry to that person.
Purchase of pension, deferred pension or ancillary benefit from insurance company
A single employer defined benefit pension plan would be able to provide a pension to a former or retired member by purchasing an annuity that meets prescribed conditions. The former or retired member would need to receive notice of the annuity purchase and the annuity would need to provide the same benefit that would have been provided under the plan.
Upon purchase, the plan administrator would receive a full discharge and have no further obligations to these members, except possibly with respect to surplus sharing upon plan wind-up. Such members would retain an entitlement to surplus sharing on plan wind-up if they would have had a right to surplus if the pension plan had wound up on the date of the annuity purchase.
Plan administrators who purchased annuities prior to the date of this new provision of the PBA would also be able to obtain a full discharge in respect of such members. In order to obtain the full discharge upon an annuity purchase, the plan administrator would be required to provide a certificate from an actuary stating that the purchase meets the prescribed requirements. The administrator would also need to provide a prescribed notice to the affected members.
Bill 177 would also prescribe requirements for multi-employer target benefit plans, and set out the requirements for conversions into such plans. Only a unionized multi-employer pension plan to which employer contributions are limited by collective agreement would be able to convert to a target benefit plan. Notice of the proposed conversion would have to be given to the members, former members, retired members and other persons entitled to benefits under the plan, as well as to the applicable trade unions, and the administrator would have to consult in good faith with the applicable trade unions. FSCO consent would be required, and FSCO would be required to grant consent if the statutory requirements are met.
Pension Benefits Guarantee Fund
Bill 177 increases the maximum coverage available to an Ontario member upon wind-up of a defined benefit plan from $1,000 to $1,500 per month, if the date of the wind up is on or after the day the amendments come into force.
The requirements regarding the age and years of employment or membership that members and former members must meet for their benefits to be guaranteed by the Pension Benefits Guarantee Fund would be removed, if the date of the wind up of the pension plan is on or after the day the amendments come into force.
Bill 177 also includes further amendments to facilitate the payment of variable benefits from a defined contribution pension plan.
The release of the PBA related provisions of Bill 177 demonstrates that the government of Ontario is moving forward with the proposed solvency funding framework. However, further details will only be available when draft regulations are released. It is expected that some of the draft regulations will be released near the end of 2017, with other draft regulations likely to be released in 2018. It remains to be seen whether the new rules will be implemented in time to be considered for valuations at December 31, 2017.